Over the past few weeks I have been getting requests from investors to provide them with Capital protection through the means of a Bank guarantee. the sums concerned ranged from 1m to 5 million.
Now in these turbulent market days, banks are simply not interested in such guarantees for this type of funds. In fact most banks run away from offering any type of Bank Guarantee. Unless you are a major client with funds on deposit it is nigh impossible to get such an instrument in Europe. You most certainly wont get it through the unregistered broker market.
Take the words at face value, who now trusts a Bank Guarantee in this current market? who is actually underwriting the Bank Guarantee? Take an example RBS, shares droped of 650 to 22 pence in the last few weeks, would anyone take an RBS guarantee indeed does anyone trust that RBS does not go broke.
Who takes the risk for a bank guarantee should a bank collapse, and that is more and more a likely situation now than ever before.
Capital protection is available through the Insurance industry for a premium of 1/3 of the amount to be insured. Again one asks the question, can an Insurance company be trusted, eg AIG.
Are we nearing the death knoll for our unregistered broker friends, or are we about to enter a whole new world on fantasy. I have noticed a steady growth in the request for funds to remain in clients own account, simple question, how does the trading bank make a profit if there are no funds deposited in their bank. I cannot imagine HSBC allowing Credit Suisse trading over an account in their bank. Simple reason being that there is no doubt that HSBC could equal at least any returns offered by Credit Suisse, and would not like to lose a client.
I think it all leads to a nervy but interesting few weeks ahead.
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Re: Bank Guarantees, capital protection guarantees etc
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March 18 2009, 7:58 AM
BBB, as you know, I work with a lot of capital protected structures and EMTN's. Would your clients be ok buying these? I am in the middle of launching a AA- rated 5 year GBP note, which is plain vanilla paying approx 5.2% annually (final coupon to be decided when we strike). I would much rather hold an EMTN than a BG, and so would me clients.
As for RBS, we have been hoovering up busted RBS structured products for our clients. The spreads are massive and in effect you are buying Government backed debt. The UK Government has such a large stake in the bank now that it wouldn't allow it to go broke.
Let me know if EMTN's would interest your clients. We are also marketing a callable Euro note which pays 6%.
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