We have become accustomed to hearing about the major banks’ financial difficulties. Sadly, we also have our own local banking crisis in the shape of The Presbyterian Mutual Society (PMS) where, for all those involved, decision time has just arrived.
I thought, therefore that taking a brief look at PMS’ position, from a neutral point of view, might be helpful.
Reading the report from the administrator of the PMS, the first thing that strikes me is the timing of the run on the society’s money. Cast your mind back to last October when the UK Government began to act to protect savers’ deposits in UK banks and building societies. The first measure they took was to increase the amount of bank deposits guaranteed by the Government, which was raised from £35,000 to £50,000.
Given people’s interest in safeguarding their savings, even at the expense of the rate of the return they could earn, it is not surprising that this announcement received huge publicity. And it’s not surprising either that members of the PMS, like most other savers, started to look closely at just how safe their money was.
Those savers in the PMS who realised it was outside the financial services compensation scheme began to act. The PMS administrator’s report shows £21m was withdrawn in October last year, leaving just £4m in its bank account. Between the time the directors decided to stop repayments in late October and when the administrator was appointed, members had requested a further £50m in withdrawals.
Faced with a fall in the value of its assets, administration was the only sensible route for the PMS to take. At the time, because of a quirk in the legislation, it was not open to them, but swift and sympathetic action by Arlene Foster MLA, the Minister for Enterprise, Trade and Investment, made it possible. And it is something which members of the PMS should be grateful for.
Administration has provided vital protection for PMS members, preventing their society being forced into liquidation, a course of events which would have produced a very poor return for them.
The process of administration will be alien to most people, but it is a legal process which doesn’t just prevent the Society’s assets being sold off at cut prices in a fire sale, it also puts in place an insolvency expert whose job is to work in their best interests.
The administrator has been doing just that and has now come up with a proposal which has gone to members for a vote. Arthur Boyd, the administrator, believes it is in the best interest of members to agree to a formal arrangement which would maximise the return of their money over a period of time. He has made this proposal and, because the alternative is liquidation, members would be well advised to heed his advice.
For many investors in the PMS, the process around administration might appear complex but the administrator is steering the way forward for them — so supporting him is the wise option. In practical terms, if members want to receive a better return over time than they would through liquidation now, then they should vote yes to all the administrator’s five resolutions on their voting paper.
Of course, all savers in such a situation will want to know if they will get all their money back or what proportion to expect — and when. At this stage in an administration, an administrator is not in a position to tell them that. But if they vote for his proposal, he will come back to them in a matter of months with a much better idea of how much they might expect and over what time.
At the end of the day, the members of the PMS are the people who will decide on the way forward — no-one else can do it for them. But an administrator working in their best interests is one of the key benefits of the administration process. So PMS members should avail of this opportunity and give the administrator the go-ahead to prepare a formal arrangement for the orderly run down of the Society over time.
Nicholas Watts is an independent financial adviser with Positive Solutions Financial Services which is regulated by the Financial Services Authority. To contact him, use the website www.realwealthmanagers.co.uk