An all-party group of MPs and peers has written to the governor of the Bank of England, Andrew Bailey, to raise its concerns about the proposed demutualisation of LV=.
The All Party Parliamentary Group for Mutuals, chaired by Labour/Co-op MP Gareth Thomas, has been conducting an inquiry into the planned sale of the mutual to US private equity company Bain Capital.
They also have wider question about the role of regulators in looking after the mutuals sector. Mr Thomas has also been calling on ministers to adopt similar reforms to those recently carried out in Australia, to help mutuals raise capital without demutualisation,
Co signed by Mr Thomas and fellow MPs Steve Baker, Bob Blackman, Kevin Hollinrake, Tony Lloyd and Christina Rees, along with Lord Curry and Lord Wrigglesworth, the letter says Mr Bailey has that “a reasoned
understanding of the impact of demutualisation on the financial services market, but we are concerned that this is not shared across the PRA”.
The letter sets out follow-up questions after a meeting between the APPG and Bank officials.
It asks Mr Bailey for details of when his officials met LV= board representatives to discuss the demutualisation plan. The APPG also wants to know whether the Bank met with any LV= owners who were opposed to the sale, and who else they have met to discuss the issue.
There are several questions regarding the role of the Prudential Regulation Authority (PRA). The APPG asks why the regulator hasn’t looked again at LV=’s conversion to a mutual company limited by guarantee – “given the very strong assurances that such a move wasn’t going to lead to demutualisation and the recent speech by the chairman to members confirming how important that conversion was to their current plans to demutualise”.
The group also asks if the PRA will look at LV=’s decision not to hold a virtual AGM for members last year, and if it will review communications by the LV= board to members over how well the organisation is capitalised.
There are also queries about whether the PRA will look into “the apparent agreement between Bain Capital and the current chairman for him to continue as chair of LV”, and how the PRA will assess the fairness of compensation offered to the mutual’s owners “given that the board of LV will choose the ‘independent’ expert, will brief them and will pay them”.
There are also questions with a wider bearing on the PRA’s work with mutuals.
“We note that the PRA has not conducted any reviews of the economic impact of past demutualisations,” the APPG asks. “Is this not a major oversight, given the role that demutualised financial former mutuals played in the financial crisis of 2008 and the contrast with the behaviour of remaining mutuals?”
The letter adds: “What assessment has the PRA made of the impact on consumers of this major business dropping its mutual customer focus and instead having an investor-driven business purpose?”
And the group wants more information about the PRA’s stance on the ability of mutuals to raise capital, highlighting the example of recent reform in Australia, where a mutual capital instrument has been devised to allow the sector to raise finance without demutualising.
“Will the PRA to engage with HM Treasury to try and make Mutuals Deferred Shares work here?” the APP asks. “What steps have the PRA taken to assess whether the 1992 Friendly Society Act is fit for purpose?”
Mr Thomas also raised the LV= case in the House of Commons last week, telling MPS that financial mutuals – friendly societies, building societies and credit unions “are like the steel girders in the Shard; they are not glamorous but their role is critical. Their savings products, life assurance, pensions, mortgages and other products are rarely beaten for value, and as a result they make a huge difference to the quality of life of so many of our constituents.
“They play another critical role: they keep traditional financial businesses such as banks – shareholder and investor owned – from the temptation to take ever more value from customers’ savings.”
Mr Thomas said the government has not done enough to strengthen the position of mutuals against the dominant big banks.
“Ministers could have used the Queen’s Speech at least to prevent the situation from getting worse,” he said. “First, they could take the needs of financial mutuals even more seriously by modernising the rules by which they are governed, helping the smaller mutuals to raise capital more easily. Australia is a great case study, as the Economic Secretary is aware. Why on earth has the long-promised deregulation of credit unions not happened?”
And he called on ministers to investigate the sale of LV= – “this 178-year-old friendly society, which was originally founded to help working people in Liverpool to avoid the Victorian scandal of a pauper’s funeral” in “the first major demutualisation of a financial mutual since before the financial crash”.
Mr Thomas said the Financial Conduct Authority “was asleep at the wheel when London Capital and Finance was collapsing, again asleep at the wheel when Greensill tottered into insolvency, and now seems determined to take sleeping tablets as a thriving, well-capitalised British success story is being handed over lock, stock and barrel to one of America’s most controversial private equity giants.
“I urge ministers to take the opportunity to investigate.”
Co-op News has contacted LV= for comment.