Kent Reliance link up with American JC Flowers

Primrose

As a long term Kent Reliance saver, I was less than enamoured with the thought of them linking up with the American organisation J C Flowers (reported in the Business Telegraph today), turning Kent Reliance into an "Industrial and Provident Society".
Kent Reliance are not in financial difficulties and if they wanted to merge with another organisation I cannot see what they did not attempt to link up with another mutual British building society.

I understand JC Flowers plan to target up to 10 other regional building societies in a similar way. This looks like the end of the British building society movement as we currently know it.

Hungerdunger

There's some discussion of the link-up on this thread.

Presumably the members will have to approve this first, so who's going to start a campaign to prevent it? (unless Kent Reliance can demonstrate that this is the only way they can survive)

jimjames

Info released to local media:

Support is growing for the campaign to reject the deal proposed by JC Flowers to take over the Kent Reliance Building Society (KRBS). Members of KRBS are unhappy that the terms of the deal will give control of the Kent Reliance to the private equity company along with an excellent return on their investment while members get no benefit from the deal.


The members of KRBS need to get at least 25% of the votes cast in order to block the deal which is looking possible from the number of contacts received since the ballot papers were posted at the weekend. Members have until 19th November to decide how to cast their votes despite the board considering the proposals for over 6 months.


The proposal would give a new society Kent Reliance Provident Society (KRPS) 60% of the new bank with 40% given to private equity firm JC Flowers in return for £50 million of new capital. However details hidden in the voting pack documents show that this new bank is likely to be 75% owned by JC Flowers with only 25% for members of Kent Reliance as the board of KRBS predict that they will immediately need further additional funds to offset losses in their commercial loans book.

Primrose

I've had savings with Kent Reliance for several years and am uncertain about this deal. For one thing, I feel very uncomfortable about the number of building societies which have disappeared as they've been turned into banks, and from where I stand, their members don't seem to have benefitted in any way. I also dislike the short period of time which members have been given to consider the fine details of this deal, which are only now available. when it has been on the cards for some time.

calypso_rhapsody

Hi Primrose - i've been following the other thread that Hungerdunger pointed you towards - there's a lot on there. In principle, I share your concern about building societies demutualising (which, despite the Board's claims to the contrary is in effect what is proposed here) but is there actually any evidence that building societies offer savers better rates than banks? .... not sure that there is if you look at the comparison sites.

To me it is just a question of whether KR will continue to offer good rates to loyal customers - if they do i will stay with them, if not i'll move my money at maturity.

Mind you i have not yet decided how to vote - hence keeping an eye on these threads to see if i am persuaded to vote one way or the other. I did not join KR as a 'carpet bagger' - ie expecting or hoping for a windfall - indeed it is possible that i signed one of those charity waivers (i really can't remember) - so to me the issue is not so much about ownership of KR as about how it will treat savers in the future, if the deal goes through and if it does not .... impossible to judge from the paperwork we've been sent!!!

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.

premierfella

An example of one of the subtler ways in which the paperwork tries to nudge members towards the Board's position is the ownership diagram (sorry I can't give the page details but having already voted the paperwork has now been recycled).

Rather than placing KRBS and JC Flowers on either side of the ownership diagram, KRBS is placed top and centre, with JC Flowers sidelined on the left.

A quick glace might give one the reassuring feeling that KRBS is thus the main owner of "OneSavings".

But of course this diagram is somewhat misleading, as it appears that there is a strong probability that JC Flowers will quickly become the main shareholder of "OneSavings", but swapping JC Flowers for KRBS in that ownership diagram would of course present a rather less rosy picture of the ownership structure to KRBS members.

Androcles

Mike Lazenby, the CEO, is shown in the KRBS Transfer Document as a Director of mikelazenby.com Ltd, which appears in the Companies House Register as a Business and Management Consultancy. He also a Director of M L Consultancy Services Pvt Limited, which does not appear in the Companies Register. Does anybody have any idea what this organisation does?

Jeff Prestridge in the MailOnline says

"An aggressive growth strategy under Lazenby has come back to haunt it in the past couple of years, leaving the mutual with a loss-making mortgage book and a commercial property loan portfolio of dubious quality."

He goes on to point out that Lazenby (535k) and Scrutton, the Finance Director (337K), get to keep their well paid jobs, albeit with no bonuses this year.

Read more: http://www.dailymail.co.uk/money/article-1323155/JEFF-PRESTRIDGE-Kents-private-equity-deal-just-first.html#comments#ixzz13UBAlC5M

As others have pointed out, it is the potential losses highlighted above by Prestridge that are the issue - depending on how much they go bad, will be the amount that J CFlowers have to invest to keep the ship afloat and thereby will see them gaining a significant and increasing proportion of the shares, leaving the current mutual owners as insignificant players. There is nothing to stop Lazenby and Scrutton being significantly rewarded in the future by the Bank, (OneSavings plc) of which they are Directors NOW and which has been trading since 3rd September 2010 as an agency of Kent Reliance operating the Chatham Branch.

This all smacks to me of the Directors having already started the process without waiting for any vote, and if anybody loses out, it will not be them. :beer:

The deal is being sold on the basis that there is no other game in town with Lazenby saying to the Financial Mail that the Society has no sustainable future on its own. They say that section 1.2 of the transfer document covers the other options they have considered, but in my view this is far from a detailed account of their actions; it is just a justification for the decision they have taken and already started to work on. Members deserve a better explanation than this.

In fact reading sections 1.6 and 1.7 of the Transfer Document provide a graphic scenario of how any benefits from the deal from a KRBS members point of view just disintegrate without gaining anything of the residual share of the reserves, as the poor decisions of the past enable JCF to take a stranglehold on the assets.

Nope, I don't think this deal does it for me!

But what happens if there is a no vote? Just make sure your investment with them is within the protected limit!

jimjames

From all the replies and feedback I'm seeing a No vote is a distinct possibility. Remember that they need over 75% for the resolution to sell to JC Flowers to be passed. 25% of votes against is quite achievable.

At the press conference KRBS held today they admitted that there was no future for KRBS as a standalone entity (without admitting it was their lending decisions that caused it) but that a merger with another building society was a possibility. At least a merger would keep it as a mutual for its customers benefit. Being 75% or more owned by private equity does not strike me as being a true mutual for customers.

Despite losing £3 million so far this year costs associated with the deal with JC Flowers has so far cost KRBS £4 million.

After the interview I did yesterday the BBC are looking for some members of KRBS who would be happy to appear on camera talking about the deal possibly with KRBS management. If anyone is interested please message me via my website https://www.rainham-history.co.uk where the Vote No details are being hosted blog.rainham-history.co.uk

illogical

I can't believe that Jeff Prestridge of the Mail is recommending this deal with JC Flowers (link in thread above) given that in the past the Daily Mail has pointed out how overpaid Mr Lazenby is compared to much larger building societies pay their bosses.

So what that he's taken a 18% paycut and no pay rise until 2012, don't forget that his pay rose some 159% prior to 2007 in the years of his over indulgence with expansion into risky areas just like Fred the shred. Reading between the lines this is, as others have said a done deal and Mr Lazenby will no doubt come up smelling of roses with a nice payoff and pension somewhere along the line.

Vote no as i did on my last annual voting form, as they have no interest in the members, just as there’s little interest being paid on members accounts.

JC Flowers will clean up and control the ‘book’ value of the KRBS portfolio and use it if it turns against them regards profit as a nice little tax loss.

Mr Lazenby your overpaid and always have been, you may work 24/7 for the ‘good’ of the society, but we the members have had little return to show for it I’m afraid.

illogical

Oh by the way i've just found this little tit bit :-)
Article from: The Birmingham Post (England) Article date:March 10, 2007 (forum editor please remove if unsuitable as it is copyright 2009 on it)Byline: By John Cranage Personal Finance Editor
A former executive of Nationwide Building Society has attacked its planned merger with the smaller Portman.
Mike Lazenby, former sales and marketing director of the country's biggest mutual and now chief executive of the much smaller Kent Reliance Building Society, hit out at a conference on the benefits of mutuality.
"I think the takeover of the Portman is sad," he said.
"The Nationwide doesn't need to do it and it will distract them from what they should be doing, which is reducing costs and extending member value."
Mr Lazenby was speaking at yesterday's Celebration of Mutuality conference at Birmingham Council House organised by the West Bro-mwich Building Society and supported by The Birmingham Post.
The combined organisation would be "run more like a business than a mutual", Mr Lazenby added.

Oh and JC Flowers is...for whom?