Aviva shares struggle following leasehold scandal ruling
Aviva has seen its share price dip after the Competition Markets Authority ruled it had been misleading customers on freehold mortgages. As it prepares to pay back its unhappy customers, where next for the Aviva share price?
- The CMA ruled Aviva had misled homebuyers on ground rent terms
- Aviva and Persimmon have agreed to refund customers who were misled
- The Aviva share price fell 415.50p when markets opened today
- The company lost £17bn in AUM in 2020
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What is happening with the Aviva share price?
The UK insurance giant Aviva has seen its share price fall as markets opened on 23 June. This is following a ruling from the UK Competition and Markets Authority (CMA) that it had been misleading UK homebuyers as part of the ongoing leasehold scandal.
Alongside the UK homebuilder Persimmon, Aviva was found to have played a role in trapping mortgage holders into leasehold situations wherein the ground rent would double every few years. As a result, many homeowners found that their homes were impossible to resell, as solicitors were telling potential buyers to stay away.
Both Aviva and Persimmon agreed to pay back the ground rents to homeowners and to remove such clauses from current and future leasehold contracts. As the announcement hit the markets, the Aviva share price dipped to 414p, following further declines in the afternoon of 22 June.
Is this a long-term problem for Aviva?
Although the ruling represents a significant short-term hit to Aviva's cash reserves and to its reputation, it is far from certain that this will prove to be a lasting issue for the company. In the recent Q1 results, Aviva's final dividend was 14p, which represents a 32% decrease compared to the previous final dividend.
Aviva had lost over £17 billion in AUM in the previous year, largely as a result of falling bond prices. Furthermore, on 8 June, Europe's largest activist investor, Cevian, built a 5% stake in Aviva and immediately demanded that the insurer begin making deep cuts to non-core operations and work to give £5 billion back to investors in the coming year, largely in the form of dividends and buybacks.
Cevian also claimed that Aviva had been 'badly managed' and that it would be pushing for a major overhaul of its business operations. However these developments pan out, they may likely have an impact on the Aviva share price.
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