Alternative Investor

The Government Savings Guarantee

You will have heard about the Financial Services Compensation Scheme (FSCS). When a bank fails, this protects up to £50,000 of your savings, but not everyone is aware of how complex this scheme is and how it works.
We look at it in more details and answer some of the questions.

First we ask, does the scheme cover all of my £50,000?
Yes. Previously, the FSCS covered just a percentage of the first £50,000 you had in an account with a failed bank. This has caused some confusion, so now all of your deposit up to £50,000 is covered.

Does the scheme cover interest that I have earned?
Yes. Not only are your savings deposits protected, but any interest you’ve earned right up to the point the bank was liquidated is protected too.

If I have two accounts with one bank am I protected?
No. You only get £50k protection in total from the bank; this is because the scheme is based on banking licenses.

If I have two accounts in the same group am I protected?
Some banks are connected; for example, HSBC owns First Direct. If you have savings in both these banks you’re protected on up to £50,000 of the total. That’s because these banks share the same banking license. In another situation, Royal Bank of Scotland owns Nat West, but these banks have separate licenses. Therefore you could have £50,000 in both banks (£100,000 in total) and it is all protected by the FSCS.

Here is a list of banking groups to help you place your capital wisely:

1 Abbey, Cahoot, Bradford & Bingley
2 Bank of Ireland, Post Office
3 Barclays, Woolwich
4 Halifax, Bank of Scotland, Birmingham Midshires, Saga, The AA, Intelligent Finance
5 HSBC, First Direct
6 Lloyds TSB, Cheltenham & Gloucester
7 Newcastle Building Society, BMW Savings
8 Royal Bank of Scotland, Direct Line
9 The Co-Operative Bank, Smile
10 Yorkshire Bank, Clydesdale Bank

If you need to spread money about do not put it into banks that are named in the same group. As mentioned previously, the one exception is Nat West and RBS who operate under separate banking licenses.

I use an overseas bank, am I protected?
Yes. If the bank trades here, it must have a valid UK banking licence, which means your savings are still protected by the scheme. However, with a foreign bank you will probably be covered by similar schemes running from the parent country so you will have to claim through that system first, and then the balance up to £50,000 will be topped up by the FSCS.

What about my mortgage?
Your mortgage will end up being passed to someone else to look after. It may be the Government or, much more likely it will be bought or acquired against debt by another bank. You will continue to pay your mortgage under the same terms and conditions as before. However the situation is different if you have both savings and a mortgage with the same bank or group. If you owed, say, £200,000 to the failed bank, perhaps through a mortgage, and you had £150,000 in savings, it’s likely the FSCS administrators will deduct your savings from the mortgage so that you now owe it £50,000. You would get no compensation.

The FSCF scheme does not just cover bank deposits, compensation can also be given for insurance policies and investments too.
In all cases, the following three things must apply before the FSCS can step in:
* You must have suffered financial loss.
* The firm in question must be authorised by the Financial Services Authority (FSA).
* The firm must be in default which means it’s unable, or likely to be unable, to pay claims against.
If the firm is still trading, claims for compensation should be directed to the Financial Ombudsman Service.

If an insurer were to default, the maximum protection the FSCS could provide is 100% of the first £2,000 plus 90% of the remainder of the claim. There is no upper limit on the amount of compensation that could be paid on the remaining 90%
However each amount is decided by the courts and each claim will be dealt with on a case by case basis, so there may be some time while your case goes through the legal system. For example:

If you have been making contributions to a pensions policy and your provider goes bust. You would need to make a claim for financial loss. If the pension provider is unable to meet your claim because it has insufficient assets and you can’t be compensated by other means you can turn to the FSCS for help.
The FSCS would try to arrange for the pension you had with the failed provider to continue in one of two ways:
1. This could be achieved by transferring your pension to another provider, or
2. By substituting your original pension with one offered by an alternative provider.
Whichever route is used, the FSCS will ensure you receive at least 90% of your pension pot. The pot's value as mentioned above would be determined by a court.
Alternatively, the scheme could instead provide funds to return the contributions you have made for your pension where appropriate.

The FSCS scheme doesn’t cover the Channel Islands or the Isle of Man, nor does it cover deposits outside the European Economic Area.

What if we have a joint account?
Yes. Joint account holders will usually both benefit from £50,000 of protection, making a total of £100,000. If the FSCS’s administrators see evidence that the pot isn’t evenly split, it’s possible that one of you will receive less than £50k. This event is unlikely though, and it would only likely happen if the FSCS was handed evidence that one of you had individual savings of less than £50k.

How long does it take to pay out?
There’s no fixed time in which the FSCS pays out. From the date of your claim it may be just a few weeks. But we don't know for sure how long it would take with a bigger bank.

If you’ve ever claimed with the FSCS, please let us know your about your experience.

Hedge Funds to give away secrets

Hedge Funds have since their inception been classed as an alternative investment even though for a long time they have been one of the most influential forces on the world money markets.

But today the UK’s financial watchdog the FSA has turned its attention to the practice of “short selling”

Short selling occurs when an investor borrows company stock owned by another investor, then sells the shares in the market, in the hope the price will fall. They then buy the shares back at a lower price, pocketing the difference. It is this technique that has been blamed for the recent loss in the HBOS share price.

Short selling is one of the techniques used by hedge fund managers, but as of next week investors with "short" positions in firms offering new shares will have to declare their interest.
The FSA admit that short-selling is a legitimate technique but also claim that it could lead to market abuse. As a result of this potential abuse the FSA said it would introduce changes from Friday 20 June 2008 that will require "the disclosure of significant short positions in stocks admitted to trading on prescribed markets which are undertaking rights issues". This does not apply to all shares but to a list of shares and 29 banking shares have been added to that list.
The FSA define a significant short position "as 0.25% of the issued shares achieved via short selling or by any instruments giving rise to an equivalent economic interest".
Hedge fund managers say that having to declare their interest is like asking Coca Cola to put the secret formula on a website and there are concerns that some of the already struggling hedge funds will have to close.

The true cost of Inflation

Inflation erodes the real value of a lump sum if you leave it in a savings account and then spend the interest - a common situation for older people who need to top up their pensions and people trying to cope with spiraling costs as income trails behind.
At the present inflation rate of 4.4%,  £10,000 in a savings account with interest withdrawn every month has a true value of £9,560 after one year.
The cost of living is on the rise. The Government's official CPI measure puts it at 4.4%, up from a low of 1.1% in 2003. The Bank of England Governor Mervyn King  warned it would climb to around 4% and experts expect it to peak at 6%.
A few weeks ago Mr. King and Chancellor Alistair Darling both called for Britons to soak up the pain of price rises and not ask for large wage rises. Experience has shown us that this is unlikely to happen

Workers who want to demonstrate to their employers their own personal pain on price rises,can do so with an official personal inflation calculator run by the Office of National Statistics.

Office of National Statistics: Personal inflation calculator

The calculator is free, easy to use and aims to give individuals 'an indication of how inflation is affected by what they spend their money on'. Those using it are asked to enter various figures, such as monthly expenditure on food, childcare, petrol and heating bills.
The Daily Mail cost of living index puts the real rate of personal inflation at 13%. They also mask a wide variance in how it affects different people.
Pensioners whose outlay is mainly food shopping and utilities are far worse off than younger people who dispose of more of their income in entertainment and electronics or media.
The personal inflation calculator can give you a much better idea of how inflation is affecting you now and can help you to plan your expenditure for the future.

OPEC upsets MPC decision

Meeting on the 4^th September the MPC (Bank of England’s Monetary Policy Committee) voted to maintain the official Bank Rate paid on commercial bank reserves at 5.0%.

Grant Thornton Chief Economist Stephen Gifford looking at the long term stated "The current inflation spike and economic downturn has been the first major test for the MPC since independence in 1997. A myriad of problems are battering the economy from the credit crunch to high oil and energy prices. The MPC needs to cut interest rates to stave off a serious recession, but to a certain extent it simply has its hands tied by inflation pressures.

"The remit for the MPC is inflation busting, not economic stimulation, and so holding the rates at 5 per cent is understandable. It may be time, however, to assess whether taking a similar approach to the US in which both inflation and growth are considered by the Fed would be beneficial in the long run, as the dramatic cuts in interest rates in the US appear to have created some welcome economic relief in the latest US GDP statistics.
He went on to say, "If oil prices do continue their downward trend, possibly even settling below $100 per barrel, it will allow the MPC some room to move in the next few months. If other commodities prices, particularly food, then follow suit expect to see interest rate cuts before the end of the year."

Sadly oil prices climbed back over $100 today after a surprise decision by Opec, the 13-nation cartel of oil producing nations, to cut daily supplies by 520,000 barrels.

Overnight, Brent North Sea crude rose to $101.07 after yesterday falling to $99.56 a barrel — the first time in five months that oil fell below the psychologically significant $100 a barrel level.

More bad news for the ailing stock market as once again decisions made by organisations like OPEC shatter a decision from the MPC.

No black stuff for Guinness

Guinness Asset Management is targeting fee-based advisers with the launch of a new alternative energy fund designed to exploit an ‘inevitable’ spike in oil prices.
The fund, which Guinness launched this year, will invest in companies with at least half of their business in energy generation from non-fossil fuels and energy efficiency.

‘The scale of the challenge of moving on from fossil fuels makes this an attractive area for long-term investment,’ said Guinness chief executive Tim Guinness, pointing to recent prices of almost $120 per barrel and forecasts of spikes above $180.
The fund will invest in companies with market capitalisations of more than $100 million (£49 million), and will be run as a clone of sister company Guinness Atkinson’s US alternative energy fund, launched 18 months ago, which returned 40.8% in 2007 to the end of November.

Guinness has pinpointed solar power, wind energy and hydro as the best investment prospects in the sector. He said the cost of generating electricity from wind was approaching parity with that from other sources. ‘The idea that we could go to 10% [of world electricity supplied by wind power] is not an unreasonable objective,’ he added, citing Denmark, which relies on wind for 23% of its electricity.

Initial charges are 2% for investments between £10,000 and £50,000, with no initial charge for investments of more than £50,000 and no performance fees.

An Alternative sea change.

The credit crunch is one year old this week it started on the 9^th August 2007 and its impact has touched us in many ways.

Prices are up and daily the news signals that there are more price rises to come. Energy price rises touch everything that we consume and for many, discretionary spend is way down.
The global credit crunch shows no signs of abating, according to the International Monetary Fund (IMF).

In its latest global financial stability report, the IMF says that falling house prices and slowing economic growth are hitting credit. It warns that banks are under renewed stress, and further cutbacks in bank lending could deepen the slowdown.

That’s right, the IMF think that this is going to get worse before it gets better, the IMF also says that emerging markets like China may also suffer more pain in the future from the credit crunch and that this disjointed hit on the far east economy may come just as our recovery starts, so causing another downturn which could be even more potent than the current crisis. The reason for this is that the Far East countries now control most of the national debt of the western world and when their crisis hits these are the first loans that they will want repaid.

This is a strange time for investors, there doesn’t seem to be anywhere in the world that will not take some sort of market trouble in the next 24 to 36 months.

This realisation has taken the world of alternatives into a new league. Prices of fine art have rocketed over the last few years with paintings bought for less than ten million now reaching prices measured in many tens of millions.
Collectables are very simply becoming more collectable and that sea change in interest is in itself pushing up prices.

Alternatives are becoming less alternative and more mainstream as badly bitten traders pull money from financial markets and stock markets and look for a safer or at least less volatile location.