Kent Reliance - demutualising?

premierfella

FWIW, I took a little time to read through the documents sent at the weekend, as I suspected all would not be as it first seemed.

Re: the ownership split after this goes through, it is clear to me that whilst the documents may present the facts in a legal way, they place too much emphasis on the initial split (which is unlikely to apply for very long) and not enough on the likely ownership split going forward. The initial share split is meaningless as the KRBS board already admit that more capital will be required going forward which will dilute the "mutual" ownership (its just that the Board does not know exactly how much capital will be required and thus how diluted the "mutual" ownership will be.

Notwithstanding that, the convertible shares mean that (unless I have misread the documents) J C Flowers can pretty much take majority ownership as and when they please.

I welcome the fact that we finally have details of all the options the Board has considered. You have to read between the lines of that part of the document but we are asked to take on trust that the Board was unable to reach an agreeable merger with another building society or a deal with the Co-op (just because they did not receive a formal offer does not mean that they do not know what the terms of any mutual merger would have been) - whether what would have been agreeable to the Board is the same as what would have been agreeable to KRBS members is of course unknown (its fair to assume that most of the Board would have lost their jobs if they agreed a deal with another mutual, in which case the Board would have a vested interest that the members do not have in preferring an option such as the current proposal over a deal with a mutual).

Having read the documents I still don't know whether KRBS is able to continue independently, as they haven't given us any real projections for what might happen if they did (they may be making losses in the current low base rate environment and unable to write new mortgage business at the moment - but surely they are not suggesting that their current poor trading position is permanent?!)

Given the lack of information on remaining independent and the poor terms of the proposed deal I am also voting against. If and when this deal goes ahead the new entity will, IMO, become very unmutual very quickly.

jimjames

Looks like we might be getting some momentum on this. The deal only needs 25% of voting members to be against it for the deal to be stopped. The lack of information is what concerns me the most, it may be the only deal available to stop KRBS going bust but if that is the case it is a sad reflection on the current management team and the voting documents do not make that clear.

The BBC are now running a story on this, details on my blog if anyone would like to pass on their views.

Chadsman

KR is miles away from going bust. If the situation really was dire the regulator would have stepped in and done something similar to what they did with Dunfermline BS. I will also be voting no- the deal looks to much like a blank cheque payable to Flowers- not that I expect that to change the result.

molerat

It looks like de-mutualisation through the back door with no benefit to members. Remember you can vote on line.

alanq

KRBS proposed demutualisation was discussed during Saturday's BBC Radio 4 Money Box. (Includes an interview with Mike Lazenby of KRBS.)

http://www.bbc.co.uk/iplayer/episode/b00vg8h9/Money_Box_23_10_2010/

Starts 18m30s in.

jimjames

Chadsman wrote: »

KR is miles away from going bust. If the situation really was dire the regulator would have stepped in and done something similar to what they did with Dunfermline BS. I will also be voting no- the deal looks to much like a blank cheque payable to Flowers- not that I expect that to change the result.

The board appear to be claiming that the deal is needed to prevent that happening and that there isn't another option to get new capital.

I've seen that as of 31/12/2010 PIBS (a method of funding they use now) are no longer allowed as tier 1 capital so building societies need to get capital from other sources.

BBC South East and BBC Radio are running this story tonight so keep an eye out on the news as they are also interviewing Mike Lazenby of KRBS.

http://blog.rainham-history.co.uk/

jimjames

I was interviewed by BBC South East Today about the deal, as above I think it is a bad deal for members of KRBS and clearly a very good deal for JC Flowers. I can't post links but this give some more info that has been sent out to news organisations. It might seem like a done deal but generating some press interest could still swing the 25% of votes that are needed to block it - so far everyone that has contacted me has been voting against.
KRBS are holding a press conference tomorrow in Rochester so there should be some more news after that.

blog.rainham-history.co.uk/2010/10/support-growing-to-reject-jc-flowers.html

Tahiti

JC Flowers are looking at buying up others too it seems. This to me sounds like a cheap way of them moving into the UK savings and investments market.

For anyone who doesn't know, they are a Private Equity company. IMO, they will be purely looking for shareholder value (that's their shareholders, not the existing mutual members').

Dabble26

I agree - I have read the massive paperwork and feel extra info is now contained in that. This is in particular in respect of debts on loans and the extra capital JCF could put in and then take control. If these debts came about from lending when money was easy - if that happens again due to massive £50m put in by Flowers - could the same happen again. The same management who ran things"into the ground" now will still be there doing the same and collecting vast salaries for doing it. I have voted against because I feel not the whole story has been placed before loyal members.

jimjames

Looks like the publicity about the deal is working. I think the board are now expecting that they might lose the vote due to the negative reaction.

http://www.rainham-kent.co.uk/html/KRBS-Kent-Reliance-Building-reject-JCFlowers.html

founder of specialist financial website CandidMoney.com J has expressed caution over venture capitalist firm JC Flowers’ tie-up with Kent Reliance building society. He says "My initial reaction is one of caution. Venture capitalists are usually a pretty mercenary bunch who focus primarily on how much money they can make"
This is a comment from a specialist financial site not a person who would naturally be expected to support a mutual organisation.

http://www.ftadviser.com/FinancialAdviser/Mortgages/Lenders/News/article/20101028/4e6aa1aa-ddb9-11df-9232-00144f2af8e8/Modray-pokes-holes-in-joint-venture-scenario.jsp

A choice quote from the FT about JC Flowers reasons for investing in Kent Reliance.

The welfare of customers only tends to be on their agenda in so far as unhappy customers may affect profitability.
“So make no bones about it, JC Flowers would be entering into any deal primarily to make money for itself. I believe members’ welfare would be very much a secondary concern.