10 million may benefit from share hand-out

HALIFAX/LEEDS MERGER

BY SIMON PINCOMBE

If the deal is sanctioned by the High Court later this month, more than 10 million savers and borrowers with Halifax and Leeds building societies stand to receive a basic share package worth between £500 and £700 when their new combined bank is floated in early 1997.

The basic package would apply to customers who maintain more than £100 in their share accounts from 25 November last year, the date the proposed merger of the two societies was announced, until the date of conversion to a bank.

Customers whose accounts fall below the £100 threshold risk disenfranchising themselves from the share benefit scheme. Halifax said yesterday that account balances would be checked on unspecified dates.

The same applies to investors of more than two years with more than £1,000 in their accounts. They will be eligible for extra shares. Depositors, including the 900,000-plus Halifax current account-holders, get nothing because their accounts do not confer membership.

The court hearing to approve the plan is expected to begin on 20 March with the judgment due shortly afterwards.

Jon Foulds, Halifax chairman, said the two groups expected a market capitalisation of £10bn for the new bank and would be disappointed with less than £8bn. He said benefits, although allocated proportionately to the size of members' funds, would be loaded in favour of the smaller investor.

No figures have been finalised. But assuming the lower projected market capitalisation of £8bn, the plan would be to split the value into a "basic pot" of say £6bn and a "variable pot" of £2bn. The basic pot would be divided among 10 million customers, representing 7.5 million savers over the £100 threshold and 2.5 million mortgage customers. That would give them £600 each.

The £2bn variable pot would be used to give extra shares to investors with deposits above £1,000, up to a limit of £50,000. These investors will get additional shares based on the value of their desposits, probably calculated at a rate of between 5 and 10 per cent.

Assuming a market capitalisation of £8bn, an investor with £1,000 could therefore expect to get the £600 basic package plus a further £50 to £100 variable top-up depending on how it is calculated. An investor with £50,000 could receive a variable sum of up to £5,000.

Investing members eligible to vote, but not qualifying for free shares, are likely to receive a statutory cash bonus of 5-10 per cent of balances if the merger goes through. But both societies stress that there is considerable uncertainty over the final figures. That will depend on the stock market at the time of the float and what the societies are allowed to do under building society legislation.

The court hearing to sanction the deal is being brought by the Building Societies Commission with the agreement of the societies. It is intended to clarify whether members, other than investing members of at least two years' standing, are permitted to receive free shares on conversion to a quoted bank. It also seeks to iron out whether shares can be offered to borrowers as well as savers and whether shares can be allocated on a "sliding scale" to savers depending on the amounts in the accounts.

Mr Foulds said he did not expect dramatic revisions to the merger timetable the societies hope will be approved by members in the spring and completed by the summer.

The merger will create Britain's fourth-largest retail banking group, with multi-billion pound flotation tentatively planned for two years' time.

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