Banks Not Lending?

I know that Banks are not the most popular bunch at present and my last post about the latest results from Lloyds TSB do make you wonder if they are really making that much headway. Anyway, if you run a business or know someone that does and they are struggling to finance their projects - I know a man that may be able to help.

Keith Park runs Capital Finance and Funding and puts finance together for businesses often when the Banks simply decline. An example may be someone that has been with a lender for 20 years, never missed a payment but has been refused further funds for expansion. There is often no obvious logic to the decisions being made, but Keith is the man to help sort through the nonsense. This might include property development or buying premises or simply re-financing.

Commercial finance is not my area of expertise, but I am happy to say that it is Keith's. If you need finance for your business and you are based in the London area, Keith is a well worth a call. He has many years of invaluable experience in the field and what he doesn't know about commercial financing is probably not worth knowing.

Lloyds TSB - back in the black

Lloyds TSB published their 2010 figures today. The key pieces of information are that they returned to profitability - with group profit of £2,212m compared to a £6,300m loss in the previous year. The year really marked a strengthening of their balance sheet (something that we all knew was going on - calling in loans and reducing lending). They term this as "good progress" to reduce "non-core assets" by £105bn and believe that they are on track to achieve the £200bn target over the next three years.

Behind the numbers are the results of Scottish Widows and Clerical Medical who achieved increasing profits which rose 11% and also note that new business has also increased. So those pensions have been selling like... well, er.. pensions.

The numbers are enormous. Perhaps the announcement that they will set aside £500m to meet goodwill payments as a result of Halifax messing up numerous mortgages between 2004-2007 will provide a little comfort to those with Halifax mortgages - this follows a voluntary agreement with the FSA over the review of numerous Halifax mortgages. I do feel a little sorry for the group who have been landed with one "hospital pass" after another - mind you, in 2008 the Lloyds TSB Board failed to notice the problems with HBOS fully and probably wish they had avoided the entire mess. Here is what Mr Daniels had to say in September 2008 when the merger between HBOS and Lloyds TSB, something about which is pretty difficult to find in the investor/media press releases via the lloyds TSB webste. You may remember that he said of HBOS.."We spent a lot of time over the last couple of days getting to know the business.... we think we understand pretty well the risks that we are running".. anyone convinced?

The BBC website still carries the interview and of course the previous Prime Minister, one Gordon Brown.. remember him? thought it was "the right thing to be doing". Ah the benefit of hindsight...I'm reminded of that adage about Angels treading carefully....

 

I don't wish to be alarmist, but 24 hours after the Lloyds TSB announement of the £12bn HBOS deal, shares in Lloyds TSB closed at £2.375 on Thursday 18 September 2008. Today they are trading around £0.62, on this day in 2008 shares in Lloyds TSB closed at £4.665, whilst these have been "very difficult times" for Banks, it will be interesting to see how much the top dog at the Black Horse will get remunerated this year for bringing them back into profit... albeit with shareholdings nursing an 87% discount of the price they were at just 3 years ago, but hey, who's counting?...oh... all of us!

Blast off! Reach for the stars, not the "news"

I admit it, as a boy I was set on being an astronaut - or at least certainly spent a reasonable amount of childhood fascinated by the space race. I remember the first shuttle (Columbia) in 1981 - some  30 years ago, very clearly and being glued to the TV watching the shuttle return to earth. A childhood holiday in Florida helped feed my appetite for all things NASA with a visit to the Kennedy Space Centre - which was a fantastic "working museum" to the US space programme.

The shuttle has become so familar that it is easy to forget what a momentous achievement this is. As I remind my daughters when some things seem "impossible" that if we can conceive it, we can probably find a way eventually, admittedly the path is often difficult and potentially full of challenges, but however difficult the task, we can work towards achieving our goals.

We all have much to learn from the dedication and commitment to overcoming challenges. NASA is, to me, a wonderful inspiration. Let's hope for a successful mission and that the work being done in the International Spacestation is a reminder that working together is far more rewarding that working alone. Do check out the NASA website and their amazing missions, discoveries and belief in overcoming huge challenges.

 

Inheritance Tax... changes on the cards?

If you read my recent article/document or for the social media types "white paper" about inheritance tax, you will appreciate that I suggested care is taken on making long-term IHT plans that cannot be easily altered. Today's "Financial Adviser" (trade press) has a front page item on this very topic.

This is a timely reminder that the... wait for it... "Office of Tax Simplification" or OTS (set up last year) is currently reviewing 70 of the 1042 different tax reliefs available. My maths - thats 6.7% of them. The OTS will report to the Government in March just before the Budget. The main gripe, it that there are too many loopholes and that HMRC are keen to close loopholes.

Business News

All that snow seems to have caused a few problems for the airport company BAA who whilst reporting a 9% rise in earnings to £967m also reports losses for 2010 at £317m, after a year of disruptions, compared to a loss of £822m recorded a year earlier. So losing less money then - wish I could say the same for fewer lost bags...or is that just my family?

When times are hard, some people turn to drink...global drinks company Diageo has agreed to buy Turkish spirits company Mey Icki (you have to over 21 just to enter their website!) for £1.3bn in a deal that would give access to an estimated 50,000 retail outlets in the country and nearly an 80% share of the Turkish market for aniseed-based spirit Raki, considered to be the national drink. So a little more rocking the cash bar rather than the Kasbah - but you really have to admit to being over 21.

Give me oil in my lamp as Royal Dutch Shell begins to get out of Africa, selling the majority of its shareholdings in its African businesses for £617m, to Vitol, the world’s largest oil trader, and Helios Investment Partners, an Africa-focused private equity group. Meanwhile BP has agreed a 30% stake in oil and gas blocks controlled by Reliance Industries in India in a deal worth £4.4bn.

Turning to energy giants BHP Billiton has agreed to purchase all of Chesapeake Energy’s interests in the Fayetteville Shale, Arkansas for £2.9bn; the Anglo-Australian miner said it expected to fund the acquisition from its cash resources (rather than those it can dig up) in a strategy to expand its shale gas business. Shale gas is....

Wal-Mart "save money, live better" reported another drop in sales - for Q4 by 1.8% in the US, the seventh quarterly decline in a row, with a net income of £3.8bn, up from £3bn a year earlier; the retail giant’s net income for 2010 was £10.4bn, up from £9.2bn 2009. Suggesting a formula of fewer sales and higher revenue, so Wal-Mart must be living better then.

IHT and 3D - new resource

Inheritance tax is one of those taxes that is about as popular as a Bankers bonus at the moment. It is certainly a tax that seems to grate with most people - having paid tax all my life, I'm now asked to pay more even after death is the general attitude. Well, yes and no. In some senses IHT is an optional tax - optional if you plan. It is certainly not an option if you fail to plan and have an estate that results in an IHT liability.
There are a huge variety of IHT solutions, many of them are frankly rather too clever and given the sanguine nature of HMRC, there is a growing awareness that all that was permitted, is not necessarily to remain so. In truth many of the plans arranged by the financial services industry are complex and require testing in court - something that HMRC seems very well equipped to attempt.

I have put a new document on the website which will hopefully provide useful information for a thoughtful approach to IHT.

Purple Cows for a Friday Afternoon

Seth Godin has been a marketeer that I have followed for some time - its been several years since I bought his book "Permission Marketing" at the suggestion of a friend and then a follow up book "Purple Cow". I came across this video, which I hope will be of use to anyone that runs a business or works within one. However, as he says, the sentiment is relevant to anyone. Here he covers familiar themes from his books and taps into a word that I have become ever more aware of as I attempt ot get a handle on social networking like this blog, my tweet, you Tube etc - the word is "Remarkable".

Business News Updates

Rolls-Royce stated that the one-off cost from the mid-air failure of one of its engines last year contributed to the 76% fall in pre-tax profits to £702m in 2010 from £2.96bn the year before. The firm has announced a £1.4bn service contract with Emirates covering its Trent engines.

Barclays’ pre-tax profits reached £6.07bn in 2010, up from £4.49bn in 2009; the group’s underlying profits for the year rose by 11% to £5.67bn.

Household goods giant Reckitt Benckiser, producers of Cillit Bang and Gaviscon brands, announced a 13% rise in pre-tax profits to £2.1bn in 2010, with sales up 9% to £8.5bn thanks to strong growth in developing markets.

Electricite de France (EDF), Europe’s largest energy provider, revealed a 74% drop in net profits to £857m last year, down from £3.26bn in 2009, as a result of falls in demand.

US biotech company Genzyme is to be bought by French pharmaceutical group Sanofi-Aventis in a £12.4bn deal, which will allow the French firm access to the market in drugs that treat rare diseases.

Net profits for the world’s biggest mining firm BHP Billiton rose by 72% to a record £6.5bn for the six months to the end of December, as a result of higher prices and strong demand.

Rio Tinto reported net profits of £8.9bn for 2010, up from £3.05bn in 2009, due to rising commodity prices and strong growth in emerging markets.

Bank of England hint at Rate rise

The Governor of The Bank of England has written his "Dear George" letter to our Chancellor - George Osborne. If you want to see the copy just click here. He hints that inflation is likely to continue to rise within the 4%-5% range before falling back in 2012. He asserts that the rate of inflation is above the Bank's target and sites various causes - commodity prices and taxation increases being two significant factors. The general sentiment is that the Bank is being careful, aware that raising interest rates can be detrimental to recovery, but are a necessary tool to control inflation. Cautious is probably the best way to describe Mr King's approach and frankly this does seem very wise indeed.

City analysts have mixed views, but it would seem a fair representation to suggest that May is more likely to be the month when rates are increased, albeit marginally. This gives further time for accurate data to come through enabling more informed decisions to be reached.

This in mind, there is a great little video from M&G  that is worth a look at. Ben Lord one of the managers of the M&G UK Inflation Linked Corporate Bond Fund gives a very quick and straight-forward summary of the concerns that inflation poses. M&G have permitted me to make this link available, it is generally only for professional advisers, but there is nothing terribly contentious or complex within the video.  They are happy for your to view this. Thank you M&G.

I have also put the link to the Bank of England's press conference today here so that you can also hear this from the horses mouth so-to-speak. Its a fairly lengthy briefing - but you may find it of interest. If you would rather just read the briefing summary click here.

Here is a BBC interview with the Chancellor.

Testing Times for Test Pilots

I'm continuing to test drive new online services for clients and have asked a few to get involved with the test process. This seems to be going well and I am hopeful that we are progressing the Beta Testing phase to a really good conclusion.

One of those that has had a bit of a play with it, who works in IT for a well known phone company says

"The website is looking good, Dom. I really like the idea of being able to see everything in summary form on a single page. Good stuff."

Supermarkets, Platforms - Simples!

Skandia is the leading platform provider and many of our clients use their platform. This is a good little video that explains what platforms do. The information pretty much applies to all platforms and do not take it as advice that theirs is the best  (there is no such thing as "best", just most worthwhile "fit"). Anyway, it explains the benefits of platforms clearly in just a couple of minutes. 

Clients with holdings on the Skandia platform will shortly receive a mailing from them advising that the annual investor charge has risen to £68.50 per person. This will be payable in two parts the first on 14 June 2011. Skandia have agreed to hold this charge at this level until at least June 2013. Whilst the increase is significant (in terms of the % increase) it is a very small charge for the options and flexibility provided and is a very tiny proportion of the value of most portfolios. Skandia are preparing for the new FSA driven legislation the "Retail Distibution Review" or RDR. I am also expecting Skandia to shortly announce a significant enhancement to the already long list of 1000+ funds available in the very near future. For most people this is a world class investment option at a very keen price.

Spot the difference: Ford and Ferrari

There's something about a story on the BBC that makes me believe that some people could be using their time more productively. Ford have got themselves in a sweat because Ferrari decided to call their latest F1 model F150 - the same name as Ford's F150 truck.

Now call me a fool, but I would have thought that most car maufacturers would probably benefit from being associated with Ferrari, but do Ford really believe that their customers are so simple as to confuse the two? I know this is really all about branding rights, but its more of the nonsense that US lawyers seem to spend their time dreaming up. According to the BBC, Ferrari decided to rename their car "Ferrari F150th Italia" which is fairly gracious of them. Just typing in F150 into google...goodness knows what they would make a fuss about next.  For anyone that may be confused, the Ferrari Formula One car is the image below the Ford truck. Both are red, have 4 wheels and fall into the category of "automobile".

Public Sector Pensions - Warning Bell - One Giant Ponzi Scheme?

The Centre for Policy Studies has published a report today for the Government called "Self Sufficiency is the Key" by Michael Johnson, who has an investment banking background and has worked with Towers Watson. A free downloaded abridged version is found here.

Johnson argues that as a whole the public sector pension schemes are akin to the Bernard Madoff ponzi scheme - the promises simply are not going to be met. His solution is that all public sector pension schemes are switched to defined contribution arrangements rather than defined benefits.  Sorry for the jargon - but its actually as it appears - defined contribution is where the amount being paid in (contributed) is defined - say 10% of saalry for example. This is then invested and what it becomes is downs to how well the investments perform. At the moment the vast majority of public sector workers, which includes doctors, GPs, teachers and those working within local Government.

At the moment most Public sector pensions are defined benefit schemes - in essence, how much is paid in (contributed) is irrelevant, the amount you get out is based upon your service within the scheme and your final salary.

The attack on public sector pensions began some time ago, depending on your point of view, the privatisation of some institiutions like British Gas, British Telecom and British Airways was also effectively passing the liability and repsonsibility for the maintenance of the associated staff pensions to the new owners.

More recently employees have been asked to contribute more - including another 1% increase announced in the previous Chancellors last budget - which has been deferred by the Coalition Government. Some scheme have also begun offering less generous terms and some have only offered new staff an investment based arrangement.

It would take a very brave Government to introduce such measures - the costs of running the public sector schemes are enoromous - just think about the basic principle, that a pension is generally payable from age 60 and would continue until death, but then continue at a rate of 50% until the death of a spouse. This is potentially a very long time. The savings to central Government would be signficant.

However, these are such valuable benefits that one can imagine a fairly bitter battle surrounding their withdrawl, involving probable mass strikes of those working within the public sector. However, barring a miraculous change in the financial wellbeing of UK plc or a change in the manner in which UK plc spends money, this is ultimately inevitable. This is not the first time that suggestions have been made that "the end is nigh" but one gets a sense that a significant milestone may have been reached.

Bank Base Rate Held at 0.5%

Today's announcement that the Bank of England decided to maintain the rate of interest at 0.5% is no surprise. However it has been nearly two years since the Bank last altered interest rates (March 2009) which certainly is a long time in Banking terms and marks the reality that the economy has needed this level of support.

Interest rates are highly likely to rise and this is where statistics and a media hungry for sensationalism. A 0.5% increase in rates might be reported by some as "INTEREST RATES RISE BY 100%" which would be technically correct, but deliberately seeks to distort.

The credit crunch has left most of us wondering if the financial services industry has bitten off more than it can chew - we are all left with the scar of having to resolve the crisis by hefty debt repayments, which to you and I translates as higher taxes and fewer services. More for less.

In practice interest rates fell sharply during the credit crunch from 5% in April 2008 reducing to 2% by the end of 2008 and then cut by 0.5% a month in 2009 until we reached the current 0.5%.

Rates since 1993 have broadly ranged between 4.5%-7.0% before the crunch rates were fairly static at around 5%. This is probably a more "normal" level for interest rates. It has been 20 years since interest rates were in double figures. Sitting here in 2011, it does seem unlikely that rates will suddenly rise to such levels, but gradually return to the 3-5% range. The main purpose of interest rates is to encourage people to save rather than spend - effectively to attempt to control the money supply and reduce or control inflation.

Inflation is currently rising, but my own view is that this is unlikley to continue and in general, inflation is "under control". We are certainly all paying more for certain items - fuel and food, but these inflationary pressures have tended to come from additional taxes and natural cyclical problems that farmers experience from time to time. I don't believe that this will continue for the long term. Indeed in the US they have problems that are rather worse - the prospect of deflation, which does little to help a consumer capitalist culture.

What does this mean? well in short - you've never had it so good if you are a borrower. Borrowing (if you can get it) is cheap. However any repayments that you are making mean that more of your money is going towards reducing the debt - which is pretty much ideal. On the other hand for cash savers, most deposit rates are so low that they are below the level of inflation, meaning that whilst your capital is "safe" you are losing money in terms of its actual spending power.

The problem that the Bank of England face is this: if inflation were to get out of control, what level would interest rates need to be to curb it? and secondly would this cripple those that are are struggling and create more problems - after all anyone that has borrowed from a good source for the first time in the last 20 years will not have known the real pain of double-digit interest rates. I would hazzard a guess that for most people with a mortgage if rates rose to 9% (for example) there would be a further property crash.

Exciting New Client Service

I'm itching to tell clients about some fantastic new services that I am testing at the moment. In a nutshell this will enable clients to review and amend information that we hold easily, any time of day, anywhere on planet earth. Lots of useful goodies which will make life easier for us all (hopefully).

As ever, I'm working to promote our clients interests and have got to the front of the queue as I beta-test the systems. I've been pushing for this functionality for several years and whilst it has taken a long time, there have been very good reasons for the delay (honestly!) all of which make the new services even more robust and a better offering altogether.

Financial Education

I was at a branch meeting of the Institute of Financial Planners last night and listened to some interesting stuff (well for me it was). One of the points that was made was that an IFAs/Financial Planners website is not really there to educate clients/interested parties - as plenty of other sites do this job perfectly well. I would certainly agree that other sites do offer some helpful guidance, but I wonder what your thoughts are? Who else is better placed to comment!

Here is a link to Money Made Clear which is produced by the FSA for everyone to use. Whilst I know that the FSA see an awful lot of duff advice, it does rather irritate me that the assumption is that most advisers don't provide the facts, confuse and confound clients with selling techniques and jargon. Their own documentation (available to all) is about as jargon-full / double-dutch as it gets!

Henderson Shuffle the deck

Following the acquisition of Gartmore, the task of re-arranging the chairs has begun.  This is no easy task as both Henderson and Gartmore have some excellent Fund Managers, many of whom are well known within the industry as "Star Managers".

In these more judious times, names are not drawn from a hat (not that you ever thought they were) - rather an attempt to find the best fit of style and culture and of course "va va voom". 2011 brings with it many challenges and as a frequent dog walker in Richmond Park, the similarity between the current deer cull and the inevitability of a cull at a firm where there are now "too many chiefs" has resulted in the first set of redundancies. In this instance it is the Multi-Manager fund managers Mark Harris and Craig Heron who have left Henderson.

Funds: Premier Money Market Fund

One of the Cash or Money Market holdings that we have for clients is within the Premier UK Money Market Fund. If you have a holding in this fund you may have recently received a letter advising that Premier plan to alter the objectives and scope of the fund. In essence they want to be able to use other forms of investing, which by defualt make the fund more "risky".

We have selected the fund  as part of a portfolio due to its low risk nature. The proportion of holdings within this fund (or those like it) will be greater for those with lower risk portfolios. I am currently reviewing the fund and will be writing to investors with holdings outlining my advice. In short there are alternative funds that do not use derivatives or gearing within this sort of fund.

Back to Basics - the future is...farming

Here is a 10 minute video [click the link] that you may find of interest. It is presented by Sarasin and promotes their Agrisar Fund, which is one of the funds that is certainly on my radar and something that I am considering for portfolios where available. Its quite a good little film about what is happening in developping nations and how the increased wealth results in higher demand for food. Have a look and let me know what you think.

More Pain for "With-Profit" policyholders

Standard Life, traditionally one of the better and bigger bonus paying companies have announced that roughly half opf their with-profit policyholders will have their bonus reduced this year. The bonus is set to be cut from 1.50% to 1.25% - hardly something to write home about- or indeed reflecting investment returns over the last 12 months. They estimate that this will be relevant to around 500,000 policyholders.

My main gripe with this is not with Standard Life, but with the concept of "with-profits" which was originally thought to be an investment process that smoothed the ups and downs of the market, providing a lower risk investment strategy over the long-term. In pratice, it is virtually impossible to value a with-profit investment or indeed have much clarity in projecting future growth. However, they are certainly not what everyone was led to believe.

UKSIF - UK Social Investment Forum

This is just a note to confirm that we are members of UKSIF and seek to help provide clients / investors with education about socially responsible investment. More information about UKSIF can be found on their website.

Funds: Blackrock Pacific excluding Japan Equity Tracker

Pricing and dealing in this Blackrock Fund will be suspended from midday Tuesday 1 February 2011 until Monday 7 February 2011. This is due to the Lunar New Year, where a number of large stock markets in the Asia Pacific Region will be closed.

This is nothing to cause alarm and is a regular event - effectively the Chinese New Year break in the region. 2011 is the year of the Rabbit. However it does mean that prices will be shown for 31 January and not updated for a week on this fund.