Hip, hip, three cheers for the RNS

The Regulatory News Service of the London Stock Exchange threw up some gems last week, revealing troubled times for a couple of prominent network players, says Richard Griffiths

No, this is not another article on Home Information Packs, but a tribute to the Regulatory News Service of the London Stock Exchange.

It has come to my rescue on more than one occasion to provide the basic fodder for my weekly column, saving me the trouble of finding some subject matter to write about.

Earlier this month, I thought Christmas had come early. Two RNS statements appeared from my old friends Berkeley Berry Birch and Prestbury Holdings.

The BBB statement, dated 7.31am Thursday, December 1, announces the temporary suspension of trading in its shares with immediate effect pending clarification of its financial position.

The statement runs to four pages and contains an update on current trading and the outcome of Financial Services Authority investigations into operating subsidiaries within the BBB group.

It says: “On 29 July 2005 the FSA issued decision notices cancelling the permissions of three of BBB’s regulated businesses due to regulatory capital shortfalls”.

Taken at face value, this is effectively telling BBB that it is being closed down.

A decision notice is a formal document, a sample of which can be found on the FSA website. It says that under section 133 of the FSMA 2000 the recipient has 28 days in which to appeal to the Financial Services and Markets Tribunal. Sure enough, BBB appealed on 25 August.

The FSA subsequently applied to have the appeal struck out. That alone sends out a clear message. The FSA is not just putting the frighteners on BBB – it appears determined to put the company out of business.

And an earlier financial soft shoe shuffle by BBB will not have endeared it to the FSA. Assets were moved out of a subsidiary company, BBN FS, which was then put into liquidation, leaving the liabilities to be picked up by the Financial Services Compensation Scheme.

As both the administration costs and the compensation paid out by the FSCS to the public are paid for by regulated intermediaries, it is they who are left to pick up the bill. Mortgage brokers who do not have permission to conduct investment business can take some comfort from the fact they are ring-fenced from these costs which affect the IFA community only.

The tribunal commenced its consideration of the FSA’s appeal on November 29 and said it would sit again on December 8 to consider the motion. News may have already emerged by the time you read this article.

The July 29 date in the BBB statement rang a bell and, lo and behold, I dug out BBB’s RNS statement dated 4.31pm Friday July 29 which announced its financial results for the 12-month period ending March 31 2005.

This featured in my column of September 12, when I quoted the earlier statement as saying “the FSA has commenced formal regulatory enforcement action, which could result in the FSA cancelling the permission granted to the subsidiaries”.

I can only assume that by 4.31pm on July 29 BBB was already aware of the FSA decision notices. Its choice of words above was a superb example of describing a matter in the best possible light. You would hardly expect it to say “The FSA had decided to withdraw our permissions to conduct new business. We will be appealing. If we lose it will be good night, game over.”

The RNS statement of December 1 continues to talk about difficult trading conditions and continuing losses at the operating level.

The interim trading statement, for the six-month period ending September 30, will be issued this December and will show a reduction in equity shareholder funds, largely because of the requirement to recognise a 3m deficit in respect of BBB’s defined benefit pension scheme.

Given that shareholders’ funds at March 30 amounted to 3.8m, it becomes questionable whether the balance sheet as at September 30 will show a positive or negative figure. This can only exacerbate the capital adequacy shortfall which was the cause of the decision notices being issued by the FSA in the first place.

BBB then breaks the news that “unfortunately, the Board must now report that the FSA has commenced a further investigation, into BBN IB”.

Berry Birch & Noble Insurance Brokers is the insurance broking subsidiary and the investigation concerns a breach of client money rules and lack of systems and controls in relation to the handling of client money.

“Unfortunately” is a strong word to find in an RNS, which as we have seen above invariably attempts to describe issues in the best possible light.

Another practitioner of this art is Prestbury Holdings, who issued an RNS dated November 30 being a trading statement ahead of its final results announcement which will be made next February (for the year ending October 31 2005).

Prestbury describes itself as the third largest mortgage and general insurance network. This used to be the case. Prestbury was mentioned in my column of September 12 as the third largest. But the updated league table as of September 30 (see Mortgage Strategy October 17) shows Prestbury in sixth position. This seems to have slipped its mind.

The statement talks about increase in turnover, reduction in annual losses, trading profitably and being cash positive. So why issue the trading statement when it is not a regulatory requirement of the London Stock Exchange?

I can only assume Prestbury was adhering to the old plan of making hay while the sun shines. Considering the deluge of brown stuff it has dumped on its shareholders since the company floated at 80p in October 2002 (current price 17p), it probably could not resist the temptation to blow its trumpet over some comparatively good news.

Countdown to ground zero for BBB?

July 29:FSA issues decision notices cancelling BBB permissions.

July 29: BBB issues RNS including comment that the FSA has commenced formal regulatory action.

Aug 5:BBB lodges appeal against the decision notices.

Sept:FSA applies to strike out the appeal.

Nov 29:Tribunal commences consideration of the FSA’s strike out appeal.

Dec 08:Tribunal resumes its consideration of the strike out appeal.

Dec: BBB to issue new RNS on it’s six months trading to September 30.