Aviva rethinks axing of ‘pref ’ shares amid public outcry
AVIVA has backtracked on a controversial decision to cancel its high-dividend preference shares after receiving “strong criticism” from investors.
The City was furious after the FTSE 100 group said earlier this month that it had the right to cancel the shares, which tumbled on the announcement and led to a paper loss of around £1bn for investors.
The “prefs” pay a fixed dividend and were sold as irredeemable by the insurer. Aviva sparked outrage among investors – many of whom are pensioners – when it said it wanted to ditch the shares to save money.
Philip Meadowcroft, a private investor who has led a number of campaigns for changes at Aviva in recent years, told The Daily Telegraph he had contacted the insurer’s chief executive, Mark Wilson, to warn him the company needed to “clear the air”.
He said: “The reputational damage self-inflicted on the company and its branding has been devastating, let alone the preference share market as a whole.”
Jason Hollands, a managing director at Tilney Investment Management, said shareholders were right to be livid and the incident had left the company “licking its reputational wounds”.
The pressure led to a change of heart yesterday when the company said it “has listened” to the criticisms of investors and would take no action.
“The reputation of Aviva, and the trust people have in us, is paramount,” said Mr Wilson yesterday. “The board and I have a duty to consider not just the financial implications of our actions.
“We must consider the impact to Aviva’s wider reputation. I hope our decision today goes some way to restoring that trust.”
The embarrassing incident even reached the attention of MPS and the Financial Conduct Authority, which yesterday welcomed the announcement for providing “welcome certainty to the market”.
Aviva defended its review of the shares yesterday by saying it had a “duty to examine what is right for the business”, and “needed to address the issue of the preference shares given regulatory capital considerations and their cost”.
Nevertheless, its reference that it had the ability to cancel the shares in its annual accounts came as a surprise to shareholders.
As noted by The Daily Telegraph earlier this month, Aviva’s own website appeared to contradict itself.
It referred to the shares as “irredeemable” but said a few lines later they “cannot be redeemed without approval by shareholders [preference and ordinary]”.
Pressure on the company to go back on its plans had intensified in recent days, with Nicky Morgan, the chairman of the House of Commons Treasury select committee, writing to FCA boss Andrew Bailey demanding answers after receiving a “large volume of correspondence” about the issue.