Are your savings safe? article discussion

1echidna

Optimist wrote: »

Kaupthing accuses Hedge funds of 'smears'

Simon Watkins, Financial Mail
13 April 2008, 8:59am
Leading Icelandic bank Kaupthing has taken the extraordinary step of accusing four London hedge funds of illegally trying to drive it towards bankruptcy for their own profit.

In what looks likely to lead to a massive legal showdown in financial markets, the bank, which has attracted billions from UK savers to its Kaupthing Edge accounts, claimed the hedge funds deliberately spread false rumours about financial difficulties at Icelandic banks to make profits on complex financial investments. Kaupthing chairman Sigurdur Einarsson told the Reykjavik newspaper Frettabladid: 'It looks like four hedge funds have mainly led this run.'
Einarsson named the funds, including one of the largest in Europe. The identities were also reported on the website Iceland Review until pressure from one of the hedge funds led to their removal.
A spokeswoman for Kaupthing refused to expand on the allegations: 'We have said what we have said and have nothing else to say.'
Three of the hedge funds declined to comment. The fourth issued a vigorous denial of any wrongdoing and said it had handed its trading record in Icelandic stocks to the Financial Services Authority to prove its innocence.
The claims of deliberate market abuse against Kaupthing come less than a month after UK bank HBoS saw its shares slump, leading to claims of a conspiracy - the accusations are being investigated by the FSA. A similar investigation is under way in Iceland over its banks.
The claims of deliberate market abuse centre on the market for credit default swaps, which in effect are insurance contracts against companies going bust.
The price on a CDS, measured as a percentage of the debt to be insured, is an indication of how risky a company is regarded. In recent months, CDS rates for Icelandic banks have soared close to 10%, implying a huge risk of bankruptcy.
Einarsson claimed the hedge funds had gambled on CDS rates rising and then tried to spread rumours suggesting the banks were in danger to drive up the CDS rates and make a profit.
Such activity would amount to market abuse both in the UK and Iceland and could constitute a criminal offence.

http://www.thisismoney.co.uk/investing-and-markets/article.html?in_article_id=440172&in_page_id=3

Is there a way of selling hedge funds short? That would create incentive for nailing the b*stards :j

jamesd

1echidna, you hurt short sellers buy forcing up the prices in what they have sold, so they have to buy back at a higher price than they got.

I don't see any problem at all with baby_boomer pointing out that savings into non-UK banks decrease funds available to UK lenders. That's an extra incentive for first time buyers to put their mortgage deposits into non-UK banks and it's helpful for baby_boomer to point this out.

baby_boomer probably had something else in mind, though...

Meltdown_2

Optimist wrote: »

Kaupthing accuses Hedge funds of 'smears'
...
A spokeswoman for Kaupthing refused to expand on the allegations: 'We have said what we have said and have nothing else to say.'

Sounds rather like Arsene Wenger ...;)

ianmr65

1echidna wrote: »

Is there a way of selling hedge funds short? That would create incentive for nailing the b*stards :j

Hedge funds, by definition, hedge their bets (like a bookie). They employee seriously bright people, and to invest you normally need shedloads of cash.

They make money on the marginal difference, between the short, and long positions they hold in stock, currency, derivatives, bonds or whatever.

The way to nail them is to somehow create an unexpeceted and large change in the value of a currency, or stock ect which is also what iceland is doing, as well as, suing them.

arty4

carrying on this conversation, about the FSCS compensation limits. the £4 billion or so, described by the FSCS as 'the maximum aggregate capacity', breaks down, sector by sector. my understanding is that the 'banks & building societies' sector qualifies for just £1839.5 million - not really that much!

i suppose all this is slightly academic - are you really going to deposit or not according to what is available to the FSCS? on the other hand, as a publicly accountable body, i feel strongly that this sort of info should be up front and out there. but how many people do you think know any of this?

two people i've spoken to at the FSCS were very limited in their knowledge of any of this. and another i emailed with was hardly scintillating either.

i still don't understand the disparity between the £4 billion and the merely millions cited in their literature and press release as the figure they are raising from the institutions.

baby_boomer

jamesd wrote: »

6.5% is not a high rate. Take a look at the 8%+ rates offered for bank corporate bonds

With the one your capital is fixed and in theory guaranteed by the FSCS. With the other your capital fluctuates and could disappear entirely with no-one even trying to rescue it. Not really comparable.

6.5% is a high rate.

Meltdown_2

arty4 wrote: »

carrying on this conversation, about the FSCS compensation limits. the £4 billion or so, described by the FSCS as 'the maximum aggregate capacity', breaks down, sector by sector. my understanding is that the 'banks & building societies' sector qualifies for just £1839.5 million - not really that much!

i suppose all this is slightly academic - are you really going to deposit or not according to what is available to the FSCS? on the other hand, as a publicly accountable body, i feel strongly that this sort of info should be up front and out there. but how many people do you think know any of this?

two people i've spoken to at the FSCS were very limited in their knowledge of any of this. and another i emailed with was hardly scintillating either.

i still don't understand the disparity between the £4 billion and the merely millions cited in their literature and press release as the figure they are raising from the institutions.

Well, the "merely millions" you quote is £1.8395 billions (the way we measure things these days), so that represents about 45% of £4B.

The intention is to have various "pools" of money (I'd prefer "oceans" ) for each of 5 classes, as FSA calls them - Life & Pensions, Investments, General Insurance, Deposits, and Home Finance.

Now banks & building societies are involved in a number of these classes; I haven't checked this (not really interested in how much they have to cough up individually), but my guess is that each firm will have to contribute a fee based on all of the classes they are involved with. Some of the posters to this forum actually do have to pay these fees, so no doubt they can advise on this.

In terms of paying out compensation (in respect of banks defaulting on savings), the money would come first of all out of the 'deposits' broad class, and if that is not enough (as it won't be for a major bank crashing) then out of the 'general retail pool' which sits atop the 5 'broad class' pools. The overall amount that FSCS has at any one time will vary. £4B is the figure at which they have to pass the matter over to the tripartite FSA/BoE/Treasury grouping (though probably really only theTreasury?) for a decision on what action to take. This means that a total failure by a major bank will not be dealt with in a straightforward way by the UK compensation scheme. (Indeed, in theory, you might not actually get £35,000 - the exchequer might not be able to afford it, and there is no pot of money waiting to pay out to any and all depositors.)

So just where exactly are your savings safe ...?

ianmr65

1echidna wrote: »

Oh I now understand where baby_boomer is coming from

http://forums.moneysavingexpert.com/showthread.html?t=846123

as far as I am concerned there are legitimate and illigitimate ways of influencing people.

Well spotted!!!... 1e.... the posts now make a great deal more sense.

And does add weight to my position that actual risk for banks at the moment is largely proportionate to exposure to the UK/US housing market, and an asset base of mortgaged backed securities. As opposd to percieved or rumourd risk, based on speculation, or rating agency or cds spread.

ianmr65

Meltdown wrote: »

This means that a total failure by a major bank will not be dealt with in a straightforward way by the UK compensation scheme. (Indeed, in theory, you might not actually get £35,000 - the exchequer might not be able to afford it, and there is no pot of money waiting to pay out to any and all depositors.)

So just where exactly are your savings safe ...?

Well said Mel. Great and very informative post.

Heard Gordon Brown on the radio. This guy was and is an assured, 'hardman' political operator. His knowledge of economic theory, and finance, for a polititian is second to none.
The guy sounded as weak and nervous as i've ever heard him, on the state of the economy, and the housing market. He obviously knows how bad it is. Knows his career is over, and might well be ousted before the next election. And can't for the life of him think how to prevent it.

Added to

• Alister Darling's Statement that the crisis was worse than anything since 1930,
• The budget defecit
• Data from housingsnake,
• The growth in gazundering (opposite of gazumping)
• The buy to let fiasco
• the uk average loan to earnings ratio
• The collapse in the mortgages avilabale market.
• The halifax house price index index,
• The HBOS scare
• The B&B share price.
• The fact that the ecb told darling to get stuffed when he wanted mortgage securities, to be outright purchased, rather than just loaned against.
• And the fact that sitting outside the Euro, and the Dollar, the UK is in a worst position than anyone else with regard to central bank support -

It's all pointing to an almighty implosion, for UK PLC.

Still let's have a useless debate on whether we can hold terrorists for 30 or 42 days, that'll keep everyone's (especially vince cable's) mind off the state of the economy.

arty4

following non-productive exchanges with various minions at the FSCS, this morning i had a call from one peter cooper, who introduced himself as head of their customer services desk. he referred me to a consultation document on the subject at www.hm-treasury.gov.uk , entitled Financial stability and depositor protection: strengthening the framework . his comments were (a) there is currently no answer to the question of what backup there is to compensate depositors in a failed bank, because the question is currently out to consultation, and (b) as a depositor i didn't really need to worry about all that because the guarantee was there, and if there wasn't enough in the pot, or the potential pot (agreed levies on the participating institutions to be enacted in a crisis), then the govt would under write the compensation promise - adding, within its capabilities at the time.

so - short of putting your cash under the mattress, i guess ultimately you go with the banks and hope... i did just make the point to him that the public at large were not aware, beyond the up-front promise about £35k, of the ultimately parlous state of the background to the promise.