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Page 1: Carpetbagging.

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Forget the lottery.

Forget "Who wants to be a millionaire?"

The smarter investors went to the Alliance and Leicester, and all the other converted building societies and mutual insurers, and made a packet.

Please read on.

Carpetbagging describes the tactic of investing in a mutual company primarily to get shares or cash should that company convert into a company with shares listed on the stock exchange. Typical mutual organisations targetted by carpetbaggers are building societies, some insurance companies and so-called friendly societies. People invested £100 in some building societies and got £700 in shares just 18 months later. Thats a return of 466% per annum PLUS the interest on the original £100. In 1997, at the height of the conversion frenzy, the Alliance and Leicester, Halifax, Woolwich, Bristol and West all paid out about £1000 to savers and mortgage holders. At the time, suddenly everyone wanted a slice of the windfall cake. The day-to-day running of the businesses of building societies, especially the larger ones, was disrupted, prompting them to raise their minimum account opening balances. By the end of 2000, most building societies had introduced "Charitable Assignments" clauses into their new account application forms, in effect forcing new investors to waive their right to any windfalls until about five years after the account is opened.

Please read on.

Some building societies also strictly enforced rules excluding new investors outside their localities which, in effect, sounded the death nell for Jenny from Wales opening accounts with the Norwich and Peterborough or for Steve from London opening an account with the Barnsley. These more local building societies may still welcome people living within their operational area, without nasty clauses like charitable assignments. Also, people holding accounts long term with unconverted building societies should endeavour to maintain these accounts. Instead of a long paragraph, here is our quick guide to carpetbagging for 2002:

    • If you have an account with an unconverted building society, keep it open. Should you need access to your money, try to keep a minimum of £100. Even if you have to close the original account, open a new one with £100 at the same time, checking with the cashier that your membership with that society will be deemed constant.
    • If you have £100 to spare, and it isn't borrowed, one of the best places for it would be in a new building society savings account. So get your pen and long piece of paper out and get the investment details from as many societies as you can. Money Surgery is of the opinion that the most likely to convert or be taken over are the national building societies like Nationwide or Yorkshire but they will have charitable assignments AND minimum operating balances, so resign yourself with your local instead. If you can spare it and you have some patience, put £100 into accounts where the charitable assignment lasts for 5 years. You might strike lucky.
    • Everyone who makes an investment in these societies must take note of the interest rate applicable to that account. Your £100 or £500 may lie like an unexploded bomb for many years before conversion detonates it, so watch the rates.
    • Make sure that carpetbagging is high on your list of criteria for choosing other investment products like mortgages and pensions. Choose a mutual company wherever possible. Even mutual insurance companies have been successfully pressurised into converting by their members. Because of the higher average accumulated size of these investments, windfall payments may be distributed more heavily for these investors. People who had a mortgage with Halifax Building Society in 1997 made nearly £1500 when they chose cash instead of shares. That could be a year's free mortgage interest payment, effectively. But make sure any investment with an insurance company is, at least part, "With-Profits" or you may not receive a windfall. Money Surgery recognises that endowments and pensions and other insurance company investments are long-term and can be onerous so never invest with them for the sake of carpetbagging, instead let mutuality be a preference when choosing a company.
    • Never borrow to invest in savings. Pay off the debts first. When investing always check that you are happy with the terms of access to your money should you need it in an emergency.
    • Never be too vociferous with your clamour for conversion. Many building societies have thrown out members who organise signed petitions against the board, not surprisingly. So let others risk their membership rights so you don't have to. Just remember to mark an X in the right place on the voting form every building society sends to each of its members at AGM time. Read the profile of each director carefully before endorsing, or not endorsing, him or her.

    Please read our other pages.

    Standard Life to Convert

    (Friday 2nd April 2004 news story)

    Standard Life, Europe's largest member-owned life assurance company, has announced plans to float on the stock market and issue windfall shares to its members.

    In addition, it will close its final-salary company pension scheme to new joiners from 16 November 2004. The firm employs 14,500 people worldwide, including 11,000 in the UK, 8,000 of whom are based in Edinburgh, and manages over £90 billion on behalf of investors.

    Standard Life is a big player in the with-profits investment market, but these products have declined in popularity following a lot of bad publicity, and are expensive to maintain. Hence, the company has decided that demutualisation (converting to a public company and listing on the London Stock Exchange) is the best way to enable it to access the capital that it needs to invest in its business and compete with its rivals.

    Standard Life plans to ask for members' approval to do this at its 2006 annual general meeting, after which it will issue shares to members. The life assurer has five million customers worldwide, four million of whom are in the UK. However, only the 2.6 million with-profits members (of whom 2.2 million are in the UK) will receive shares when the firm demutualises. Customers who are not with-profits policyholders, such as those with mortgages, savings accounts, unit-linked funds or healthcare products, will not be entitled to receive windfall shares or vote on this proposal. The same goes for anyone taking out a with-profits policy from today. These people must sign a three year waiver confirming that they agree to these restrictions.

    At the time of writing, if the group is valued at £4 billion, the average windfall to qualifying policyholders would be less than £2,000. That's a fraction of what loyal policyholders have lost in recent years and a drop in the ocean compared to what they stand to lose in future.

    Staffordshire Windfalls

    (Monday 18th August 2003 news story)

    Members of the Staffordshire Building Society will get windfalls of between £100 and £2,500, if the proposed merger with Portman Building Society takes place. Customers with at least £100 in savings or mortgage debt, between 23.07.03 and 31.12.03, will qualify. If you're a member of the Staffordshire and you're eligible to vote, you'll be sent a booklet this week outlining the merger deal and providing details on how to vote.

    Carpetbaggers will be vindicated once more as another mutual institution bites the dust. Just £100 of savings would have qualified for a windfall, showing that there's life in carpetbagging still, contrary to our previous article of 28.07.03, below. As part of a balanced diet, of healthy debt control, carpetbagging really can provide enormous nutrition for your finances. Carefully selected investments in mutual companies, of a minimal £100 and over the long term can provide healthy interest plus a whopping bonus if the institution converts or gets taken over. It remains the only gamble worth considering, for the financially fit or those on a debt diet.

    Standard Life Repels Carpetbagger

    (Monday 28th July 2003 news story)

    Standard Life has rejected a fresh bid to turn it into a public company, a move that could have yielded average windfalls of £2,500 per customer.

    The Edinburgh insurer said that after taking legal advice, it was not, in fact, bound to hold a special meeting on its mutual status in response to a member's petition.

    Carpetbagger, David Stonebanks' resolution is thought to have been at fault in it's wording, although he has pledged to continue his campaign.

    At the Surgery, many of us remember the halcyon days when carpetbagging was a great hobby. These days, running rings around debt is a far more wholesome activity.

    Autumn Windfalls from Scot Prov

    (Wednesday 10th October 2001 news story)

    Carpetbagging is back in fashion! Customers of Scottish Provident will soon be told if they are to receive a windfall payment as a result of the Abbey National takeover. The life insurance company will distribute £1.6BN to qualifying members. It is believed that all 450,000 policyholders will get £500 minimum, with the biggest windfalls for with-profit customers, potentially averaging £3,400 each. Payments will be made some time in January 2002, with letters outlining the actual amount sent this December. Some policyolders with large and longstanding accounts may be in line for £100,000.

    Customers should check carefully their letters from Scottish Provident to ensure all their relevant policies have been included for compensation. The Scottish Provident helpline is on 0845-270 0444. A MoneySurgery Gold Star to any lucky policyholders who tell us of their good news here.

    Carpetbaggers Outlawed!

    (Tuesday 17th July 2001 news story)

    Just when the carpetbaggers come out from under their collective stone, sniffing a windfall, some MP goes and spoils it all permanently. At least thats the objective. An "anti-carpetbagging" Bill introduced today by Labour MP Gareth R Thomas proposes a minimum number of votes required for demutualisation of 75% on at least 50% turnout. Building societies already have such requirements as part of their rules. Mr Thomas wants this provision to extend to all mutual organisations.

    On Thursday, the Nationwide Building Society will hold its AGM, including an election of two directors to the board. One of these is Andrew Muir who is seeking to convert the society. Unfortunately, he failed to read the society's rules correctly and in his election profile, sent to members, he advised that they send the forms back blank for him to fill as the members' proxy but under the rules these forms will be deemed void! As one Nationwide employee quipped, "Do we really want a director that can't even understand basic society rules?"

    Oh well. Now where did I leave my stone?

    Carpetbaggers Return.

    (Sunday 8th July 2001 news story)

    Policyholders of Standard Life, the insurance giant, could at last be in line for a windfall from its conversion to a PLC. Iain Lumsden, who takes over as Chief Executive in March, recently made statements confirming their commitment to mutuality that he is expected to make but many experts say that Mr Lumsden is not so dogmatically attached to mutuality as his predecessor, Scott Bell. During last years conversion battle at Standard, Mr Lumsden conceded that policyholders could indeed be better off should the company convert.

    Widely seen as the last Great White Windfall roaming the seas of mutuality, carpetbaggers have long sought to convert the insurer along with the many others that have recently shed their mutual status. It would provide windfalls of an average £3000 to policyholders of three years or more and should easily enter the FTSE100.

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