Brokers act to head off windfall chaos

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The Independent Online
Windfall share issues from demutualised building societies and insurance firms during the summer and autumn threaten chaos for the stock market.

Barclays Stockbrokers Limited believes there could be a repeat of 10 years ago when the quantity of paper generated by utility privatisation so clogged the channels of the stock market that the idea of closure for one day a week was mooted.

Such extreme measures did not prove necessary then, and with much less paper being used, the hope is that they will not be necessary now.

However, BSL has prepared for a flood of share transactions by setting up an "alternative call centre" with BT in Dundee.

Justin Urquhart Stewart, BSL's development director, said: "Volumes may reach 100,000 a day, so there's a real danger that the market could be clogged."

The rush starts a week tomorrow with the Alliance & Leicester, floating at pounds 2.4bn,with 2.5 million shareholders.

June will be particularly hectic, with three flotations: Norwich Union (pounds 3.7bn, 2.5 million shareholders); the Halifax (pounds 12bn, 9 million shareholders); and the Woolwich (pounds 3bn, 2.5 million shareholders). In August, Bristol & West (pounds 600m, 3 million shareholders) will be merged with Bank of Ireland. Northern Rock (pounds 1.2bn, 3 million shareholders) will demutualise in October.

So much new equity, Mr Urquhart Stewart forecast, could have an impact on the Footsie. "We're looking at several shares which may qualify. So, just it was with the utilities, the index may end up looking skewed towards financial services." In other words, a change in interest rates regarded as negative for the financial service sector could distort the picture of what was really happening across the spectrum.

At a briefing this week BSL will discuss issues arising from demutualisation in an effort to help the stockbroking industry learn from previous mistakes.

"Instead of broadening and deepening share ownership and extending the equity market," he said, "most privatisations eventually succeeded in sending money back into the deposit accounts from whence it had come. They increased the number of shareholders, but the spread was too thin. We've been given the opportunity to try again and do better. This time it's not the family silver, it's grandma's jewels. It's not often you get free blue-chip banks coming on the market."

Mr Urquhart Stewart believes the best strategy for investors receiving windfall share issues is simply to hold on to them.

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