Aviva has threatened to cancel high-yielding shares – triggering sharp falls in the value of similar bonds.
Thousands of savers rely on income from the so-called preference shares, which dole out an average 8.5 per cent of their value every year.
But the insurer has said it may buy back the £450million shares, which were created in the early 1990s to raise cash – a move which will save the business £38million a year.
Aviva’s preference shares crashed 28 per cent on the plan, down from around 175p to 125.5p yesterday.
Aviva has said it may buy back the £450m so-called preference shares, which were created in the early 1990s to raise cash – a move which will save the business £38m a year
The business claims it could buy them back at 100p per share, meaning investors face huge losses.
The proposals have panicked the wider preference market, which experts estimate has around 100,000 retail investors as well as institutional money from large pension firms such as Blackrock and M&G.
There were sharp price drops at other firms including Lloyds bank and insurer RSA, which both declined to comment.
Bond expert Mark Taber, who has previously campaigned against similar plots at Lloyds and the Co-op Bank, said that the move has wiped as much as £1billion off the market.
He said: ‘This is a very aggressive and unexpected move by Aviva and it took the market by complete surprise.
‘No one thought they had the ability to do this and it’s completely against market convention. The worry is that if one company does this, others might be emboldened to do the same thing.’
It comes after an unusual outcry from institutional investors, who generally prefer to resolve disputes behind closed doors.
The Ecclesiastical Insurance Office, which insures churches, said it will not cancel the preference shares it has issued itself and called on Aviva – whose preference shares it owns – to tread carefully.
Nationwide has also issued preference shares and said it will not be cancelling them. Aviva’s plans have sparked a backlash among ordinary investors.
Posting online, Alan Parks said: ‘Aviva’s threat to cancel its preference shares at par will raise questions in many minds.
‘Not least if clients and policyholders fear that they too will be treated with disdain if preferred shareholders can be so treated and Aviva gets away with it.’
Fellow investor Philip Baker said he had emailed the board to complain. He claimed to have received a response which said: ‘The board needs to consider how best to balance between the respective interests of ordinary and preference shareholders.
‘However, no decision has yet been taken on which option to pursue,’ he said.
‘If and when a decision is taken, we will make the appropriate market announcements.’
Aviva’s non-preference stock closed down by 1.3 per cent or 6.8p at 514.6p yesterday.