A rush to the mutual exit

WITH one leap Sir Brian Stewart, Standard Life's chairman, has sought to put a distance between Europe's biggest mutual and the past.

Chief executive Iain Lumsden has been unceremoniously dumped, the group has caved in to demands for more realistic accounting, and it seems inconceivable that it will remain an exclusive members club for much longer.

A flotation, trade sale or merger with another insurer looks the most likely outcome. The pious defence of mutuality, which Standard Life conducted for so long, simply has unravelled.

The insurance business has changed radically. A series of fiascos from pensions mis-selling to bonus cuts and endowment shortfalls has undermined the credibility of with-profits policies.

Standard Life is part of this. With-profits funds represent less than half its existing business and less than one-third of the new business being written. Under such circumstances it makes no sense to be a mutual where the with-profits policyholders are providing the capital for other activities.

At the core of the difficulty with the regulator has been the practice at Standard Life of telling its with-profits policyholders (of which I am one) that the final payout on their policy will be bigger than say, at the Pru, because of the benefits of being a mutual.

Mutuals do not have the expense of paying dividends and historically have had a lower cost of capital.

The Financial Services Authority challenged this view and provoked a crisis, which the top managers at the Edinburgh insurer refused to acknowledge as recently as last week.

Now comes the reckoning. Some quick fundraising is taking place with a planned capital issue of £750m. Moreover, Standard is dumping heavy equity holdings, placing its Hammerson property stake in the market in a transaction which raises £350m.

All this is pure coincidence, says new chief executive Sandy Crombie. But nevertheless it is very convenient.

Now there is talk about a strategic review before anything is decided about demutualisation. Given the attempts by carpet-baggers over the last several years to unlock Standard Life's wealth, this looks unnecessary. The sooner the group moves to a vote of members, the better the outcome.

As others such as Friends Provident and Legal & General have demonstrated, the ability to raise equity capital in an expanding market for investment products is the difference between growth and stagnation.

Leahy's lead

ONE group which has no trouble convincing the market that it will use any funds it raises wisely is Tesco. It had no difficulty placing shares to the value of £773m on the back of its stunning end-of-year sales performance.

Rival Sainsbury remains stuck in the mud, allowing Tesco to accelerate away with 7.5% like-for-like sales growth. Overall sales were up even more sharply at 16.7%, with the international side blazing the way.

Unhelpfully, Tesco does not separate non-food sales such as CDs and clothing, from grocery. But it is a fair bet that non-food is where the faster expansion is coming through.

This must be increasing pressure on full-price retailers in allied businesses including WH Smith, currently struggling to reshape its retail operation.

Having thrown its hat into the crowded Safeway auction with little prospect of victory, chief executive Sir Terry Leahy is ruling out the prospect of a major takeover.

Tesco does expect to pick up a few stores from Morrisons, when it eventually completes its Safeway takeover, and will press ahead in Eastern Europe and the Far East.

If anyone is going to make a good fist of this, it is Tesco. It now has an improved credit rating from S&P to go with its healthy stock market value.

Railway buffers

IT IS impossible for anyone to cough on the railways without one of the myriad of overlapping regulators pouncing.

The Strategic Rail Authority, having given the go-ahead to FirstGroup joining the race for the ScotRail franchise, now finds yet another regulator in on the act.

The Office of Fair Trading, under former Bank of England economist John Vickers, has decided that this deal should go to the Competition Commission.

Knowing the speed at which the CC works, that could tie FirstGroup up in knots for months to come, if it decides that it still wants to pursue the quarry.

Maintaining free and competitive markets is a laudable objective. But imposing layer upon layer of regulation on commercial firms such as FirstGroup can only put sand in the wheels of commerce.