Here’s an interesting conjunction of people and events, redolent of other recent banking revelations.
In 2000, Scottish Widows de-mutualised, being bought from the policy-holders by Lloyds TSB. In common with other assurance companies (most famously Equitable Life), SW had exposure to the Guaranteed Annuity Rate problem.
The exact purchase-price was to be calculated after transfer to Lloyds TSB according to a formula, and at a point in time was estimated in the prospectus to be £5.4 billion, subject to a cap of £6.1 bn. Part of this was to be held in a new 'Additional Account'. As explained on page 23 of the Demutualization and Transfer Policyholder Circular:
“ the additional Account [is] intended to protect the With Profits Fund against the consequences of a future fall in interest rates, including increases in the costs on meeting policy guarantees … the balance of the Additional account will be paid out over time as a terminal bonus on Transferred With Profits Policies, to the extent not needed to meet contingencies ….”
Would ordinary SW policy-holders have understood from this small print that (a) it all hinged on the outcome of the then-pending Equitable Life court case (not mentioned); and (b) as much as £1.5 billion (as it actually transpired in 2002) would end up being used in this way and therefore not paid out to them by way of a terminal bonus ? (amounting to nearly 30% of what they might have been expecting)
I could argue it both ways. However, whistle-blower Graham Milne of Lloyds TSB came to the view that the Circular illegally misled policy-holders. He was duly suspended and, one year later, fired – sound familiar ?
Just before he was fired, the FSA responded to his claims, dismissing them - doubtless to the satisfaction of Lloyds TSB. The FSA Managing Director responsible was Carol Sergeant, a personal appointee of Gordon Brown’s – sound familiar ?
Just as Milne was being fired, guess what happened to Sergeant ? One month after she dismissed Milne’s complaint, she was hired as Chief Risk Director at … Lloyds TSB ! Six months later, for good measure, she was awarded the CBE: and then made a Trustee of the charity Public Concern at Work (motto: Making Whistle-Blowing Work). After all, she’d been responsible for launching the FSA’s whistle-blower policy !!
I am not making this up.
As Nick Robinson blogged recently: beware the City merry-go-round …
Update: Blogger seems to have buggered the links - but you can easily see what they are meant to be