ShareSoc Chairman's Blog

Sunday, Sep 02 2012 by

ShareSoc, the UK Individual Shareholders Society, publishes a blog on its website, here: 

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No warranty is given by ShareSoc as to the reliability, accuracy or completeness of the information contained within this publication. Any information provided is accurate and up to date so far as ShareSoc is aware, but any errors herein should be referred to ShareSoc for correction. The information contained herein is intended for general information only and should not be construed as advice under the UK’s Financial Services Acts or other applicable laws. ShareSoc is not authorised to give investment advice, and is not regulated by any Regulatory Authority, and nor does it seek to give such advice. Any actions you may take as a result of any
information or advice contained within this publication or otherwise supplied to you by ShareSoc should be verified with third parties such as legal or other professional advisors and is used solely at your own risk. You are reminded that investment in the stock market carries substantial risks and share prices can go down as well as up. Past performance is not necessarily an indication of future performance. The Editor of this publication and other contributors may hold one or more stocks mentioned herein.


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431 Comments on this Article show/hide all

Murakami 5th Jul '12 32 of 431

Fascinating and very high quality debate. Just as a related observation discussed here (, the academic evidence that option-based pay actually drives improved corporate performance is sketchy, at best.

To cite one conclusion by Stathopolous:

  “The overall impression one gains from this vast body of work is that a link between executive pay (including stock option payoffs) and corporate performance does exist.  However, the link is quite weak, statistically significant, but far from compelling” . 

As Jeroen van der Veer, Former CEO of Royal Dutch Shell has observed:

"You have to realise: if I had been paid 50% more, I would not have done it better. If I had been paid 50% less, then I would not have done it worse".

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emptyend 5th Jul '12 33 of 431

In reply to Murakami, post #32

the academic evidence that option-based pay actually drives improved corporate performance is sketchy, at best.

Which is why shareholders shouldn't have turned a blind eye to rising pay for 25 years!

However, I'm not aware of any academic or other studies on the performance impact of underpaying teams of staff so that they leave en masse and take clients with them - and that is a risk that was undeniably present on a continuing basis for all bank managements.

That really is it now.....


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sirlurkalot 9th Jul '12 34 of 431

what exactly is it that GB is to be blamed for?

Gordon Brown's biggest mistake was to run a 3% budget deficit at a time of economic boom in 2006-08. If he really believed the stuff about The Golden Rule then the budget should have been in surplus then. Did he not realise that the economy was booming then? It was pretty obvious to some of us ( was six months before the Lehman collapse). To be fussing about whether regulation should have been light touch is missing the key point that the govt budget shouldn't have been in deficit at that time - obviously an economic downturn would add to the govt budget deficit which would cause big problems. Gordon Brown didn't manage the economy for the long term good of the UK as a whole, he managed it to win the next election and damn the long term consequences.

"there is a vast over-reliance by institutions on the advice of box-ticking consultants who advise them which way to vote on resolutions without themselves having reached rational conclusions"

Agreed. But why should institutions spend time on analysing governance issues that are immaterial to them? Everyone else has a choice [and if you want to compel "institutions" to do the analysis on such matters, where do you draw the lower line on the definition of "institution"?] If it is in the public (but not their own) interest to devote resources to governance issues, shouldn't the institutions be remunerated for doing so, from public funds?

I'm not really following the splitting banking into retail and investment banking debate closely. But I assume ordinary home loan lending would be part of retail banking. Would the activity of a bank making lots of domestic-sized loans to individuals, then packaging them up and securitising the package in a stratified structure and selling off the resulting high-risk and yet AAA-rated assets, be part of retail banking or investment banking? Surely that's just funding ordinary home lending? If that isn't retail banking, where do you draw the line on what activities aren't permitted in a retail bank?

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ShareSoc 10th Jul '12 35 of 431

Posted by ShareSoc at 09:07, July 8 2012.

Osborne supports high bonus levels, but ShareSoc does not

The Financial Times has reported that George Osborne is going to oppose the EU Parliament initiative of a cap on bankers bonuses of no more than 100% of base salary at the EU finance ministers meeting on Tuesday. Top bank executives apparently claim that it would “drive up base salaries, increasing fixed costs in highly-cyclical industries”.

Bearing in mind that ShareSoc has argued that bonuses in all companies should be no more than 50% of base salary (see our submission to the Cable pay consultation here: ), do bankers have any justification for their comments?

Is banking any more cyclical than other sectors? If they mean the boom and bust of the banking sector in the last few years, they might be right, but the key point is to encourage executives to not be financially driven by a boom and bust mentality, i.e. that they have to make pots of money in the good times because when times are poor, the pay will be also.

The argument that it would drive up total pay is surely wrong because if pay is set by what the market demands for banking staff, then there is no reason why it should increase overall. Indeed bankers might accept less total pay if it is more secure (after all they have to pay their large mortgages like everyone else).

Even at Barclays, the bonuses of the executive directors are not a significant cost factor in relation to their overall profits (£3bn a year even in these tough times, which rather puts the £290m fine for manipulating LIBOR into perspective).


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ShareSoc 10th Jul '12 36 of 431

Posted by ShareSoc at 13:36, July 10 2012.

Insuring your pension?

The weekend press reported that the Government proposes that people be offered some insurance to protect their pension savings against stock market falls. Pensions Minister Steven Webb suggests that people are deterred from saving because of stock market volatility. As a result, many have lost confidence in pensions, and that a guarantee is therefore required. You can expect a consultation paper later this year on the idea.

Two comments:

1) People can of course already purchase such insurance in that they could buy a FTSE put option to protect themselves against market falls. But presumably a more “retail packaged” offering is anticipated with a longer term horizon – for example as long as to one’s retirement date. One can see a great opportunity for banks and insurance companies to charge nice fees for this service, with possible misleading sales advice, excessive charges and all the other baggage that goes with selling apparently simple but in reality complex financial products to unsophisticated consumers.

2) The biggest impact on the value of pensions in recent years has not been stock market valuations, but simply that the income from an annuity (which you are forced to buy when a pension matures) for any given capital value has been falling. This is because annuity rates are closely tied to gilt interest rates and the UK Government has been manipulating the gilt market via Quantitative Easing so gilt interest rates have been falling. This has devastated pensioners’ income a lot more effectively than any problems in the stock market.

Perhaps the Government should simply consider promising that pensioners will get a real interest rate (not negative after inflation as at present) when their pension matures, and then confidence might be restored to the pensions savings market. In the meantime, potential savers will say “why bother?”

So you may consider this idea of insuring pensions as simply a great political swindle to divert attention from the real issue. At least that’s my view. Unless the Government is to also guarantee annuity rates, and they will undoubtedly not want to do that.


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ShareSoc 11th Jul '12 37 of 431

Posted by ShareSoc at 16:03, July 11 2012.

Voting against a delisting and against a dividend

Delistings are a common problem with AIM companies – leaving the shareholders high and dry if you stay in, sometimes for years, but otherwise scrambling to get out with a resulting collapse in the share price after the announcement of a proposed delisting is made.

The latest example is Lighthouse (LON:LGT), an IFA company. ShareSoc has issued a press release advising shareholders to vote against the proposal – see .

It probably stands a good chance of being defeated because we understand there is some institutional opposition, so any shareholder in this company should make sure they can and do vote!

Incidentally it was amusing to see that YCO (LON:YCO), which just delisted, recently took a two page spread advertisement in the glossy, ultra large size FT weekend supplement called “How to Spend It”. This might have cost them as much as the price of maintaining the AIM listing I would guess.

Another company where shareholders might wish to consider how they vote on some of the resolutions at the upcoming AGM is British Smaller Companies VCT (BSV). This is a company that changed the management incentive agreement to be “dividend based” in 2009. I warned the Chairman, Helen Sinclair, at the time this would have perverse consequences, as it had done in Spark VCT a few years previously. Last year the total expenses of the company were 6.6% of net assets, which is an enormously high figure for any investment trust. Why? Because the managers incentive fee rose as the company paid out 23p in dividends last year when it only had earnings of 2.9p - in other words it paid dividends out of capital rather than current earnings. Shareholders may wish to vote against the dividend, however perverse that might seem, and against the re-election of the directors for putting in place such a peculiar arrangement.


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ShareSoc 15th Jul '12 38 of 431

Vote against the directors at the Intercede AGM
Posted by ShareSoc at 11:58, July 15 2012.

ShareSoc recommends that you vote AGAINST the re-election of the three non-executive directors (resolutions 2, 3 and 4) at the forthcoming Annual General Meeting of Intercede Group. Intercede is an AIM software company run by an Executive Chairman.

ShareSoc has previously criticised the Long Term Incentive Plan (LTIP) introduced in August 2011 where two of the main beneficiaries of the scheme were the Executive Chairman, Richard Parris, and his wife (who also works for the company). It was certainly an inappropriate scheme which was poorly designed, too generous and in essence unjustifiable. Despite our representations on this subject, nothing was done about it.

The three non-executive directors who are standing for re-election should have ensured that the LTIP scheme was not introduced in the form used. In addition it now seems that some awards under the scheme were “retrospective in nature”. Questions will be asked at the AGM about this but that certainly sets a new precedent for an unjustifiable bonus arrangement if the performance criteria used (which set low hurdles) were already partly achieved.

So our reasons for suggesting you voting against the three directors up for re-election are:

1. It was they who introduced the LTIP (they are all on the Remuneration Committee), and have done nothing to correct this error.

2. Their independence is very questionable. Jacques Tredoux represents a major shareholder in the company and he is also a director of the company’s corporate finance advisor who were paid consultancy fees last year. Royston Hoggarth and Jurek Sikorski have both been on the board for ten years or more, which would not be viewed in a positive light under the Combined Code of Corporate Governance in listed companies.

3. There is no Remuneration Resolution on the AGM agenda which we requested be added so that shareholders can express a view on remuneration policies at this company.

4. The company still has an Executive Chairman when it needs a fully independent non-executive Chairman to ensure that this kind of problem does not arise again. The existing non-executive directors should be using their power and influence to ensure that one is recruited.

Please support our campaign on this company by voting against the directors if you are a shareholder in this company. It is directly contrary to your interests as shareholders to have large numbers of shares being issued to insiders on low performance criteria because it dilutes your interest in the company. Only if shareholders put a stop to this kind of prejudicial pay award in AIM companies will your interests be protected.

More information is present here: (see the foot of the page for details on the voting recommendations).


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ShareSoc 17th Jul '12 39 of 431

Posted by ShareSoc at 16:31, July 16 2012.

Asterand delisting – a sorry tale indeed

Asterand (LON:ATD) is a fully listed UK company (but not for long) which operates in the human tissue field. In June 2011 it had a market cap of £15m but now it’s £1m, although there appears to be a substantial risk that it will go into administration.

To buy a US company called Bioseek, it took on substantial debt including debt obligations to the vendors. When the performance of the company declined, covenants were breached and the lenders asked for their money back (at least I believe that’s a simple summary of a rather complex story which has not been very clearly explained to shareholders). As a result the company put itself up for sale.

But no buyer for the whole business could be found, so they looked to sell the two parts separately (the original Asterand business and the acquired Bioseek one). Buyers have now been found for the Asterand business but the cash obtained will only just cover the debt owing, still leaving a very tight cash position. They have for example outstanding professional fees of $1.1m (yes over one million dollars for this rather small company – last year’s revenue was only $24m) on which they are trying to agree some deferral.

But one thing they want to do is delist, to save what they estimate to be $1m per annum. This will leave shareholders holding shares in a private US company to be renamed Bioseek and they will not be covered by the Takeover Panel rules, or the Combined Code.

This appears to be a case of gross mismanagement and shareholders will no doubt have some questions at the General Meeting to approve some of these matters on the 30th July. But it certainly seems to be the case that a main market listing is no longer justifiable.


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ShareSoc 23rd Jul '12 40 of 431

Posted by ShareSoc at 08:04, July 21 2012.

Press Release on EasyJet and the issue of too many directorships

ShareSoc has issued a press release urging shareholders to vote in favour of the removal of Sir Michael Rake as Chairman of EasyJet. Sir Stelios Haji-Ioannou has requisitioned an EGM at the company to call for Rake’s dismissal. Our main concern is the number of roles that Rake has – see our press release here:

ShareSoc is becoming increasingly concerned about the number of positions taken by some non-executive directors, particularly bearing in mind their ever increasing obligations. This is of particular concerns in FTSE-100 companies and in banks (Rake has just been appointed Deputy Chairman at Barclays) or where the director has a role on specialist committees. We suggest a reasonable limit if someone is to perform their role adequately is 4 non-executive directorships. As Baroness Howe has recently said: “I would limit the number of Non-Executive positions that can be held by any individual at one time. If there’s a crisis you need to drop everything and focus on sorting out the situation. But you can’t do this if you owe multiple boards your time.”

This issue rose only this week at another company – Templeton Emerging Markets Investment Trust where director Christopher Brady actually has 7 positions. Surprisingly he got a substantial number of votes against his re-election so it would seem that institutional investors are coming to recognise this as a problem. A full report of that AGM (and the similar issue of the presence of a director on the board who is associated with the fund manager) is present on the ShareSoc Members’ Network.

There is also a report on the AGM and GM to approve a “Reverse Tender Offer” at JPMorgan European Smaller Companies Trust on the Members’ Network which may be of interest to those who have not come across one of those transactions before.


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ShareSoc 23rd Jul '12 41 of 431

Posted by ShareSoc at 10:35, July 23 2012.

Lighthouse Chairman berates dissenting shareholders

 David Hickey, Chairman of Lighthouse Group, the company proposing controversial delisting plans, has labelled dissenting shareholders and critics as “ill informed or ignorant” as quoted in an article on IFAonline. Despite the share price having halved and shareholders being offered no exit, he claimed that “the approach we are taking is the more honourable route”.

 Shareholder Simon Taylor-Young has objected strongly to this arrogant and patronising comment. He says that shareholders who cannot or do not want to hold unlisted shares have been hung out to dry as the share price halved on the announcement. He condemns a public company Chairman making veiled threats to shareholders when the Chairman said “we could have taken alternative routes without consulting shareholders”, and suggests it is ironic that Lighthouse is signed up to the FSA’s Treating Customers Fairly initiative (TCF) yet they are treating shareholders so badly.

 The comparisons that the Chairman makes are misleading or innaccurate. Mr Hickey says that the share price has fallen over ten years from 75p to 3.5p. The share price on 22 July 2002 was 51.5p. It was 5p prior to their announcement. Secondly, in mid 2002, the number of shares in issue was 22.5m. Since then the Company has issued a further 105.2m shares, mainly dilutive, for example the 43.9 million shares issued at an equivalent of 22.5p in April 2008 for the Sumus acquisition. The Chairman has made a price comparison that is extremely misleading. He has failed to address why the Board has done so little to promote the Company and has allowed there to be such a “heavily discounted share price”. The Chairman has stated that “Lighthouse is in good financial shape”.

 The Company has failed to explain why it cannot offer an alternative to shareholders who do not back the delisting. The Company has boasted of net cash (and no debt) of £11m compared to the market capitalisation prior to the announcement of just £6m, and at current levels £4m. A tender offer by the Company for shares would actually be earnings enhancing and lift net assets per share.

 Mr Hickey has commented: “we will keep all the current governance structures in place”. However the two current non-Executives “who have particular expertise in quoted companies” will be standing down. Should this be reconsidered as would be more appropriate if the Company wishes to “maintain high standards of corporate governance”, is still subject to the City Code on Takeovers and Mergers and has said it might in the future be considering offers for the Company.

 Mr Taylor-Young urges the Company to withdraw the delisting proposal in its current form. He would like the Company to come back to shareholders with:

 - An offer to those shareholders who wish to sell at, or at a slight premium to, the pre-announcement price.

- The provision of a share trading facility after the delisting.

- A statement that, trading circumstances allowing, the dividend will be maintained.

- Continued support for independent shareholders by experienced non-Exec Directors.


ShareSoc continues to urge shareholders to vote against the delisting until the Company can come up with a better structured proposal.


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ShareSoc 24th Jul '12 42 of 431

Posted by ShareSoc at 08:46, July 24 2012.

Kay Review Final Report issued

The final report of the Kay Review was issued yesterday with Professor John Kay outlining his arguments at a well attended meeting in London. ShareSoc issued a press release with some initial comments later in the day. Although some of the content was anticipated in yesterday’s media, there was an astonishing lack of comment this morning. Are the financial press all on holiday? Or too distracted to study the report (which is incidentally well worth reading)?

If the Government accepts the recommendations, there are some potentially really substantial changes in the offing. For example Prof Kay was quoted as saying that “The ideal investment chain has a lot less people in it” so clearly some of the proposed recommendations are aimed at reducing “intermediation” and lowering the costs to investors in managed funds.

In addition he suggests that funds should have much more focussed portfolios so as to encourage stronger “engagement”. But perhaps the fact he seemed to reject any compulsion in his recommendations might encourage some to think that no significant changes will take place.

But at least he supported that the Government should explore how individual investors can hold shares directly on an electronic register. That would indeed be the revolution that ShareSoc has campaigned for so our submissions to the Kay Review seem to have had an impact. We will need to try and ensure this proposal is not run into the long grass by those who have an interest in keeping the existing nominee system.


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ShareSoc 28th Jul '12 43 of 431

Posted by ShareSoc at 00:00, July 28 2012.

Rensburg AIM VCT Campaign Has an Impact

ShareSoc has been running a campaign to reform the Rensburg AIM VCT since last October. This company is an investment trust, small in size as are most Venture Capital Trusts, but with almost all their shareholders being individual investors. This has an advantage in that they are mainly on the share register and hence easy to communicate with, but often being retired with small shareholdings, getting them out to attend the AGM or even to vote is another matter.

There is a full report on the AGM held last week in Leeds in this document on our web site:

In summary the directors got over 26% against their re-election. Changes in this VCT as a result of our campaign have been very positive, although they seem to be adamantly against any change of investment policy. It at least demonstrates that company campaigns can have a major impact.

For example, the investment management fee has been reduced very substantially, with no performance related element. How I wish other investment trusts would follow that policy! In addition cash is being returned to shareholders with an active buy-back policy to control the share price discount. The position of shareholders has improved very substantially since ShareSoc commenced its campaign.


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ShareSoc 1st Aug '12 44 of 431

Posted by ShareSoc at 20:06, July 31 2012.

Lighthouse Delisting Defeated

At today’s General Meeting of Lighthouse Group, the proposed delisting was defeated. In fact the vote against was 53% versus 46% “for” when they needed 75% approval to get it through, so it was a very long way from passing. Shareholders might wish to ask how much this wasted exercise has cost and why the board did not find out the mood of the majority of their shareholders before attempting to delist.

ShareSoc can claim some hand in this matter because we publicised the issue widely (for the press release we issued, see – it spells out the case against the proposal).

Some shareholders are calling for the Chairman to resign, particularly because of his comments to the media in an attempt to justify the delisting.

At least it might discourage other similar opportunistic delistings, particularly of AIM companies, which are all too common. Shareholders can exercise power over these matters if they propagate their message and get the vote out, and ShareSoc is always willing to assist worthy causes.


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ShareSoc 1st Aug '12 45 of 431

Posted by ShareSoc at 11:14, August 1 2012.
Hiscox – Another poke in the eye for corporate governance buffs

After an AGM of Hiscox Plc in May which ShareSoc described as “one of the worst” on the basis that Mr Robert Hiscox as Chairman did not appear to want to spend much time on the event, nor respond to questions from shareholders, he gave a parting shot against corporate governance generally yesterday.

Robert Hiscox has announced his replacement as Chairman to be Rob Childs, currently the “Chief Underwriter” of the company. Appointing executive directors, or former directors, as Chairman is contrary to the principle of having an independent Chairman under the Combined Code.

This appointment was at the end of a recruitment process using a headhunter apparently, which makes it even more odd as there were other external candidates on the short list according to press reports. But Mr Hiscox indicated he was against a “box ticking” approach, and that 30% of his shareholders had been consulted and supported this move - what he did not say is how many of those 30% represent his own family interests.

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ShareSoc 2nd Aug '12 46 of 431

Posted by ShareSoc at 09:23, August 2 2012.

Northern Rock Judgement, and Royal Bank of Scotland (RBS) nationalisation

The European Court of Human Rights (ECHR) has declared the application by former shareholders in Northern Rock for a review of the nationalisation to be inadmissible. This looks like the end of the legal road for any challenge to the nil compensation for shareholders.

There have always been wildly contradictory views among the public on the merits of both the nationalisation and the associated zero compensation for shareholders. Those who held the shares, both short and long term (including those former staff members where the shares were a significant part of their life savings) were outraged by the artificial terms set for compensation which ensured a “nil” valuation. It seemed to fly in the face of most business valuation principles in that the “Independent valuer” had his terms of reference artificially constrained. But politicians at the time, and many members of the media, thought that Northern Rock was bust in principle when the Government bailed it out so shareholders should get no compensation. The latter view was upheld in the UK courts to a large extent – or at least that the Government had the ability to determine the matter as it was a political decision that the courts should not interfere with.

The plaintiffs argued that it was disproportionate for the Government to acquire all the assets of Northern Rock (which were substantial and are going to result in profits to the Government) simply by a short term bail-out involving the supply of cash (and from which they are profiting by charging supra-normal interest rates). This is contrary to principles of salvage law for example where the situation is similar, where the owner of the property pays a fair fee but does not lose their property.

The ECHR decision reviews the facts and the arguments. It covers the previous ECHR case law and how it impacts on this matter and the “margin of appreciation” (i.e. the discretion) allowed to Governments when deciding compensation for confiscation of property.

But it says “The applicants contend that the statutory assumptions inevitably resulted in the payment of nil compensation to the shareholders”, but they reject that argument. The Court seems to have little understanding of the valuation principles normally used in commercial deals or the impact of the “in administration” assumption on that. Their understanding of commercial realities seems weak.

However, the final argument they rely on is that the confiscation of the property was not “manifestly without reasonable foundation” because it was clearly based on a policy of avoiding “moral hazard”, i.e. that shareholders should not benefit in any way from Government support. Particularly bearing in mind that the support was being provided under LOLR so as to maintain financial stability, not to protect the interests of shareholders.

Moral hazard is surely a very dubious approach. It was the argument used by Bank of England Governor Sir Mervyn King when delaying the initial supply of funding to Northern Rock and blocking the potential merger with LloydsTSB Bank which compounded the difficulties of Northern Rock and undermined confidence in the whole banking sector. When it became apparent that the Bank of England would not provide liquidity to even solvent banks, investors really took fright. There was a swift “about face” later when RBS and Lloyds/HBOS ran into similar problems and they were given secret loans of over £50bn.

It is particularly dubious when one bears in mind that shareholders have little control over the financial management of banks, and particularly so in the case of smaller shareholders. Punishing shareholders for past mistakes of the bank directors is surely questionable.

But this principle has now been enshrined in UK law in that if the Government has lent any money to any financial institution, it can now he taken over without any compensation. So shareholders should be very wary of holding any bank shares that might be at risk from such a provision. The ECHR decision simply upholds that principle.

This is not solely a theoretical issue. Only this morning the press have reported that the Government is considering nationalising the remainder of RBS that it does not already hold (about 18%) by “buying out” the minority shareholders. This follows continuing dire financial performance at RBS and its failure to provide the lending to businesses that the Government desires, i.e. it wants full control. What compensation might be paid? On the above basis nothing because the Government could argue that it was a matter of national economic policy that it should take control and hence compensation was not applicable. That would apparently stand up in a court of law. So any remaining shareholders in RBS should be very aware of this point.

The full decision of the ECHR can be read here:


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emptyend 2nd Aug '12 47 of 431

In reply to ShareSoc, post #46

What compensation might be paid? On the above basis nothing because the Government could argue that it was a matter of national economic policy that it should take control and hence compensation was not applicable. That would apparently stand up in a court of law. So any remaining shareholders in RBS should be very aware of this point.

I don't think Northern Rock is relevant to the situation at RBS. And neither does the market, otherwise RBS shares would have plummeted.

Northern Rock was bust. HBOS was bust. RBS is not bust.


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Roger Lawson 2nd Aug '12 48 of 431

Whether RBS is bust or not may be irrelevant because under the Banking Act 2009, if the Government has provided financial assistance to any bank, they can determine the compensation arrangements and set the same terms as they did with Northern Rock, i.e. nil. Please read it. It is here:
In other words it is entirely at the Government's discretion whether they would pay the minority shareholders anything!

You need to be reminded that RBS was bailed out by the Government when they ran out of cash. That is exactly what happened at Northern Rock also. So there is no difference in essence. In both cases these banks had a liquidity problem, but were not balance sheet insolvent. I don't see how you can call one bust and not the other.

As to why financial journalists have not picked up on this I do not know. I suspect the experienced folks who might be aware of that Act of Parliament are all on holiday, leaving junior staff to man the desks during the holiday period. Or they may simply be wishing to avoid creating a panic.

Whether the Government in their wisdom would pay anything to RBS shareholders I do not know. But it is now clearly at their discretion whether they would pay or how much. They can rig the compensation terms to suit themselves, in exactly the same way as they did with Northern Rock and B&B.

Website: Roliscon
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emptyend 2nd Aug '12 49 of 431

In reply to Roger Lawson, post #48

You need to be reminded that RBS was bailed out by the Government when they ran out of cash. That is exactly what happened at Northern Rock also.

Actually I don't "need to be reminded" at all !

There are some very substantial differences between the two cases (as the market recognises even if you don't) but life is too short to spend time discussing them especially when I have zero interest in the topic and other things to do.

As to why financial journalists have not picked up on this I do not know.

Perhaps it is because they are ignoring you?

They can rig the compensation terms

Nothing new there. Governments the world over can do that. The UK doesn't often do it, but then the last Labour Government took a more aggressive line, starting with Railtrack and ending with the banks.

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ShareSoc 6th Aug '12 50 of 431

Posted by ShareSoc at 00:00, August 6 2012.

If you can keep your head……. fixed income or equities?

As an investor, you will be bombarded with too much information, a lot of which will be contradictory. A classic example today was in the FTfm supplement (the insert published by the Financial Times for fund managers).

On page one, in the lead article, it said pension schemes are reversing the rush out of equities into fixed income because bond yields are now very low in comparison with those on equities. For the first time since the 1950s, equities yield more than Government bonds and have done for some time. This reversion to what used to be seen as normal (because equities are perceived to be more risky and hence investors should expect a higher return) is after many years when bonds were shunned because of the risk of inflation. In addition equities were seen to provide both capital growth and growing dividends, with some hedge against inflation. So pension fund managers are now buying equities for income. Well that makes sense does it not?

But turn to page two of the same publication, and the headline is “demand for equities fades”. This report says that enthusiasm for equities across Europe’s fund managers has dwindled according to MHP Communications, a PR company. This is based on a survey of fund managers’ expectations for future returns.

Maybe the editor of this publication is on holiday, or someone else failed to spot the internal contradictions here?

It brings to mind the Rudyard Kipling poem entitled “IF”. “IF you can keep your head when all about you Are losing theirs and blaming it on you, ……”. Perhaps a suitable motto for all investors?


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emptyend 6th Aug '12 51 of 431

In reply to ShareSoc, post #50

For the first time since the 1950s, equities yield more than Government bonds and have done for some time. This reversion to what used to be seen as normal (because equities are perceived to be more risky and hence investors should expect a higher return) is after many years when bonds were shunned because of the risk of inflation. In addition equities were seen to provide both capital growth and growing dividends, with some hedge against inflation. So pension fund managers are now buying equities for income. Well that makes sense does it not?

See my comments on this topic from March 2008, where I said:

All these sorts of changes are siphoning cash away from shareholders and weakening the risk/reward balance for them! Eventually they will wake up but, IMO, this is only likely to happen when we've had a protracted bear market and some serious losses have been taken.

Its a bit early to sound the death knell for the equity market, but we'll have to get used to the tolling of a distant bell that gets ever closer. Even now [I strongly suspect] few people can hear it at all!

IMO it is misleading to argue that one should be "buying shares for income". Not only can "income" be cheaply generated by taking capital gains on a rolling basis, but the quality of equity earnings continues to be undermined by many of the points I raised back in 2008 - some of which I note you have now taken an interest in correcting.

I would add to that the fact that demographics and technology are IMO conspiring to weaken the outlook for super-normal earnings from equities. This will, I think, mean that ...YES....equities are not only perceived to be more risky (as you put it) but they will be seen in fact to be more risky!  IMO anyone who is buying equities on the basis that the present yield premium over bonds will be reversed anytime soon is in fact fooling themselves! It was the 50 years(1958-2008) that were the "aberration", not the circumstances that have emerged in the last 4 years!


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