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Sovereign risk is key structured issue

Jubilee Financial Products says the credit rating of a structured product issuer should be less of a consideration for advisers than the government that backs the bank.

Chief executive Adam Habib says there is a very close correlation between banking credit default swap levels and sovereign guarantor CDS and suggests the credit risk of an issuer is only relevant at a sovereign level.

According to Jubilee, the correlation of most European banks to their respective sovereign guarantor ranges from 0.75 up to almost 0.95 in the case of Bank of Ireland and the Irish state.

Habib says: “Rather than asking, is it S&P AA-rated, IFAs should ask, is this bank key to the geographical region and if it goes bust, does that mean the region will go bust with it? This is how the markets are trading, the rating agencies have been left so far behind they are laughably irrelevant.”

Lowes Financial Management managing director Ian Lowes says: “If you end up with a sovereign guarantor on an institution, the depositors with the bank might be protected but that does not mean all investors are.

“If all retail investors are protected but commercial investors are not, then medium-term notes go down.”


Shaking the foundations

Guernsey’s decision to introduce a foundations law during 2009 is the latest example of the rapid growth of foundations. The structures are increasingly popular with family offices, high-net-worth individuals and company managers. Foundations provide a series of particular benefits for asset protection, succession planning and estate management particularly for wealthy families with diverse interests. Beyond this, advisers say foundations are also useful as a part of a package of fiduciary products which can be used collectively for personal and corporate financial structuring.

The eye of the threadneedle

Bank of England bank rate is now at a historic low of 1 per cent. How low can it go? What do you think the monetary policy committee will do to bank rate at its next meeting?

Industry under fire over pension freedoms

By Jamie Clark, Business Development Manager, Royal London Recent articles in the media have raised concerns about the new pension freedoms. One perceived problem is that across the industry, trustees and providers are not necessarily allowing people to take full advantage of the pension freedoms in situ. This is backed up by a recent survey by […]


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