Kent Reliance - demutualising?

ooblyboo_2

I received my voting pack last night. As I understand it, there is a far-off half promise of a possible windfall maybe. But there is nothing specific as regards what might be in it for us as KRBS members whatsoever.

That said, what do we have to lose? Savings rates at KRBS aren't exactly attractive at the moment. And if the JC Flowers deal allows it to get lending again and swallow up a few other mutuals along the way before floating in five years' or ten years' time, isn't it worth taking a bit of a risk to see what happens?

Essex123

This is a complex deal, the detail of which is pretty hard work to read through. Some things that I've noticed:

(i) although KRPS will hold 59.9% of the new bank on completition, JCF will hold 32,574 convertible preference shares. Page 66 of the Transfer Document describes how these could be converted and reduce KRPS's stake down to below 34.2%

(ii) further to the above, page 6 of the members guide makes the admission:

"The investor may be issued with further convertible preference shares on or after the date of transfer in a number of circumstances"..."one of the circumstances is where there are shortfalls in the value of the Society's commercial loan book. The board believes that it is likely that additional convertible preference shares will be issued to the investor as a result of these shortfalls and that these shortfalls could be significant" (Note, my use of bold)

(iii) any 'windfall' or payments to KRPS members seem to be linked to "points" earned based on savings and mortgage balances (pages 30/31 of the Transfer Document). This would imply the windfall for small members would not be great.

I'm minded to vote against this deal.

scott_lithgows

I remember voting Yes to Abbey taking over N+P building society,I remember it well as it,s one of the biggest mistakes I ever made.

calypso_rhapsody

It seems to me that if you consider this proposal from the point of view of the potential for a windfall from the BS then you would probably vote against .... as has been pointed out the members interest in the Bank, whilst initially nearly 60% could easily fall to 34% or even less over time.

But how many of us have our savings in KRBS because of the vague possibility of a windfall? Not me, i am interested in the savings rates ... and whilst those offered to new members are not very competitive i have just rolled over a bond on maturity into a competitive loyalty rate.

What i can't really assess from the voting papers (what i have read so far anyway) is whether these proposals are likely to make KR more competitive in the savings market or not .... on the one hand, JC Flowers will want to grow the business but on the other if they are putting up a lot of capital, the need for funds from savers may be reduced ....

I am not decided as to how to vote - but i know that whatever the outcome i will be prepared to vote with my feet by moving my savings at the next maturity if their rates are not competitive.

2010

Got the ballot papers yesterday and went online and voted AGAINST.

If this does go ahead I`ll remove my money as soon as the fixed rate expires.
There`s nothing in it for members only for the board who are all overpaid as it is.

ooblyboo_2

Interesting point there Calypso Rhapsody - savings rates may well not improve but as you say, there is nothing to stop you voting with your feet.

It's an annoying situation because I was just about to close my KRBS accounts, in which I have a relatively small amount invested, because I was fed up with rubbish rates and the difficulty of moving my money around. I am part of the internet pilot but you can't transfer money between accounts, and I am nowhere near a branch which means I have to do everything in writing. But I have to admit the prospect of a bit of 90s-style carpet bagging has put my plans on hold.

I look at it this way:

1) Is this JC Flowers deal going to have a detrimental effect on savings rates? Unlikely (at least as far as I am concerned) - my fixed rate easy access saver account pays a paltry 0.1% and my direct rate variable cash ISA just over 1%.

2) Are standards of customer service going to decline? From my point of view (and I appreciate this is not the same for everyone), no. How could they? There's no branch for miles and all you can do online is check your balance. Every time you call they tell you to put it in writing.

3) Is my money any less safe? No - obviously still covered by FSCS.

4) Do I stand to get a windfall? Who knows? But there is more chance than there would otherwise have been, in which case why not give it a go? Only problem is, that means I have to keep open at least one account paying crap interest, and given this points-based system, I am going to have to keep a decent amount of money in it.

Overall though, I am moving toward voting in favour. I am still open to persuasion though, and really interested to see what others think.

Tahiti

2010 wrote: »

Got the ballot papers yesterday and went online and voted AGAINST.

If this does go ahead I`ll remove my money as soon as the fixed rate expires.
There`s nothing in it for members only for the board who are all overpaid as it is.

I have to agree. The potential partners here are not a charity and will take it for all they can IMHO.

ANGLICANPAT

Calypso, are you talking about an ordinary fixed rate bond having just matured and you being offered a loyalty rate? How near to maturity did you get contacted, or did you ring and ask well in advance, warning you were thinking of moving ? Ive got a 2yr bond finishing 14th Nov and the only replacements I see online are 2yr 3.30% and 3yr 3.55% . Was thinking of writing early to ask to transfer into one of these on maturity, as I fear as theyre a limited offer, they might disappear before my present one matures, but from what you say, it might be worth pushing for higher . Wonder if all 'loyal' members get the same offer, or if it depends how much you are putting in . Has anyone else secured a better deal than whats shown online ? Suppose I cant vote yet till I know nearer the time whether Im going to still be a member on the 18th or whether Ill find a better rate elsewhere.

calypso_rhapsody

My 2 year Bond matures 19 November and i got the letter with the loyalty bond rate sometime ago - about 2 or 3 weeks ago i think. 3% for 1 year which is pretty close to market leading (i think Barnsley was offering 3.05% at that time). It might be that it was offered to those with higher deposits (mine was just over £30k).

I'd give them a call ....

jimjames

Essex123 wrote: »

This is a complex deal, the detail of which is pretty hard work to read through. Some things that I've noticed:

(i) although KRPS will hold 59.9% of the new bank on completition, JCF will hold 32,574 convertible preference shares. Page 66 of the Transfer Document describes how these could be converted and reduce KRPS's stake down to below 34.2%

(ii) further to the above, page 6 of the members guide makes the admission:

"The investor may be issued with further convertible preference shares on or after the date of transfer in a number of circumstances"..."one of the circumstances is where there are shortfalls in the value of the Society's commercial loan book. The board believes that it is likely that additional convertible preference shares will be issued to the investor as a result of these shortfalls and that these shortfalls could be significant" (Note, my use of bold)

(iii) any 'windfall' or payments to KRPS members seem to be linked to "points" earned based on savings and mortgage balances (pages 30/31 of the Transfer Document). This would imply the windfall for small members would not be great.

I'm minded to vote against this deal.

I agree. The paperwork sent out is VERY misleading

• New information - only detailed on page 62 of the transfer document - shows that members of KRBS are only likely to own 25% of the new bank NOT the 60% that we are told in the summary!!
  As per the quoted post there is information that shows due to commercial debts JC Flowers will get new shares at the time of the transfer that will give them 75% of the new bank. This is not explained in the summary
• The most likely scenario if members want a windfall is to reject this deal which will not lead to members being part of a successful mutual company. As per the article in the Observer yesterday this seems to be all about JC Flowers getting a banking licence to take over other building societies
• The deal guarantees a return of 20% per year to JC Flowers but no benefits to members
• JC Flowers could become the majority owner of the new bank very quickly
• Mutuality is quoted but is effectively being given up to profits for a private equity partner
• Private equity - as shown by the 20% return - exists purely to profit from the deal not to benefit members of the society

My blog post about the KRBS Takeover Deal - blog.rainham-history.co.uk
I would urge anyone to read the documents and consider voting Against the KRBS/Kent Reliance Building Society Takeover by JC Flowers