There are plenty of nervous market watchers at present, but perhaps none are so anxious as the management at Standard Life. Only weeks away from the insurer’s big flotation, stock market jitters have sent expectations about its share price debut plunging downwards.
If he were not so very Scottish, the chief executive, Sandy Crombie, would doubtless perform some sort of shares equivalent of a rain dance. His luck has been woeful: the timing of the current market turmoil could scarcely have been worse for the biggest demutualisation in years. The shares are now expected to be worth between 210p and 270p. Initial estimates, formed in a more buoyant market in April, put expectations at between 240p and 290p.
But the 98 per cent of Standard Life members who voted for demutualisation should not be too despondent. The share price will depend on the keenness of institutional investors to buy into Standard Life. The shares could yet hit the market at about 240p, still within the bottom range of initial estimates.
When Standard Life fought off an assault by carpetbaggers in 2000, payouts could have been £6,000. Poor management, the bursting of the technology bubble and the implosion of the wider life insurance industry mean that it is a smaller, weaker company that will come to the market next month.
But the correction in the estimates since April should largely be irrelevant. Stock markets fall, and if Standard Life’s members are freaked out by that, they should have voted to stay mutual. They are still receiving the same number of shares in the same company, even if they are initially worth an average of £1,500 rather than £1,700.
Advertisement
Those spooked by this drop in the paper value should consider selling quickly — they are clearly ill-suited to the rollercoaster ride that is an investment in a single FTSE 100 company. The graph showing the value of shares in Friends Provident since its flotation in 2001 looks like the silhouette of the Rockies — there are a few peaks, but plenty of deep canyons. Its rival insurer’s irritating slogan — “I like Standard Life” — will be tested on July 10, the expected float date.
Banks are poised to give rate tarts a rude awakening
There are two main types of rate tart. There are those who hop between best buys, moving their in-credit accounts between savings accounts. And then there are those who are driven by debt to recycle their borrowed cash through a neverending cycle of cheap credit cards. Banks are indulgent of the first band of rate tarts and have been sucked in to a fierce battle for the second set.
The first 0 per cent credit card deals were designed to act as a smash-and-grab raid on the market, long dominated by the big banks with interest rates at close to 20 per cent. Financial institutions are as herd-like as investors. Once a few had pushed out a 0 per cent deal, all the others had to get in on the act. The lenders then introduced a rival to the 0 per cent deal in the battle for market share: the life-of-balance cards. While the 0 per cent cards revert to double-digit interest rates after a set time, the life-of-balance cards have one permanently low rate for those who want to pay off their debt over time. Soon everyone was offering a life-of-balance card as well as a 0 per cent deal.
But this herd mentality works both ways — it can push up consumers’ costs as well as lowering them. A few lenders began to charge for balance transfers and impose tighter lending criteria. Now this practice is becoming standard. This week a new threat emerged. American Express has stopped accepting transfers of balances run up with other lenders on to two of its life-of-balance cards.
Advertisement
By refusing to accept balance transfers, American Express is throwing out a marker to its rivals. Most of them have probably been praying for someone to break ranks first. The war for market share, which has cost credit card companies huge amounts of cash, could be drawing to a close. But there will be some severe casualties among the consumers drawn into loading up their credit cards by the prospect of cheap, or even free, debt. The rate tarts will be in serious trouble when the rest of the market follows American Express’s lead. At some point, they will have to pay back their borrowed cash.
Post Office delivers a reason to be cheerful about finance
I have received a plea from one Times Money reader for a bit more cheer from this column. It is difficult to be cheerful about a personal finance world filled with incompetent meddling by politicians, dogged by scandal and run by more demons than angels.
But this week the Post Office launched a payment protection insurance (PPI) policy. OK, that doesn’t sound like a reason to come over all happy-clappy. But the Post Office has brought out a competitive product in a market seemingly designed to fleece borrowers.
As uSwitch.com, the price comparison website, points out, anyone who borrows £10,000 over five years from Royal Bank of Scotland will pay an extra £4,453.35 to the bank for the privilege of buying its PPI cover. The same insurance policy with the Post Office would cost a mere £524.75.
Advertisement
There are small companies that already offer competitive PPI, but the entrance of a big brand such as the Post Office could clear up a venal corner of the market without the trauma of a huge scandal or the interference of an incompetent politician.