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COMMENT
Despite the 2000-2003 bear market, investors keeping a firm grip on their ex-building society 'windfall' shares will still be smiling today. The table below lists seven of the most popular demutualisations: The archetypal carpetbagger would have quickly profited by selling the free shares immediately. However, a longer-term investment horizon would have since improved the carpetbagger's portfolio by over 80%. Here's how those seven holdings stood at yesterday's close:
Company
Conversion
dateMinimum number
of free sharesFlotation price
(p)Windfall value
(£)
Abbey National
12/07/89
100
130
130.00
Alliance & Leicester
21/04/97
250
542.5
1,356.25
Halifax
03/06/97
200
732.5
1,465.00
Woolwich
07/07/97
450
296.5
1,334.25
Northern Rock
01/10/97
500
452
2,260.00
Bradford & Bingley
04/12/00
250
248
620.00
Friends Provident
09/07/01
200
225
450.00
Total
7,615.50
Company
Number
of sharesShare price
31/05/05
(p)Accumulated
dividends
(£)Total value
(£)
Banco Santander
100
* 627.5
* 417.50
1,045.08
Alliance & Leicester
250
856.5
690.00
2,831.25
HBOS
185
800.5
517.24
1,998.16
Barclays
208
521.5
** 1,184.07
2,268.79
Northern Rock
500
737.5
675.50
4,363.00
Bradford & Bingley
250
308.75
162.50
934.38
Friends Provident
200
174.5
51.40
400.40
Total
13,841.06
(*Traded in euros and includes two euro-dominated dividends. Converted at £1/€1.477 **Includes 164p per share cash portion of takeover offer)
Over time, passive windfall shareholders have encountered their fair share of corporate activity. Most notably, Abbey National succumbed to a £9b bid from Spanish counterpart Banco Santander last year. In addition, Barclays (LSE: BARC) snapped up Woolwich for £5b during 2000, while Halifax merged with Bank of Scotland to form HBOS (LSE: HBOS) in 1999.The following table shows the average annual return for each windfall share held since flotation. The calculations assume accumulated dividends were taken as income and not reinvested.
| Share | Average annual return (%) |
|---|---|
| Abbey National | 14 |
| Alliance & Leicester | 10 |
| Halifax | 5 |
| Woolwich | 8 |
| Northern Rock | 9 |
| Bradford & Bingley | 10 |
| Friends Provident | (3) |
Floating just as the bear market got into full swing during mid-2001, only Friends Provident (LSE: FP.) has disappointed its investors. Halifax has not set pulses racing either, its shares having matched the lacklustre returns from the FTSE 100 over the past eight years. However, Alliance & Leicester (LSE: AL.), Bradford & Bingley (LSE: BB.), Woolwich and Northern Rock (LSE: NRK) have all done particularly well. Importantly, dividends have supported the all-round progress; payouts have increased every year since flotation at six of the seven financial institutions.
Of the shares highlighted, the one that really stands out is Abbey National. During the past sixteen years, those hanging onto Abbey shares (and subsequently keeping their Banco Santander shares) would have seen their investment (including dividends) grow at approximately 14% per annum. Not bad going, especially when you consider Abbey is only the bank on the list to have cut its dividend! A disastrous foray into wholesale banking was the cause, which resulted in a £984m loss and a share price collapse in 2002.
But overall, passive demutualisation investors seem to have been handed a band of reliable performers. With the sector's history also suggesting any strugglers are likely to get bought -- plus some rather stingy company valuations at present -- there would seem little incentive to cash in the windfalls just yet.