The flotation of UK-based travel-to-insurance company Saga has turned into a saga of its own, with many retail investors in the stock having to wait longer than anticipated for the refund of the unused cash portion of their application.
Retail investors who were customers of Saga had their applications scaled back if they applied for more than £1,000 of shares. For example, if they applied for £40,000 of Saga stock, they would have received an allocation of just 1,300 shares with a flotation value of £2,405. However, if that application had been made by debit card, the £40,000 would have immediately been deducted from the account, with £37,595 refunded by June 5th, today.
As it happens, those applicants would have been okay; the refund delay has only affected people who applied for stock worth £10,000 or less. That would make the maximum delayed refund £7,965. Approaching 80,000 investors are estimated to have been affected.
Outsourcing firm Capita was put in charge of processing the payments and refunds, but it has told Saga that in some cases the original promise – that overpayments would be refunded by June 5th – would not be upheld. Saga subsequently said: ‘Last week the scheme’s administrators, Capita, hoped it would be possible to beat this date, but regrettably this has not been achievable due to problems within the banking system. We sincerely apologise in advance to those customers who do not receive their refund; we are working with Capita to ensure that all monies are received as quickly as possible".
Saga also noted that "shareholder refunds were processed by 29 May, as committed to in our prospectus, with all monies due to be cleared in accounts by the 5th working day - being 5 June".
Capita is rushing to refund as many of these as it can by close of business today. It said that "Capita Registrars expects all but a handful of refunds to be in shareholders' accounts by June 5, despite delays in the banking payment process".
Capita is thought to be ready to pay compensation, although in these days of super-low interest rates, the financial loss to most customers will be minor. The real sufferer will be someone who had a big expenditure lined up for early June, and who suddenly finds him- or herself light on the necessary cash. At its worst that might cause an unauthorised overdraft – at which point all discussions about "a low interest rate environment" become academic. Try taking out an unauthorised overdraft and see what your bank says when you explain to them that you shouldn't have to pay them much in penalty fees because base rates are only 0.5%. The response is likely to be entertaining.
The whole situation was made worse because last month Capita told Saga that it hoped to have the repayments processed by June 3. This in turn led Saga, perhaps unwisely, to tell customers that they might receive their payment refunds earlier than the "official" June 5 date.
Investors' mood will probably be less bright and forgiving than might normally be the case, since the shares in Saga that they were allocated have been on a relentlessly downward path since flotation, even though this was at the bottom of the initial range of 185p to 245p. This morning it was at 174p, but that price reflects at least £66m of buying by float adviser Bank of America Merrill Lynch in its role of price stabiliser. The over-allotment option was only £82m in size. Should selling pressure continue, the stabilising fund could run dry.
copyright 2014 Interactive Investor Ltd
There is a lesson here for companies; that lesson is not "never outsource". Usually it is a better idea to outsource something to a third party that is an expert in the field than it is to attempt to do something yourself.
No, the lesson is that old one of "believe only half of what you see and none of what you hear". By making promises to its retail customers on the basis of what it had been promised by Capita, Saga took "ownership" of the reputational risk. The British version of Mrs Watanabe in Japan (the mythical Japanese housewife who represents all Japanese retail capital – a large enough amount that it can move exchange rates and markets on its own) is not interested in hearing from Saga "we were only saying what Capita told us", just as Saga is not particularly interested in hearing Capita blame the banking system rather than accept any fault for itself.Much of insurance, actually, all of insurance, is based on the question: "What if?" It would appear that, in this instance, Saga failed to ask the question that it hopes all of its customers remember to ask when it comes to the time to renew their policies.