Halifax agrees price for Equitable buyout

Halifax, Britain's largest mortgage bank, today agreed to pay ?1bn for troubled mutual life insurance company Equitable Life.

The deal could offer hope to the 450,000 with-profits policyholders at Equitable, who have been wondering what to do with their money after the company ran into trouble over its handling of guaranteed annuity policies.

The Halifax offer - which beat off a last-minute challenge from US financial services group GE Capital - will create a banking and life insurance giant called Halifax Equitable.

Equitable was forced to seek a buyer last July after judges ruled that it had acted unlawfully in cutting bonuses to holders of guaranteed annuity rate (Gar) policies. The ruling left the mutual with a big hole in its capital, estimated at upwards of ?1.5bn.

The Equitable's chief executive, Chris Headdon, said that the transaction is good for Equitable's policyholders, bringing ?1bn into its life fund.

"That's real money that's coming into the fund for the benefit of policyholders," he said. "It gives us a real incentive for us to resolve this guaranteed annuity issue."

Mr Headdon said that the Halifax offer has been accepted by the board. "This is a good result for policyholders after a long period of uncertainty," he added.

The transaction will accelerate Halifax's diversification away from low-margin mortgages towards higher-growth long-term savings, effectively doubling Halifax's funds under management.

The Equitable, the world's oldest mutual insurance company, was forced to close to new business in December when UK insurer Prudential pulled out of talks to rescue the group, causing outrage among Equitable's 90,000 holders of Gar policies.

Halifax, which already owns life insurer Clerical Medical, will initially pay ?500m for Equitable's operating business, including its fund-management operation, administration systems and 400-strong sales force. The first ?500m payment by the Halifax will be due to be paid on March 1.

The chief executive of Halifax, James Crosbie, said that the deal would turn Halifax into one of the top three long-term savings businesses in the UK.

The mortgage bank will pay a further ?500m, conditional on Equitable reaching a settlement with its policyholders, including holders of Gar policies.

Equitable and its policyholders have been struggling to resolve the dispute over these policies. One solution would be for the holders of Gar policies to accept a fixed increase in their policy value in exchange for giving up their guaranteed annuity entitlement.

Mr Headdon said that the group will sound out policyholders on this proposal and, if finalised, it would be circulated to all members for a vote at a general meeting in the middle of the year. The proposal would also need court approval.

Mr Headdon said that the impact of the Halifax deal would be relatively modest initially. "But once we get the Gar deal that is the point at which the investent freedom (of Equitable) will change quite markedly."

In December, when Equitable closed its doors to new business, it had to adopt a more risk-averse investment strategy, which it estimated would reduce returns by about between 0.5 and 1% each year.

Mr Headdon said that GE had also put in a proposal, but around two-thirds of its offer was essentially a financing deal. GE, the financial services arm of General Electric, reportedly offered ?425m pounds for Equitable's operational assets, plus ?850m as a loan to the with-profits life fund.

"The real value delivered to policyholders from their (GE Capital) proposal is clearly very much lower than the Halifax transaction," Mr Headdon said.

The financial services authority, which oversees all UK financial services, welcomed the announcement.

But shadow paymaster general Richard Ottaway said that the deal should not spell the end of an inquiry into the problem faced by policyholders.

He said: "The Halifax offer is good news for Equitable Life policyholders and we welcome this move, which should ease the concerns of millions of people affected by the company's recent difficulties.

"However, despite today's announcement, serious questions still remain over the Treasury's conduct and supervision of the life assurance sector in 1998.

"It is still essential that the financial services authority continue their investigation into their handling of the matter," Mr Ottaway added.

Related articles
04.02.2001: A quagmire with no equitable exit
29.01.2001: The paydays go on at Equitable
20.01.2001: Trust is in the balance


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