By Ian Fraser
Published: Sunday Herald
Date: 27 November 2011
Asset managers lose patience over £500,000 unpaid bill
Lloyds Banking Group, whose shares tumbled last week on investor concern that it is in “chaos”, is being sued by an Aim-listed fund management company in which it owns a majority stake.
Invista Real Estate Investment Management Holdings, which specializes in managing property funds for third parties, and which is 55%-owned by Lloyds, is taking legal taken action in the High Court in London over the City–based institution’s alleged failure to pay some £545,600 in unpaid fees.
Invista claims the money is owed in the wake of the bank’s decision to terminate a five-year investment management contract with HBOS and other Lloyds subsidiaries in October 2010. At the time, Lloyds agreed to pay Invista a series of instalments but Invista claims the final £545,600 tranche is still outstanding. “Payment of this amount has been, and continues to be, withheld by Lloyds parties,” said Invista. “As a consequence, Invista has commenced legal proceedings against the Lloyds parties to recover such amount.”
As part of an early termination agreement, £2.4m of property funds were removed from Invista and transferred to Lloyds’s wholly-owned asset management arm, Scottish Widows Investment Management, along with about ten staff who looked after these assets. Invista has in recent months becoming increasingly impatient with the bank’s failure to honour its side of the bargain.
In a statement, Douglas Ferrans, executive chairman of Invista said: “It is unfortunate that we have had to take this action but we have a duty to protect minority shareholders’ interests and to not let them be bullied by larger shareholders. Incurring unnecessary legal fees in recouping monies that are contractually owed is clearly not in the taxpayers’ interests.”
Contacted by the Sunday Herald Ferrans, who worked for HBOS for seven years as chief executive and then chairman of Insight Investment, the group’s London-based asset management declined to elaborate further on the legal proceedings. A fellow of the Institute of Actuaries and a prominent Rangers supporter, he said Invista has come up against a “very aggressive culture” at Lloyds.
Invista’s lawsuit is against Lloyds and six subsidiaries – Clerical Medical Investment Group, Clerical Medical Non-Sterling Property Group, Clerical Medical Managed Funds, Halifax Life, HBOS Investment Fund Managers and St Andrew’s Life Assurance.
Lloyds sources said Lloyds had withheld the final payment – over which negotiations have been underway since 17 March – due to Invista’s alleged failure to provide it with complete information relating to certain property assets under the early termination agreement. However the Sunday Herald understands that Lloyds changed its approach to the payments to third parties including suppliers soon after Portuguese-born António Horta-Osório replaced Eric Daniels as chief executive in March. Horta-Osório went on sick leave on November 2 amid widespread reports he was suffering from stress.
One Lloyds insider said: “António and his Iberian gang brought in a very hard-nosed, very hard-edged culture and approach to doing business, which includes holding off paying any bills until you really have to. People are joking that it’s not just António who’s sick; it’s the whole organization that’s sick”.
Insight Investment, founded by HBOS in 2002, was divided in two soon after the Edinburgh-based bank was rescued from bankruptcy via a rescue takeover by Lloyds in 2009. The part of Insight that managed £80bn of funds for external clients was sold to Bank of New York Mellon, and the part that managed £43bn of internal funds was merged with Edinburgh-based SWIP. Invista was created when Insight Investment’s property business was demerged and floated on Aim in 2006.
Ferrans said the company is currently in ‘wind down’ mode, with remaining properties being sold off, and cash being returned to shareholders before a delisting from Aim. In interim results for the six months to June, Invista warned a weak commercial property market might delay the liquidation process. Invista’s assets under management were £2.49bn as at June 30. The next biggest shareholder in Invista after Lloyds is the Wellcome Trust, with a 24% stake.
Invista said that it had been obliged to make the lawsuit public via a stock exchange announcement since it had booked the unpaid figure as revenue in its half-year results and the non-payment had become a price sensitive issue. Invista is being represented by the London office of US-based multinational law firm Jones Day. Lloyds, represented by Dundas & Wilson, has 28 days to lodge its defence – meaning it must file one by December 21.
A spokesman for Lloyds said the bank “would robustly defend” itself from the claim, but declined to comment further.
Lloyds shares have slumped by 66.9% since January 1, ending the week at 23p, which has raised serious investor concerns that it may require a second bailout.
An edited version of this article was the business lead in the Sunday Herald on November 27th, 2011