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With-profits exodus is averted

A mass stampede out of with-profits has been prevented after Hong Kong-based Towry Law International managed to stop NM Rothschild & Son (CI) calling in gearing loans on offshore investments.

Guernsey-based bank Rothschild had lent large amounts of money through Credit Select, a product that allowed offshore investors to obtain loans to buy with-profits policies.

But Rothschild took fright at the imposition of MVRs by life offices, which reduced the surrender value of the policies on which the loan was secured.

It was on the verge of calling in the loans when a number of life offices involved reduced their MVRs and Towry managed to secure another credit line with Royal Bank of Scotland.

Towry Law International managing director Bill Tatham says the average investment is £100,000, with gearing of another £300,000. Overall, the amounts account for flows of hundreds of millions into UK with-profits funds.

Tatham says: “It is like having negative equity and being told by your lender to sell your house. Rothschild was going to force people to sell their with-profits and crystallise their MVRs. Everyone was going to lose. I am sure the managers of the funds will have taken this into consideration when considering MVR policy.”

A Rothschild spokesman denies the bank was alarmist and was simply applying the covenants in the loans it provided.

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