EMAG

The independent action group for current and ex Equitable Life policyholders, funded by contributions.

Equitable Members Action Group

Equitable Members Action Group Limited, a company limited by guarantee, number 5471535 registered in the UK
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Correspondence: 14/06/2001 - to Vanni Treves

Correspondence Archive

14th June, 2001.


Mr. Vanni Treves

President
Equitable Life Assurance Society
c/of Macfarlanes
10 Norwich Street
London EC4.

T: 020 7831 9222
F: 020 7831 9607


Dear Vanni,


I write on behalf of EMAG further to our conversation about the Halifax/Equitable deal. On 9 February Vincent Nolan, David Browning, Colin Slater and I from EMAG and a couple of people from EPHAG had a meeting with Messrs. Headdon, Crosby and others from ELAS and Halifax/Clerical Medical. Prior to the meeting I wrote a letter to Headdon which set out a number of questions. He gave the letter to Crosby. At the meeting we raised the issue of what the terms of the deal were, what the benefits were to members of the Equitable, and what the alternatives were. I think Mr. Headdon (but it could have been Mr. Thompson) volunteered that the board had been given an analysis of five alternatives. If our collective memory serves us, Crosby said that as far as he was concerned members of ELAS should be told of the features of the deal.

Subsequently ELAS put two documents on its website, the heads of agreement and a two page summary of the deal which left a number of important and relevant issues unanswered and which did not provide members with an evaluation of the deal. For example one crucial matter is the increase in the cost of investment management, which is an issue the FSA has in its signts for improving the transparency of with-profits schemes. The heads of agreement provides information on the cost in basis points for managing the various asset categories of the fund, but:-

  • we suspect the average member does not know what a basis point is

  • for those who do, the information provided is of no value because:-

    * the sums to which the basis points are applied are not provided so that percentages can be converted into annual costs
    * there is no statement of the current cost either in basis points or annual costs that would enable members to know the additional cost of Clerical Medical managing the fund

    We consider that an evaluation of the Halifax deal should set out:

    • the cash flow implications of the deal for members. This breaks into at least five parts:-

    1. the cost implications for the with-profits fund, which appear to consist of:-
      • an increase in costs of fund management as above
      • a reduction in administrative costs due to economies of scale from Clerical & Medical/Halifax using computer systems - what is this worth annually?
      • a reduction in marketing expenses of how much?
      • other changes?
    2. the consequential increase in benefit from increased investment flexibility resulting from an injection of £½bn - how much is this estimated at and what is the basis of the estimate.
    3. the sale of the unit linked business and non-profit business - what annual income has been foregone?
    4. other income (e.g. sale of the use of the computer systems). What annual income has been foregone?
    5. the definite income of £500m. If we understand correctly the unit linked business was sold for £300m and the goodwill and computer systems were sold for £200m. What did the computer systems costs to develop?

    Perhaps there are other factors that should be taken into account.

    • the alternative scenarios that were considered. Obviously one should have been no-deal, which would have meant paying off the salesforce and closing branches, which were cited as £50m. There was a claim on the website document that the additional cost could be up to £60m - what was the basis of this claim?

    Given the amount ELAS has spent of our money on advisers, we find it hard to believe that the board would have had to make a decision on the analysis provided on the website. And if there were proper papers we cannot see why it would take more than a couple of days cut and paste job to provide a decent summary. If, however, there was not proper analysis, then the issue might merit examination by Herbert Smith. In most, if not all, "normal" businesses a change involving divesting all non-core businesses and outsourcing all operations would most probably have been communicated to shareholders for one reason or another (e.g. requirement of Mem & Arts, or information for an IPO etc.). Although it is water under the bridge, we consider that members are entitled to know the basis of one of the Society's most important decisions in recent decades.

    Yours sincerely,

    ALEX HENNEY

    Interim reply by email from Vanni Treves:

    "Thank you for your letter of June 14. You ask many questions to which members are certainly entitled to have answers - although as you say it is unfortunately mostly water under the bridge - and I have started on the job of collating them.

    We will write again as soon as we have made some progress".