John Lewis Bond

edited 7 March 2011 at 12:46PM in Savings & Investments
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  • property.advertproperty.advert Forumite
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    JP45 wrote: »
    .... Then again, things would have to get pretty dire for a retailer like John Lewis to go out of business over the next 5 years. If the economy nose-dived to the extent that even John Lewis went under then you have to ask yourself what state the banks would be in and whether, in such circumstances, the FSCS guarantee would be honoured and by whom.

    One has to ask why John Lewis needs this financing when, as a partnership, it has no institutional shareholders chewing at its heels for a hefty dividend.

    As I thought 50% or so of profits were retained, the remainder being paid as bonuses to staff, just where is this cash pile and why could it not be used ?
  • One has to ask why John Lewis needs this financing when, as a partnership, it has no institutional shareholders chewing at its heels for a hefty dividend.

    As I thought 50% or so of profits were retained, the remainder being paid as bonuses to staff, just where is this cash pile and why could it not be used ?

    Just because the profits are retained doesn't mean they just sit there in the bank doing nothing. They are reinvested (i.e. spent) each year to grow the business - so much so that the Partnership actually needs to borrow money each March to pay the staff bonuses (which are the equivalent of a plc's dividend anyway if you look on the bonus as an obligation to pay out part of a year's profits).

    This is not a bad thing. Almost every company borrows large amounts of money to fund operations or expansion, if they didn't then businesses would only ever grow exceedingly slowly. (John Lanchester's book "Whoops!" explains this very well, in addition to being a must-read primer on the credit crunch. But I digress).

    Over the past few years staff (or Partners) in JLP, of which I am one, have been given the chance to reinvest part of their bonus in the company in order to receive it 100% tax and NI free after 5 years (this has all been Inland Revenue approved, it's a Share Incentive Plan). If the company were to go bust in the next few years I would lose about 20k in saved bonus. But I have enough confidence in the company that I'm happy to make the investment, as have thousands of my colleagues.

    If you look at the report and accounts for the past few years (downloadable from the Corporate website) you'll see that the financial health of the Partnership has been consistently good. Past performance doesn't guarantee the future of course.. you have to make up your own mind. I personally won't be doing the bond thing because, for me, the extra returns don't justify the 5 year lock in (whereas for the Bonus reinvestment they do). But I wouldn't not do it because of the risk of losing my money.
  • opinions4uopinions4u
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    It's a loan to a company with no FSCS protection.

    A taxpayer would clearly be better off with a 5% fixed rate ISA (see Skipton).

    2% of the return is limited on where it can be spent - to a store that tends to stock premium goods at premium prices.

    There is also the question as to why they can't raise this money from the money markets. It's likely that they can, but I bet the rate they'd have to pay those "in the know" is higher than 6.5%. In other words, John Lewis card customers are being asked to take on a risk with a poorer return than the professionals are prepared to accept (guesswork on my part).

    I can't see why anybody would want to fall over themselves to get in to this.
  • jimjamesjimjames Forumite
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    opinions4u wrote: »
    I can't see why anybody would want to fall over themselves to get in to this.

    I can't see any problem with the health of the company or the return at present.

    The bit that concerns me (especially based on a few threads recently where people needed funds due to changes in circumstances) is that the bond cannot be touched for 5 years with no way of getting the money back before then as it cannot be sold or transfered.

    Anyone investing in this would need to be very sure that they did not need the funds in that time.
    Remember the saying: if it looks too good to be true it almost certainly is.
  • edited 7 March 2011 at 2:07PM
    RollinghomeRollinghome Forumite
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    edited 7 March 2011 at 2:07PM
    Wouldn't expect JL not to be around in 5 years to return the money but I would be concerned if too many other companies with cuddly high street names copied their example.

    Especially when it involves reading through all the material and PDFs on a dedicated website to understand what they're offering just to invest a maximum of £10K. (I didn't have the patience to read it but thanks to those who did.) John Lewis fine, Marks and Sparks probably, but for some others I'd want to fully understand what I'm buying and where I'd be in the queue of creditors it times got hard. And with that limit of £10K and a tight timetable it won't be cost-effective for most folk to get advice.

    I'd rather see a normal savings account through an accredited deposit taker or a more conventional corporate bond. JL's offering looks way much too much hassle for the privilege of lending them a few quid.
  • jamesdjamesd Forumite
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    Here are some other investment options. The sort of funds that might be used and their yields include:

    9.5% Marlborough High Yield Fixed Interest
    8.0% Newton Global High Yield Bond
    7.2% Newton Higher Income
    6.2% Invesco Perpetual Monthly Income Plus (pays monthly)
    5.7% Invesco Perpetual Distribution (pays monthly)
    3.9% Invesco Perpetual Income (expect more capital growth from this one)

    There's no more tax to pay on that and no tax on the ones paying interest (the first two, fourth and fifth). Those yields are historic and not guaranteed. The capital value varies, by as much as 40% in some of them. You should use many different funds, not just one. Hargreaves Lansdown is one of the least expensive places for holding such investments in an ISA.

    Make sure that you look at the charts to see how the capital value has varied in the past, but do remember that it can vary differently in the future. If choosing to do this you'd choose to buy at a time when the values were high unless you had no choice. It's part of why investments are generally recommended only where it's possible to hold for at least five years.
  • Sceptic001 wrote: »
    Limiting eligibility to

    is a canny move to boost applications for its partnership (ie. credit) card in the hope of future issues.

    Wrong.
    You had to be a cardholder on 11th Feb to qualify. Employees/ partners can use the vouchers towards employee discounted goods (varying % depending on what's being bought) so that more or less balances the loss due to tax being taken off.
    A lot of employees will regard this as a good buy and also helping their employer expand, which will in turn make their own positions more secure.
    If you're not an employee or cardholder it's all a waste of time discussing how risky or otherwise this investment might be.
  • Sceptic001Sceptic001 Forumite
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    Wrong.
    You had to be a cardholder on 11th Feb to qualify. Employees/ partners can use the vouchers towards employee discounted goods (varying % depending on what's being bought) so that more or less balances the loss due to tax being taken off.
    A lot of employees will regard this as a good buy and also helping their employer expand, which will in turn make their own positions more secure.
    If you're not an employee or cardholder it's all a waste of time discussing how risky or otherwise this investment might be.
    You misunderstood my post. My point was that limiting eligibility to existing cardholders will encourage people to apply for an account in the hope that there will be further issues of JL bonds with the same eligibility clause.
  • jimbow25jimbow25 Forumite
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    I would have thought it would be even more canny to not close it to new account card customers, though - then interested people could sign up for this issue and not wait for Issue 2!
  • ViperBuglossViperBugloss Forumite
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    I have just applied for a credit card on the assumption I could then apply for the bond. I thought it a reasonable investment, with the 2% in vouchers, as I shop at John Lewis (mainly over the internet) but it appears that I will not be eligible for the bond. However, the credit card gives a 1% return on purchases at John Lewis and Waitrose. This is the same cashback that I get from CapitalOne. I shall use the card at John Lewis and Waitrose and consider the bond if there is a subsequent issue.
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