(with apologies for late publication. It appears that £350m wasn’t enough to fill the hole, and RSA went for a conventional rights issue on 27 February)


Once upon a time, there were rights issues. Shareholders were offered new shares at a modest discount in proportion to their holdings, and a bank or two promised, for a fee, to buy any that the shareholders didn’t want. Then came the deep discounted rights issue, where so much of the post-rights value was in the new shares that there was no need to promise, and thus no fee.

This was very unsatisfactory for the bankers, so they invented the underwritten, deep discounted rights issue. This was far better than either earlier version, since the fee was the same percentage (it’s always a percentage, so it doesn’t sound quite so grotesque) of the cash raised but the risk was negligible. Even a stock market crash would leave some value in the rights.

Now we come to RSA, an old-fashioned general insurance business whose little local difficulty in Ireland has cost the CEO his job, and might well cost shareholders the dividend (again). The floods prove that it never rains but it pours, and the company needs more capital. So rather than an expensive rights issue, it is contemplating the current fashion for fund-raising, the “cashbox”. This exploits a hole in the pre-emption rules which allow a company to issue up to 10 per cent of its current capital without offering the shares to existing holders.

Designed to allow small acquisitions for shares, it’s now being used/abused to acquire a box of cash in exchange for shares. Those shares are sold, thus diluting the existing shareholders. Stephen Hester, new into the hot seat at RSA may, or may not, use this device to take the pressure off the balance sheet. Fresh from Royal Bank of Scotland, he’s used to dealing with, ahem, legacy issues, of which the Irish question is only RSA’s latest.

As Royal & Sun Alliance, it was the product of such a mad merger of equals that it initally had two men in each top post, and even after the Hester rally, RSA shares are still close to a nine-year low. If he does indeed plunder the cashbox for £350m with the figures, the long-suffering shareholders shouldn’t complain too much about losing their pre-emption rights.

The discount on the new shares may be as little as 5 per cent, as opposed to the 35 per cent, plus fees, that the banking cartel now insists is the price for rights issues. The buyers would actually be bearing the risk that the price will fall below their in-cost. Some might even be long-term holders. Looked at that way, the cashbox is a bargain.

Inflation good, inflation bad

It’s another triumph for Governor Carney: inflation below the Bank of England target for the first time in 50 months. Never mind that the cumulative overshoot since then is 4.1 per cent, that’s all rising prices under the bridge, and onward look, the land is bright with flatlining interest rates. as far as Mr Carney can see.

It’s all very comfortable, helped by the slight fall in employment numbers that followed the inflation figure this week. Yet the lagging indicator that is the analysis from the Office for National Statistics  reported a stonking 12.3 per cent rise in house prices in London. This was offset by a comparatively modest 5.5 per cent elsewhere, but the more recent figures from Nationwide signal that the boom is spreading across the country.

The official measure of inflation, the Consumer Price Index, already produces a lower number than the well-established (if statistically flawed) Retail Prices index. Neither captures the crippling rise in the cost of housing in areas of the country where there’s the most work to be had. The conventional wisdom seems to be: asset price inflation good, other inflation bad. Is it possible that Mr Complacent Carney and his team at the Monetary Policy Committee are measuring the wrong thing?

Digital birdwatching

News flash: SpringOwl Gibraltar Partners B Limited has agreed to buy 6.1 per cent of Bwin.Party Digital Entertainment plc from Ruth Parasol DeLeon and Russell DeLeon. Brokers Numis see the chance of a “year of transformation”; perhaps they might start with the names…


This is my FT column from last Saturday.