Consulting » INSIGHT – Share registrars? Bah, humbug …

INSIGHT - Share registrars? Bah, humbug ...

Registrars are coming up with a rash of new services in what looks like an attempt to justify their existence. Their biggest problem isn't competition though, it's apathy.

Share registrar companies are outmoded, old-fashioned and unloved. According to their critics, they might be the backbone of the shareholding community, logging every change in ownership and making sure dividends go to the correct people, but they fall into the same bracket as analogue telephones and coal-fired power stations – they’re history. Crest, the electronic share settlement system, could easily take on the job of holding the information on the UK’s 12 million shareholders. Why should there be a need for a host of registrar companies scattered across the country, they argue, when there is a central system ready to take on the task. The criticism has stung the three major players into action. Lloyds Bank Registrars, part of the banking group of the same name, Australian outfit Computershare and the independently owned IRG dominate the scene. They account for nearly 90% of the market. Each one is the product of a merger frenzy that has only just settled down. Before Crest, the registrar business was dominated by the big retail banks. The two largest players, NatWest and Barclays, spectacularly bailed out after spending millions of pounds on computer systems for Crest that failed to work. They sold their operations to smaller banks such as Royal Bank of Scotland, which in turn have decided to quit the scene (RBS sold its operations to Computershare earlier this year). According to IRG chief executive Stanley Davies, the debate about the next phase of development has been sparked by the advent of the euro. “Crest is in competition with other European settlement systems for domination once the euro comes in. We will assist it to win, to the detriment of Paris and Frankfurt.” Or Easdaq for that matter. “But if we achieve this, Crest might end up encroaching on some of our activities. We can live with small changes if that’s it.” There is a strong possibility, though, that Crest will lobby to take over the entire registrar business, and that, understandably, is where Davies begins to get a little nervous. Simon Davies (no relation), senior director of Lloyds Bank Registrars, agrees that the fight over the euro could be crucial. He argues that the culture on the continent allows for a more opaque system, obscuring the real shareholders from view. He believes FDs and company secretaries should be concerned about the potential changes, arguing that the UK’s battle to maintain its domination of equity business in Europe is crucial. But he concedes that registrars are finding it difficult to drum up any kind of interest in the debate. FDs pay little attention to the question. They dump their registrars as often as their auditors, according to Davies. Other groups are equally unconcerned. “Often the institutional shareholders see us as nothing more than a statutory requirement demanded by the Companies Act,” explains Davies. IRG’s Davies plans to head off the potential threat from Crest with quicker, easier-to-use systems. These, he hopes, will keep company secretaries and FDs on his side when the time comes to lobby for Crest to remain in its ‘proper place’. Like many industries at the moment, he wants to use the Internet to enhance the business. The use of websites offers the potential for better editorial to be directed to individual investors, brokers and FDs about movements in the register. Most of Davies’s clients are small and medium-sized companies, which could interrogate his systems electronically to find information about their shares. John Dyson, marketing manager of Northern Registrars, emphasises that taking information from Crest and updating individual share registers is not the end of the story. “We produce more custom-made reports than the others because we have a flexible IT system,” he says. “So in the midst of a takeover battle we can supply daily or twice-daily reports on who is buying and selling shares – as we did for Premier Farnell.” And the service is low cost. During an AIM flotation that might cost between £200,000 to £300,000, he says, the registrar will pocket about £1,000. To a large extent, winning the battle of the registrars is about having the cheapest, most flexible IT system. Operators can react quickly to changes in the tax system that encourage different kinds of shareholding. Scrip dividends, for instance, have fallen out of favour since the abolition of ACT tax credits and have been replaced by dividend re-investment plans. Lloyds’ Davies has developed ‘drips’ for several of his 53 FTSE-100 clients. And there are more services to come, he says. “We are developing an option that poses a series of questions to shareholders, asking them if they want dividend payments in cash or shares or both or whether they want the whole lot paid into an Individual Savings Account (ISA) scheme. The payment will go straight into an ISA without the need for a stockbroker and a few weeks of work will have been cut out.” This scheme encapsulates the potential benefit of having a lean and hungry registrar business eager to satisfy the massive influx of shareholders brought into the market by the big de-mutualisations of last year. They could become a huge information source and take their place alongside brokers in the drive to encourage active individual shareholding. But all the participants agree there has been precious little evidence of any shareholders in the Halifax, Woolwich, Northern Rock or Norwich Union joining the ranks of active investors. IRG’s Davies argues that UK companies must take much of the blame. “The philosophy of investor relations is important at very few companies in my experience. Once the initial flotation is over, there is very little interest in giving any value-added services to investors,” he says. Only companies which have share option schemes for their employees tend to break the mould, but even then there is little thought spared for outsiders on the register. Maybe with all this indifference not even Crest will be able to keep out the continental rivals. STOP PRESS … STOP PRESS … STOP PRESS … As this issue was heading to the printers, the London Stock Exchange and Frankfurt’s Deutsche Borse announced a “strategic alliance” designed ultimately to create “a single European stock exchange”. While this is likely to have some bearing on settlement systems and Crest, the Stock Exchange was unable to make any comment on what the impact would be.

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