Yahoo Finance Aviva fights to restore trust with payout after botched attempt to ditch share plan
Aviva has promised to compensate around 2,000 people who lost money after selling their high-paying preference shares in the company last month when the insurer unsuccessfully tried to cancel them.
Shares in the so-called 'prefs' crashed after the FTSE 100 giant said it might scrap £450m worth of shares to save money, leading to a paper loss of around £1bn for investors. It later reversed on that plan amid a furious backlash from MPs, fund managers and pensioners.
Fighting to rebuild trust among its investors, Aviva said on Monday that it would offer a 'discretionary goodwill payment' to those who sold the shares between 8 and 22 March which will see it shell out around £14m.
"We recognise that whilst we were considering our options for the preference shares this caused uncertainty and led some investors to sell their shares," said chief executive Mark Wilson. "We hope this goodwill payment goes some way to restoring trust in Aviva."
Investors were angry about the plan to sell the shares because they believed they had bought them as irredeemable, an issue that has triggered wider debate about how preference shares are sold. M&G Prudential, Blackrock and Legal & General were among the firms to protest against Aviva's attempt to ditch the shares.
Panmure Gordon analyst Barrie Cornes said that while the insurer was now "doing the right thing" the whole fiasco has been a "costly mistake with damage to its reputation" and the initial decision was "ill thought out".
The row triggered the Financial Conduct Authority (FCA) to step in to see how this sort of saga can be avoided in future. In a letter to chief executives, FCA boss Andrew Bailey said earlier this month that companies issuing 'prefs' need to ensure the terms and conditions are clear.
He said businesses should clearly state whether a company can cancel the shares for less than the prevailing market price and give investors access to the original contract, which might have been drawn up decades ago. Aviva's preference shares, for example, were first issued in 1992.
Aviva has appointed Big Four accountant KPMG to manage the process, with the company giving eligible shareholders up to six months to make a claim.
"Preference shares remain an industry-wide issue and it is clear now that the best way forward is to seek a regulatory solution before the 2026 deadline when the shares no longer count as regulatory capital under Solvency II," Mr Wilson said.
