A&L and a big gamble

Alliance & Leicester members who chose cash rather than shares will not know until next week whether they made the right decision, says Clifford German

You get a smarter investor at the Alliance & Leicester, according to those old advertisements featuring Stephen Fry and Hugh Lawrie. But do the 640,000 investors and borrowers who decided to take cash instead of free shares this week know something the rest of us did not?

A&L and its advisers Cazenove say they expected one in four of the 2.3 million members eligible for 250 free shares to take advantage of the opportunity to sell them for cash, free of dealing costs, before trading begins next week. In fact, 27.5 per cent of the total membership decided to do so, which is twice the number forecast by the opinion pollsters MORI earlier this year and more than the total amount of Abbey National shareholders who baled out in the first 12 months when it went public in 1989.

They may have thought taking cash looked the safer option this week. But those who decided to take the cash are in fact taking part in a gamble. Their shares will be sold by auction by Cazenove in a three instalments on Friday afternoon, Monday and Tuesday. The proceeds of the auctions will be averaged out and sent out to investors by the end of April. But they will not know until next Wednesday whether they were right to sell blind, before the market opens. They could get more than the price at which the shares start trading next Monday. Or they could get less.

The initial market reaction was that the 160 million shares being sold would go part of the way to satisfying the requirements of tracker funds and institutions which will need to hold A&L shares when it joins the FTSE 100 share index in June. The estimated value of the shares, when details of the float were announced last September, was anywhere between 385p and 435p. Subsequently the stock market as a whole climbed by around 10 per cent, and the more optimistic forecasts went as high as 510p per share.

Now the market has turned down because of uncertainties over what will happen to shares on Wall Street if US interest start to rise, and the expectations for A&L shares have come down again. In the light of the large numbers of shares being sold, the market price could be around 475p on Monday morning, putting a value of just under pounds 1,200 on individual windfalls.

The shares could then go down, if more shareholders decide to get out while the going is good. But the underlying demand from institutions which will need to hold about half the shares by the end of the year is such that the prospects still look good for investors willing to wait.

Meanwhile, what will members who cashed their shares do with the money? Not all of it will be spent, of course. Most of the members are middle- aged and financially secure. The chances are still that at least half the pounds 700m-pounds 800m they get from selling their shares will go back into investments. Some of it may even go into accounts with the next generation of possible demutualisers, such as Birmingham & Midshires, the Bradford & Bingley or even the Nationwide.