A BIG disappointment looms for 2.4m with-profits policyholders in Standard Life when the company floats on 10 July, the Scotsman claims this morning.
The paper says shares in the provider are set to be priced at the bottom of the 210-270p indicative range and may go to only a small premium in the first days of trading.
It says a behind-the-scenes tug-of-war is now raging between policyholders - who want to see the highest possible price when dealings in the shares begin on Monday 10 July - and the big institutions looking to buy in at the lowest possible price.
Standard Life has already lowered the indicative price range from 240p-290p to 210p-270p. The working assumption has been that the offer price would be struck close to the mid-point of 240p.
But ahead of the price fixing due before 9 July, the Cantor Index grey market is quoting a price spread of 216p-222p - the betting on where the shares will be at the close of business on Friday 14 July, that is, after the first week of trading.
This is at the bottom of the already lowered trading range, and well below the 240p mid-way price. While this would be disappointing for policyholders wanting to take cash, those seeking to buy more shares would be well rewarded, with a one-year return at an offer price of 210p close to 15%.
Cantor says the low price reflects no great institutional rush to buy, based on a combination of poor sentiment in the life sector, fears of continuing volatility in stock markets and concern that recent new share offers have been a flop. For example, shares in Jessops, the photography retailer, were floated at 155p and the price has dropped to 107.75p while defence concern Qinetiq has gone from a float price of 200p to 171p.
David Buik of the Cantor Index, says: "Many cannot see this IPO going to a measurable premium. However, if issued at the lower end of expectation, the IPO mission will be accomplished."
Yesterday's trading note from Cantor said there had been no change in sentiment in morning business. "Trading in the grey market currently remains sepulchral... Market sentiment has marginally improved, but the fundamental cynicism towards the valuation of IPOs has not changed. "However, we have seen some strong buying last week. Those who have been offered bonus shares and cash are taking them.
"These are very uncertain times and one suspects that it could be folly to be too ambitious in terms of pricing this issue. It will need to look cheap to entice fund managers and investors alike to back the truck up. Anything above 210p as an issue price could be interpreted as greedy, unless of course market conditions improve dramatically."
A key support for investors is that the after-market stands to be boosted in late September. This is when Standard Life formally enters the FTSE100 index and tracker funds will be obliged to buy in.
Policyholders seeking to hold their shares and/or buy some more have to get their forms in by 10am next Wednesday, 5 July.
PAUL 'The Plumber' Davidson is set to call the chief executive and the head of enforcement at the Financial Services Authority (FSA) to the witness box as part of an upcoming tribunal hearing, the Telegraph reports.
The paper says the FSA's John Tiner and Margaret Cole could be asked to take the stand at a forthcoming Financial Services and Markets Tribunal hearing to decide whether the City regulator will have to pay the costs of Davidson and former derivatives trader Ashley Tatham.
Both men were found not to have committed market abuse by the FSMT last month, overturning an earlier decision by the FSA which levied a £750,000 fine on Davidson in 2003. Davidson, whose nickname comes from the fact that he used to be a pipe-fitter, is planning to call Tiner and Cole as part of his quest to recover costs, which he estimates are £2m-£3m.
He is also planning to call a barrister and a solicitor who worked with the FSA during the tribunal. His intention is to show that the FSA acted in bad faith when it was considering his case.
At the heart of the case is the working of the FSA's Regulatory Decisions Committee, which is the final arbiter in a number of enforcement cases at the regulator.
But it is understood the FSA will resist Davidson's attempts to put any witnesses on the stand, and is believed to have told him so in writing.
Davidson will put the case to Tiner and Cole to take the stand at a decisions hearing on July 11 at the FSMT's building in Bedford Square, London.
If he is successful, the pair, plus others, will then be summoned by the tribunal to appear at a later date. An FSA spokesman declined to comment, the paper says.A SHARP SURGE in lending by investment banks and brokers to risky customers with poor credit records has prompted the City regulator to identify the growing trend as a priority area of concern, reports the Financial Times.
It says the sub prime market is estimated to have grown to up to £30bn a year as an influx of new entrants such as investment banks West LB, Investec and Deutsche, poured into the market joining existing players such as Lehman, GMAC and Merrill Lynch.
Although there is no suggestion of any wrongdoing, the paper says the FSA, which took over responsibility for regulating home loans in 2004, has told it, it is now paying special attention to the issue. The regulator is worried that while credit scoring techniques for this type of lending have so far proved robust it has not been tested through a downturn.
The FSA will later this summer launch a review of mortgage brokers who sell sub prime home loans to customers. Mortgage brokers have become increasingly important because the majority of mortgages are now sold to consumers via brokers who then pass the business on to the banks.
Sub prime customers range from people who have missed a few credit card payments – who are deemed near prime – through to the “heavy adverse” who might be discharged bankrupts or have multiple county court judgments against them.
The Council of Mortgage Lenders does not compile figures for sub prime lending but estimates from Mortgages Plc, owned by Merrill Lynch, are that sub prime mortgage lending was around £25bn-£30bn last year – around 10 per cent of the total mortgage market and larger than the CML’s estimate for the entire buy-to-let sector.
Investment banks are entering the market because specialist mortgages offer better profit margins than conventional home loans as they are regarded as more risky.
They also are interested in the fee-generating work that they can earn from securitising these mortgage loan books. Sub-prime mortgage loans are regarded as riskier, and so in a securitisation the bonds are rated lower, offering the prospect of higher returns.
There is a growing appetite from hedge funds for this type of paper because arrears levels have been low and it has provided good returns in the past.IFAonline
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