It's An Inequitable Life: Icesave vs. Equitable

Malcolm Wheatley thinks the financial crisis has increased the likelihood of a bailout for Equitable Life.

Take a group of ordinary, British savers. They've studied the `best buy' tables, and they put their money into a financial institution that promises first class returns. The company concerned seems sound, safe and sensible. Until -- with shocking suddenness -- it goes pop. A series of official inquiries, the latest by the Parliamentary Ombudsman, subsequently highlights maladministration by the British government as a critical causal factor.

Take another group of ordinary, British savers. They too have studied the `best buy' tables, and put their money into a financial institution that promises first class returns. The company concerned seems sound, safe and sensible. Until -- once again with shocking suddenness -- it too goes pop.

The second group of savers are those who put their money in Icesave. It's not yet clear whether maladminstration by the Icelandic government has played a part in Icesave's collapse. But it is clear that all retail savers in Icesave will be compensated - even those who had put more money in than the amount guaranteed by the Financial Services Compensation Scheme. 

Meanwhile, the first group of savers, who've lost out due to what the British government's own Ombudsman describes as "a decade of regulatory failure", are left dangling in the wind.

That, in short, is where the Equitable Life compensation debate stands today. The Ombudsman's report, published in July, is still awaiting a response from the Treasury -- a response promised for some time this autumn.

Ombudsman

What will that response be? For Equitable savers, the omens don't look promising.

On October 8th, for example, Labour MP Gordon Prentice asked Alistair Darling, the Chancellor of the Exchequer, pretty much the same question: "Given that we are compensating people who lost money in the Icelandic banks, should we look again at the collapse of Equitable Life -- which, the parliamentary ombudsman tells us, was a result of a decade of regulatory failure?"

The Chancellor's response wasn't encouraging. The collapse of the Icelandic banks was down to `systemic problems' in the banking industry, he averred. In contrast, he noted, the Penrose Inquiry had found that "Equitable Life ... was substantially the author of its own misfortunes." Oh dear. "We have a duty to treat policyholders fairly, but, as people have been saying today, we also have a duty to be fair to taxpayers," he concluded. "I will report back to the House as soon as I can."

Hang on, though. Wasn't Northern Rock also the author of its own misfortunes? Not to mention Bradford & Bingley, another adherent of a flawed `borrow short, lend long' business model? Not to mention, it appears, Landsbanki, the owner of Icesave, and Kaupthing, the owner of Kaupthing Edge?

And what about the awkward fact that the Penrose report -- now four years old -- has been largely superseded by that of the Parliamentary Ombudsman?

For Equitable savers, there's another piece of gloom, too: the timing of the Prime Minister's latest government reshuffle. The hard-working committee of the Equitable Members' Action Group briefed Treasury Minister Kitty Ussher earlier this month on their views regarding the Parliamentary Ombudsman's compensation calculations -- only to find her then reshuffled out of the job. Oh dear, again.

But despite these worrying portents, I'm now more optimistic about the prospects for Equitable Life policyholders than I have been for some time. (In the interests of full disclosure: I too am an Equitable Life saver.)

Firstly, this is a government that talks a lot about `fairness'. The more it compensates other groups of savers -- especially those compensated over and above the limits set by the Financial Services Compensation Scheme -- the more unfair the treatment of Equitable savers appears.

Second, the government has just spent billions on the biggest bailout in British history. Back in July, when the Ombudsman's report first came out, the Chancellor might have been tempted to describe the amount of Equitable compensation -- variously estimated at around £4.5 billion -- as unaffordable. It plainly isn't, because he has just spent over ten times that amount on the measures he announced on October 8th.

Third, the mood among members of Parliament -- so far as one can tell -- seems increasingly inclined towards Equitable policyholders. Remember: they all have Equitable policyholders as constituents. Those constituents have been lobbying them all summer, and can now be expected to be lobbying them even harder.

Fourth, at the Conservative Party conference, held earlier this month, the opposition said it would provide compensation if it won the next general election. I'm a business journalist, not a political one, but I think there has to be a fair chance that the next election will go the Conservatives' way. Compensation maybe not today, then, but perhaps tomorrow -- provided that the Tories back their words with actions. And in government, they too will be swayed by arguments one to three above.

But whatever the outcome, it will be too late for the 30,000 Equitable Life savers and annuitants who have already died while this sorry saga has gone on -- for nine years now, and counting. And the longer it does go on, the fewer people will eventually benefit: 15 more savers and annuitants die every day, according to the Equitable Members' Action Group.

For the latest information on Equitable Life, check out the Equitable Life discussion board here on The Fool. 

More: We're All Equitable Life Losers