Cevian’s call for more capital to be returned is beyond what most City analysts think possible
Last modified on Tue 8 Jun 2021 14.57 EDT
An activist investor would have been very useful at Aviva for most of the insurer’s 20-odd years of existence, frustrated shareholders will feel. Outside the banking sector, it’s hard to think of a major UK financial services company that has disappointed its investors so often, or showered such large rewards for failure on its chief executives. The share price is less than half what it was at the time of formation via a three-way merger at the turn of century.
The activist that Aviva has finally attracted is Cevian Capital, which has turned up with an £800m, or 5%, stake just at the moment when Amanda Blanc, chief executive since last July, seems to be the first boss with a decent plan.
She has sounded like an activist herself at times, bemoaning Aviva’a lack of focus. She’s also done something about it: retreats from France, Poland, Singapore and elsewhere will raise £7.5bn when completed and will leave Aviva operating only in the UK, Ireland and Canada markets, where it retains clout.
What’s Cevian’s beef? It’s not the strategy, the disposals or Blanc. All got a thumbs up. Rather, this dispute is about capital, cost-cutting and dividends. On those scores, Cevian wants more. Through the Swedish-based firm tends to operate at the polite end of the activist spectrum, there is plenty of potential for aggro here.
The request for £5bn of excess capital to be returned next year is about £1bn beyond what most City analysts think possible given Aviva’s need to pay down debt and keep regulators happy. On costs, Blanc has signalled £300m but Cevian sees “potential” for £500m without saying where the surplus is supposed to lie. On divis, the activist expects 45p a share within three years, more than twice the current level and a leap beyond Aviva’s current pledges.
The benign view says it’s helpful for Blanc to have an agitator in the wings. Maybe, but the risk is over-reach: finding an extra £200m of cost savings from a £3bn base looks a stretch.
Blanc started at blistering pace with her disposals, but now is the moment for a cold assessment of what is possible. Cevian imagines the share price, currently 422p, could be 800p within three years. Nice if it happens, but the timetable feels extremely hopeful. Given what they’ve been through, Aviva’s suffering shareholders would surely give thanks if Blanc takes five years to get there.
Climate stress test looks a bit too stress-free
A climate crisis stress test on big banks and insurers sounds a genuinely useful idea. Which firms are properly modelling the financial risks created by global heating, such as extreme weather events and sudden movement in asset prices? Which are crossing their fingers and hoping it all works out fine? Don’t look to the Bank of England for answers – or, at least, not detailed answers.
Threadneedle Street’s climate exercise has been downgraded several notches from what was conceived in 2019. Whereas the former governor Mark Carney championed “a groundbreaking new framework to stress test the largest UK banks and insurers for climate risks”, the Bank now talks about “a learning exercise” and a “biennial exploratory scenario”. Even the “stress test” description has been dropped.
Thus the notion of a pass or a fail doesn’t exist. It won’t even be possible to make comparisons between, say, Barclays and Lloyds, because individual banks and insurers will not be named. And there will be no implications for banks’ capital requirements. Instead, the Bank will give aggregate numbers and a view of the overall risks to the financial system.
Nobody would pretend it is easy to analyse individual climate risks against 30-year scenarios that imagine “early”, “late’” and “no action” by governments. Sarah Breeden, the Bank’s executive sponsor for climate change, called it “fiendishly complicated”, which sounds correct.
The danger, though, in not naming names or using capital penalties is that you end up with a toothless summary. We’ll await the final outcome next May, but the early tone feels a little too stress-free.
Fastly rewarded for finding the right switch
Surprising share price rise of the day: Silicon Valley-based Fastly was up after its content delivery network was responsible for knocking over a few thousand websites around the world on Tuesday.
The theory says Fastly was hardly a household name before the huge outage. Now everybody knows its long list of important customers (hey, even the Guardian). The explanation rings true, but one suspects the story for the share price would have been different if a Fastly operative hadn’t found the right switch sharpish.
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