Fallout from the with-profits plunge

STANDARD Life, the Edinburgh-based mutual, has let it be known that it plans to develop more self-invested pension products (SIPPs), which it hopes will go some way to compensating for the collapse in its traditional stream of business - selling with-profits insurance and pension policies.

It certainly needs to do something. The rows about endowment mis-selling and the butchering of bonus rates on with-profits policies as equities and interest rates fell, have severely undermined the public's faith in the products.

Then the trouble Standard Life got into with the regulator this time last year meant independent financial advisers stopped steering business its way until the dust settled.

The result was that while the market for such products fell last year by about 11%, Standard Life's share of new business plunged by 29%. So Standard Life fell from industry leader to number three behind Aviva, the Norwich Union company, and HBOS.

The Edinburgh company was not alone in its suffering. Many life funds have been so hard hit they have closed for new business and many more are likely to follow. But Standard Life's problem is nevertheless acute because with-profits policies are at the core of its offer. Now it has to face the possibility, as long as interest rates stay low and investment returns are similarly depressed, that with-profits business will remain in the doldrums.

Evening Standard Life nightmare, however, is that in the absence of inflation, the with-profits market will never recover. That in turn raises a whole new raft of problems, because without the income stream from those policies it is not at all clear how it will produce the sales and profit projections it needs for the years ahead to convince potential investors it remains a dynamically growing company.

Such projections are an essential part of the backdrop to a successful stock market flotation when the company finally comes to demutualise in the next 18 months.

No doubt this is also a point that exercises the Standard Life board and its advisers and, while it is too early to take any decisions, it does raise the question of whether going public is the best way to maximise the group's value.

If profits and sales continue to disappoint, it may well be that the board might consider a trade sale as a better way to crystallise the value of the company - particularly as it would most certainly be able to engineer an auction. In many ways it might be a better solution for all concerned.

Meanwhile if you want a mischievous double, how about betting that neither Standard Life nor Lazard, the investment bank which is also hoping to float, actually make it to the stock market?

Lastminute fight

SOME City investors could barely contain their irritation a few weeks ago when Lastminute.com fumbled the presentation of its results and then had to come back to clarify matters a few days later.

Things then appeared to calm down, but yesterday's warning to analysts that Lastminute's figures will come in at the lower end of expectations has reignited passions. Once again institutional ire is directed towards the finance director - and this time it may well be that the board feels obliged to take notice.

The real issue, though, is whether the Lastminute business model will work in the long term. Today's decision by Expedia not to bid for ebookers suggests the sector is losing its glitz.

Meanwhile, the entire travel industry has gone online - First Choice, for example, has seen a doubling of such bookings to 12% of total sales within the past 12 months. Costs to customers have come down accordingly and Lastminute is losing its uniqueness.

In addition, because it sells relatively little of its own product, Lastminute has a technology challenge in linking with its many different suppliers and a margin challenge in getting them to give it enough stuff to sell at sufficiently high prices while still appearing to customers to be a cheap place to shop.

That all may not be well on these fronts is suggested by the fact that although the company's sales keep rising, costs are going up almost as fast. If the business was working as expected, extra sales growth should by now be dropping through to the bottom line.

One should not write the business off, but the need for regular doses of new IT and continuous heavy marketing spending make this a tough business in which to make serious money.