If a private equity firm is selling its holding in a new issue, you shouldn’t be buying. If the executives in the company are also selling, then you definitely shouldn’t be buying. If the business boasts a black box which supposedly gives it a lasting advantage in a market for a commodity product, then you should lie down quietly until any temptation to subscribe has passed.

Following this rule would have saved severe disappointment for the buyers of the pair of impaired life companies which have launched this year. Partnership Assurance and Just Retirement sell annuities to nascent pensioners who are not expected to live long. Both boast proprietary technology which apparently allows them to offer better terms than those available from the big providers.

It’s been a wonderful business model. There is none of the pain of the life assurance salesman, since the companies start with the proceeds and offer more cash to the grateful customers. Unfortunately, the arrival on the stock market of PA and JR, valued at £2.5bn between them,  has woken up the traditional providers to the potential here, while new rules banning commission payments to intermediaries promise to make it harder to find those fresh just-about-to-retire targets.

With impressive timing, Cinven cashed in its chips with the June float of Partnership. Rival Permira was less lucky with Just Retirement, being forced to cut back the size and price of its offer. In both cases the executives sold, and last week both shares were pole-axed after Partnership admitted that it was struggling to find enough new customers. Both shares are now below their offer price. This column has consistently questioned the valuation of these piggy-back companies, and whether they are truly sustainable. They may be cheaper now, but they don’t look any better businesses.

Not the Royal Mail

Perhaps James Leigh-Pemberton wants to repay his debt to society. Having been a successful banker (almost enough on its own to get him ostracised at dinner parties) he’s now become executive chairman of UK Financial Investments, that figleaf between the government and the flotsam of the banking crisis.

Nobody has ever quite worked out what UKFI is for, so Mr Leigh-Pemberton has been musing about what he might do. The elephant in his new boardroom is Royal Bank of Scotland, 81 per cent owned by the taxpayer, now on its second post-rescue chief executive, and with shares still at the foot of the ski-slope they fell down five years ago. The Chancellor (not UKFI, you’ll note) has just decided against carving out the worst assets into a bad bank, much to the irritation of Andrew Tyrie and his banking standards commission.

Undaunted, Mr Leigh-Pemberton says he’s preparing the ground for the sale of RBS, to include small investors. Unlike, say, the Royal Mail, there’s no prospect of there being insufficient shares to go round, but he should have a care (if he has a say). The warm glow from turning £750 into £1,250 may so blind the innocent that they are unable to tell a bank from a postal service, and they might believe that RBS is just another payout from the government slot machine.

In fact, as the existing shareholders know, banks have been terrible investments. Even now there’s the risk of a further cash call before the RBS balance sheet is finally fixed, and we are still some way from asset valuations that dare to tell the truth. When they do – or some sanitised version of it – the experts will struggle to understand it. The rest of us haven’t a hope.

Lloyds Banking’s IMS, a document designed for a quick update between six-monthly results, runs to 20 pages, revealing quarterly “underlying” profit of  £1.4bn alongside a “statutory” loss of £1.3bn. And compared to RBS, Lloyds is a simple bank.

It obviously makes sense to take RBS out of government control, but were the shares to be sold much below the market price, the Public Accounts Committee would call it a pre-election bribe. There will be no instant profits. Mr Leigh-Pemberton should be trying to work himself out of his new job, but he shouldn’t Tell Sid about the share sale. The Royal Bank is not the Royal Mail.

This is my FT column from last Saturday

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