How to play the windfall lottery

Building societies, banks, insurers and investment trusts are all offering unexpected gains, but there are caveats, says Steve Lodge
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The Independent Online
THE winning numbers are: pounds 500-plus to more than a million National & Provincial savers and borrowers, a 68p special dividend and a pounds 1 rise in share price to hundreds of thousands of small shareholders with TSB, and potentially hundreds of pounds of shares to more than two million Norwich Union policyholders.

Lottery fever has spread to the world of financial services. The stock market hit an all-time high this week on the back of financial bid talk. A whole range of organisations - including building societies, banks, insurance companies and investment trust companies - are indulging in an orgy of restructuring, shaking out windfalls along the way.

"It's a win-win situation," says one analyst, referring to the combination of windfalls and price wars that are currently benefiting financial consumers.

The windfalls vary - and they differ according to the commitment required. Some you can get your hands on, others will be tied up for years. And there is a whole spectrum of risk to get them.

Building societies: these are for pretty much everyone. National & Provincial last week gave details of windfalls proposed as part of the society's takeover by Abbey National.

Basic society windfalls are pounds 500, which you can qualify for simply by having as little as pounds 100 in a normal savings account. Opening accounts now may allow you to qualify for windfalls not yet announced (note, most societies now require at least pounds 500 to open a new account). Aside from N&P, Halifax, Cheltenham & Gloucester and Leeds Permanent have already gone. The Alliance & Leicester is the next favourite. It is expected to announce plans to convert into a bank, which would probably mean windfalls of pounds 500 or more of shares. The Woolwich, Nationwide and Bristol & West are also good bets.

Benefits of playing the societies include:

o It's relatively easy to qualify. In fact, as savers and mortgage borrowers, most people in the country are already playing.

o Safe bets - your stake is secure and will earn interest even if there is no windfall.

o Windfalls can be high, both in absolute terms and in proportion to balances. pounds 500 is becoming established as the basic payout. Because of the way societies have built up hefty profits - called reserves - from previous savers and borrowers, payouts can be particularly generous. Windfalls are reasonably accessible - in cash or instantly sellable shares.

Life insurers: Norwich Union's announcement that it was considering joining the stock market raised the prospect of big- name insurance companies going the same way as the building societies. Scottish Amicable and Friends Provident are seen as among the keenest.

Two million or more Norwich Union policyholders could receive shares worth hundreds of pounds each as part of a flotation. Meanwhile, 200,000 policyholders with Provident Mutual have been offered bonuses totalling pounds 25m in return for agreeing to a takeover by General Accident.

Ironically, it is the millions of holders of endowment policies and personal pensions - who have increasingly heard doubts about the value of what they have been sold - who are most likely to benefit from windfalls.

If you were going to take out a particular policy anyway, then the prospect of a bonus should be seen as just that. But there are plenty of pitfalls in buying simply in the hope of a windfall.

o Windfalls may well be smaller than those from societies - in money terms or compared with the amount of money you have with an insurer.

o Some may come in the form of shares or cash, but many others will be in the form of bonuses to your policy. Getting your hands on these windfalls may take years or mean reduced value - you are penalised for cashing in endowment policies early, for example, while personal pension monies cannot be withdrawn until at least 50.

o Many life insurance and personal pension policies are are riskier than society savings accounts and performance can vary significantly.

Banks: Lloyds Bank's takeover bid for the TSB has meant smiles for hundreds of thousands of small shareholders. They stand to benefit from a special dividend of 68.3p and have seen their shares rise pounds 1, or 35 per cent. Abbey National, the former building society, is another widely held share. Bid rumours continue to buoy up the share prices of banks as a whole, so if you happen to hold them, great. But buying in the hope of further windfall gains is a risky game.

Investment trusts: There is pounds 3bn of dead wood, according to Credit Lyonnais Laing analyst Peter Walls: "Some are derelict dinosaurs and some are smaller, younger trusts that have simply fallen on a period of poor performance and/or suffer from an abnormally wide discount [to the value of the underlying investments]." Shareholders in such trusts - which are stock market-quoted investment funds - can benefit from takeovers, restructurings or winding- ups. Two big examples this year are in the table. A reduction in tax on long-term capital gains could precipitate many more changes. Three of the most vulnerable trusts are pounds 280m Govett Strategic, pounds 160m Brunner, and pounds 200m-plus Kleinwort Charter, accord- ing to analysts at BZW. But experts warn against buying trusts simply in the hope of windfall gains. Many of the likely takeover targets have been poor performers; hoping for a windfall can be a "recipe for underperform-ance", says one analyst. And windfalls may not amount to more than a few per cent of your investment, which could be more than wiped out by the risks of being in the stock market.


Company Deal Windfall

National & Provincial pounds 1.35bn takeover by Abbey National pounds 500-plus cash or shares to 1.3 million savers/borrowers

Norwich Union pounds 2bn flotation under consideration Hundreds of pounds of shares or policy bonuses to 2m-plus policyholders

TSB pounds 15bn merger with Lloyds Bank Special dividend of 68.3p per share to TSB's hundreds of thousands of investors, plus pounds 1 per share price rise

Halifax/Leeds Permanent Merger plus pounds 8-9bn pounds 800 in shares to up to 10m conversion into bank savers and borrowers

Cheltenham & Gloucester pounds 1.8bn takeover by Lloyds Bank Average of pounds 2,200 cash to 900,000 savers

Provident Mutual pounds 170m takeover by General Accident Bonuses averaging pounds 100 to 200,000 policyholders

Selective Assets inv trust pounds 85m takeover by British Empire Few per cent rise in value Securities for thousands of investors

Drayton Far East inv trust Division of pounds 175m trust into two: Few per cent rise in value Invesco Tokyo, Invesco Asia for thousands of investors

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