Pension fund challenge settled out of court
Late in 2000 Investec Bank Limited announced, subject to the fulfilment of certain conditions, the acquisition from Fedsure of “all of its financial services and insurance businesses for a consideration to be settled by the delivery of Investec shares and cash. The company had owned a 14.5% stake in Fedsure since 1991 and decided that “the ongoing consolidation and rationalisation of the financial services industry had created the opportunity for Investec and Fedsure to restructure their cross-holdings in such a way that the strategic relationship was enhanced...” It was a transaction that would come back to haunt them.
In October 2008 the SA Equity Workers Association (Saewa) brought a legal claim against Investec, alleging ‘improper’ transactions on a range of pension and provident funds at Investec Employee Benefits (previously Fedsure). They demanded R4bn (including interest) in compensation for 13 pension and provident funds. At the time the Federation of Unions of South Africa (Fedusa) came out in support of Saewa. According to Sapa, Fedusa general secretary Dennis George said: “We believe that this legal battle can be compared to the biblical tale of the fight between David and Goliath. Investec obviously has a lot of money to fight this, but we are certain that the workers and pensioners will see justice being done to secure their hard-earned nest-eggs.”
If only all court challenges were resolved so speedily
The claim stems from decisions taken while the funds were managed by Fedsure. Saewa alleged that Fedsure (now Investec Employee Benefits) “acted unfairly” by investing pension monies in the now-defunct Saambou. “The pension funds allege that they were told by Fedsure that their funds had been invested in what is called a guaranteed fund of diversified assets suitable for pension fund investments, with reserves being held to smooth out fluctuations in the markets and to ensure the payment of bonuses.
“Instead, [the funds claim], Fedsure placed their money together with shareholders’ money in a general fund which was then used to invest in financial services companies as part of Fedsure’s own strategy,” George said. In addition, Fedsure failed to declare bonuses to the pension funds in question in 2000 and 2001 – the years when the Investec acquisition was being bedded down.
After almost eight years in limbo the parties managed to settle the issue out of court, avoiding a protracted legal wrangle. On Monday, 17 February it was reported that Investec had reached a settlement with the funds concerned. In statement, issued jointly with the trade unions, the company noted: “Investec, the Federation of Unions of SA (Fedusa) and the SA Equity Workers Association (Saewa) have reached an, in principle, amicable agreement with 13 industrial pension and provident funds.” The agreement must now be ratified by the fund trustees. Ciaran Whelan, Investec Employee Benefits chief executive welcomed the outcome. “We are pleased to have reached a cordial agreement in this long pending matter with the trustees,” he said, adding that Investec had inherited the matter with their acquisition of Fedsure in 2001.
Financial services group nonplussed by challenge
None of the parties to the deal were prepared to disclose the value of the settlement reached. Whelan says “the settlement is a commercial issue, without any admission of liability by Investec.” Even so, we were surprised that Investec chose not to share details of this legal challenge with its shareholders. There was no mention of the legal wrangle in the group’s interim report for the six months to September 2008 (issued in November of that year), nor in its management trading update to December 2008. And the group’s website makes no reference to the resolution via press release or JSE Announcement either.
Perhaps Investec felt that the “approximately £4.7bn of cash and near cash” assets – declared at 31 December 2008 – would easily cover a paltry R4bn claim. Or perhaps they knew all along that the claim would never reflect on the company’s profit and loss. Since the settlement was fully covered by a number of London-based Lloyd’s insurance syndicates the need to disclose this type of legal challenge to its shareholders is probably moot.
Editor’s thoughts:
We’re often amazed at how long it takes to deal with financial services disputes. Why has Investec, through its insurers, delayed corrective action for more than eight years? In your experience do the large financial services companies use their financial clout and intimidating legal presence to delay compensation? Add your comments below, or send them to [email protected]
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