Resolution Life's proposed £3.5bn acquisition of Abbey's closed life insurance arm may involve a smaller rights issue than the City is expecting because of surplus capital pumped into the funds by Abbey during the last bear market, the Telegraph has reported this morning.
The paper says negotiations between Resolution and Abbey's Spanish owner, Santander, are continuing with an announcement expected within two weeks.
The City is expecting up to half the cash for the acquisition to come from a rights issue that would be Britain's largest since Kingfisher raised £2bn to buy French DIY chain Castorama in 2002.
But the Telegraph says Resolution believes the large amount of surplus capital in Abbey's closed Scottish Provident and Scottish Mutual life funds will enable it to involve a higher proportion of leverage than it would usually consider.
This would have the consequence of lowering the equity element of the takeover's finances.
The acquisition would propel Resolution on to the FTSE 100 index.
Last month, Resolution's confirmation of the talks stressed that a successful acquisition would be financed by a mixture of debt and equity, "taking into account the capital structure of the businesses being acquired".
This could involve accelerating the process of recovering some of the capital that was injected into the life funds' shareholder capital.
Abbey said two years ago that it had invested £3.8bn in its life businesses since buying Scottish Mutual in 1992 and Scottish Provident in 2001.
Its latest annual report gives the life businesses an embedded value of £3.68bn.
Resolution is on record as saying that it will only clinch a deal that gives it at least a 12% internal rate of return.
It will also need Santander to provide warranties and guarantees concerning future liabilities of the funds.
Hugh Osmond's Pearl Group remains keen to enter the process should the Resolution talks founder. Resolution and Abbey declined to comment.
SOME OF BRITAIN’S high street banks are almost "putting profits before human life", a senior banking executive claims in a BBC1 programme to be broadcast today, reports the Guardian.
The paper says an unnamed executive has said following a string of cases in which people have killed themselves after running up big debts, the law should be changed so banks shown to have loaned money irresponsibly can face criminal charges. In the past two years, at least eight cases have been reported of people taking their lives after debts spiralled out of control.
Many other suicides are never picked up by the media "because they are handled internally to ensure that does not happen", says the female executive who, the programme-makers say, was a key decision-maker in lending policy and strategy for one of the top five banks.
The programme comes amid continuing concern about soaring consumer debt. Last month, Citizens' Advice said the number of people seeking help with credit card and loan debts had doubled during the past eight years, and accounted for three-quarters of the 1.25m new debt cases that its bureaux dealt with last year.
A recent study suggested that almost nine out of 10 credit card borrowers were issued cards without the lender checking they could afford to repay debts.
MPs have stated that better sharing of information relating to potential borrowers' creditworthiness would probably prevent some of the tragedies as it could reduce the risk of those already overburdened with debt borrowing more. Some banks have now begun to share data. Between them, Britain's big banks reported record profits of £33bn for last year.
The BBC programme features the case of a married father-of-two, Mark McDonald, 43, who threw himself under a train in January 2005. His bank, Royal Bank of Scotland, had allowed him to build up a £6,000 overdraft, loaned him more than £20,000 on two credit cards, and let him remortgage his home. At the time he died, he owed his bank almost £120,000.
But the paper quotes RBS in a statement, as saying it had dealt with McDonald "in a responsive and professional manner" adding: "The lending decisions on his account were consistently based on strict lending criteria... At no point did Mr McDonald express to the bank that he was struggling with his finances. He managed his current account and maintained regular payments to both of his credit card accounts."
The whistleblowing executive said some banks increased credit limits without customers' consent. "Unsolicited increases in your credit limit can take place up to twice a year," the paper quotes her as saying. "In some cases, your credit limit could literally double in the space of two years."
Another way of enticing people into borrowing more was through a "financial health check", when a customer is invited into the bank to review his or her finances. "In many cases, a financial health check is probably the last thing you need, because it is a sales pitch."
NEARLY 20,000 Lloyds TSB staff will share £69m this week from a three-year savings scheme which could give some up to £17,000 each, reports the Times.
It says all 19,000 employees who saved between £5 and £250 a month since June 1 2003 have almost doubled their money, having bought in at the discounted price of 284p. They are able to sell at last Thursday's closing price of 515p.
Most will receive a windfall of £8,000, but some will get around £17,000.
The windfalls come despite Lloyds TSB shares underperforming the FTSE 100 for most of that three-year period.
However, in the past six months Britain's fifth-largest bank has begun outperforming again, gaining 10 per cent to around 520p.
In March Lloyds TSB surprised the market with a 4% jump in pre-tax profits to £3.47bn for 2005. The bank has also been at the centre of speculation that Spanish bank Banco Bilbao Vizcaya Argentaria (BBVA) may launch a bid.
Barclays has recently said it owns a 4.22% stake in the bank, which is valued at just under £30bn at today's price of 514.5p - down 4p this morning despite reports that at a private dinner for analysts last week the bank repeated that it might be able to begin raising dividends.
Sir Victor Blank, former chairman of newspaper group Trinity Mirror, became Lloyds TSB's chairman last month.IFAonline
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