Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 100 - 118)

THURSDAY 11 JULY 2002

MR MARTIN GILBERT, MR GARY MARSHALL AND MR PIERS CURRIE

  100. But your view of them was that they were low risk and that is why you kept selling them.
  (Mr Gilbert) No one has lost money yet. Most people are still in their zeros so they have not lost any money yet. They have not sold.

  101. I am not sure that is the way the investors will view losing 90 per cent of their assets—
  (Mr Gilbert) Then they are being naive, Mr Laws. We all know that until we sell an investment we have not lost money on that investment. You may think otherwise but—

  Mr Laws: I think most people will view it otherwise. If you have lost 95 per cent of your assets—

Chairman

  102. Maybe we should still be happy.
  (Mr Currie) We have covered the risk profile on page 11 of the document submitted to you which tries to take forward the attributes of zeros as an asset class and how it was being written by various other investment managers at the time. We have the data on redemption yields on zeros going back to July last year and before that, and if the market had seen the risk in these shares it would have priced them accordingly.

Mr Laws

  103. But you did not see it. You regarded these assets as being low risk and on that basis you marketed them, discussed them and sold them directly and indirectly to retail investors who assumed they were low risk—
  (Mr Currie) A low risk share class.

  104.—And they have turned out not to be at all. They have turned out to be extremely high risk given the gearing and the cross-investment as well as the decline in the equity market.
  (Mr Gilbert) There is a very good statistic at the time. When we were marketing these as low risk, some could have lost 11 per cent of their assets per annum over the remaining time of the zeros for them still to pay out, so we were looking at a situation where we could see that they could lose on some zeros 11 per cent per annum, say, over seven years and still pay. Now, obviously the markets have fallen further than we expected and everyone else expected.

  105. Can you tell us what steps were taken to make clear to the holders of zeros that their security might be compromised by the issuance of new debt?
  (Mr Currie) I think we must distinguish between us and the boards running the companies themselves—that is the first point. If there is any substantive change the boards of directors write to the shareholders for shareholder approval; shareholder democracy kicks in; people vote if there are going to be any substantive changes to capital structures or reconstructions, and that is done by the board. You can go to AGMs and EGMs and you can vote against these things—and actually we would like more shareholders turning up because often shareholder apathy is a bit of a problem. Boards meet and put out annual and interim reports, we put out monthly fact sheets—investors are getting information on the structure of the company all the time.[17]

  106. Actually I wanted to ask about investor apathy because one of the individuals who wrote to us who lost 98 per cent of their investment was very upset about the position earlier on in the year when, in May, the size of decline in her asset base became evident and she said to us in a note that Aberdeen was obliged under the Companies Act to convene an emergency general meeting on 22 May. The stock market prepared invitations on 7 May but Aberdeen made an administrative error and forgot to invite the investors. Is that correct?
  (Mr Gilbert) That is nothing like the case.
  (Mr Marshall) The fund you are referring to is our High Income Trust and the position there is that all of the registered holders of that fund are entitled to receive a notice of the meeting. We have one registered holder on there which is the Aberdeen share plan which contains within it a whole raft of other people, and unfortunately they were not mailed. In fact, the position was that the meeting was for information only and there were no votes involved and we did—

  107. I think they would have liked to have known what was going on.
  (Mr Marshall) We offered everybody the opportunity to attend a subsequent meeting, and that was available to them. So they had the opportunity to put any issues and concerns to the board quite shortly thereafter.

  108. Why were those investors not told?
  (Mr Marshall) It was administrative error. You have one shareholding and the shareholding represents all of the subholders.
  (Mr Gilbert) They were not obliged to be told but we normally out of courtesy tell them. They were in the Share Plan basically but, Mr Laws, I accept it was not acceptable practice and it is not something we are proud of.

Chairman

  109. We are coming to the end, Mr Gilbert. Could you tell us why your memorandum to the Committee did not include information on the performance of your own trust? I am reminded of that by a front page article in Business AM this morning which indicates that Aberdeen Asset Management was forced to suspend its shares in Aberdeen Media and Income and is in talks with its bankers. Is that correct?
  (Mr Gilbert) Yes.

  110. So why did you not give us all of this information upfront?
  (Mr Currie) Which information?

  111. On Aberdeen Media and Income.
  (Mr Gilbert) I think it is in the performance monitor.

  112. You have not given us this information.
  (Mr Currie) In the monitor we supplied, which also includes pages on the income shareholdings that you were asking us about, each individual trust in the split capital market is covered.

  113. This is the memorandum you provided us with?
  (Mr Gilbert) We also provided that. I am sorry—we should have included it.

  114. But you provided that after this meeting started. It did not help any of us.
  (Mr Gilbert) I do not think it was provided after the meeting started—well, I am sorry. I apologise, Chairman.

  115. I quote from the Financial Times of 17 May and Martin Dixon who is a respected financial commentator and he says that you deserve no sympathy; you have given the sector a bad name; you have tarnished the whole of the split capital sector and the stain may have spread to the investment trust industry as a whole. Do you agree with that?
  (Mr Gilbert) No, I do not.

  116. Why do you not agree with it?
  (Mr Gilbert) Well, (a) there are 36 other fund managers in the split capital sector—I know from reading the press you might think there was only one but there are 35/36 others—and (b) this has happened before. This happened in the 30s and in the 70s so this is history repeating itself. I know that causes general mirth, but that is the case: this is caused by a prolonged bear market. Now we cannot ignore that.

  117. A number of people have written to us, Mr Laws mentioned someone and I had a letter from someone who took out an ISA with you for £7,000, now worth £98, and they are very angry, as you can imagine, and they have been very rude about it, so I will be less rude and formulate a question to you. They tell me that you are sophisticated snake oil salesmen. Tell me what the answer to that question is so I can go back to these people and reassure them that there is 100 per cent integrity behind everything you have done?
  (Mr Gilbert) There is 100 per cent integrity behind everything we have done.

  118. That is good because we have asked for written information from you, and I hope that at a future date, along with Mr Fishwick, we will reknew our acquaintance and take this further. Thank you very much.
  (Mr Gilbert) Thank you very much.





17   Note by Witness: Under the Companies Act and UKLA Listing Rules, companies are obliged to obtain shareholder approval for key constitutional or structural changes. Back


 
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