| What is it about March and crises affecting the financial markets? So Credit Suisse, one of the bastions of the Swiss banking industry has been swallowed by UBS and with a big write-down for its shareholders and 100% losses for those with the riskiest of its bonds. The reverberations appear to be continuing. Global central banks have stepped-in to support the system and the Swiss are underwriting loans and providing considerable liquidity, etc. They had to do this really. This is no tin-pot institution but one with plenty of assets however hard it has attempted to destroy its worth over the last few years. Whilst the uncertainly is continuing, with infection to other markets, stability going forwards will be regained at some point. Some are saying already that UBS will have secured a business bolt-on which could be worth many times what it has paid (and up to 10,000 very well-rewarded jobs across the world are at risk, so big cost savings). On top of this, in the US, the Fed and JP Morgan Chase contributed $70billion of backstop liquidity to First Republic Bank and competitor banks pooled together to deposit $30billion too after it noted short-term liquidity issues – well done but that hasn’t stopped the rot with First Republic’s share price, down 83% since 8 March. You may not have noticed either but several banks and financial firms/private equity funds are buying-in and cancelling their own shares so they recognise the good value which temporarily depressed prices can reflect. Ultimately that increases the profits for the remaining shareholders too of course. Probably it is wise for investors to follow suit however uncomfortable that may seem. However, so far the markets and especially bank and financials’ shares are having a horrible time again. Uncertainty brings negative volatility and caution is encouraged – meaning cheap things to buy but not the time to sell most market assets – best to await ‘normal’ stability first. You don’t want to find you have sold-out on the worst day(s) in the year whilst delaying just a short while could have yielded significantly superior value. Just to reassure you, unlike the Swedish Pension giant Alecta which has launched an investigation into its investment strategies after losing pension investors probably over £1billion on the shares of the last three collapsed US banks (and extra on First Republic shares), we have no direct involvement with any of these banks nor Credit Suisse. However, we are informed that losses on bonds owned by global banks could total some £600billion but not if held to repayment – ostensibly… I haven’t seen the underlying figures. One thing which has happened from this negativity is that bond prices have risen (so losses will have fallen) and the likelihood of swingeing interest rate increases in the US or the UK have abated significantly. After all, these shocks are even more anti-inflationary to consumer confidence than further interest rate pain. What has been the ‘worst’ safe government bond investment to hold? We were shouting warnings loudly at the time but Austria’s launch of a 100 year bond was brilliant for it. For E100 of loan, the highest price you could’ve paid was E208.61 on 3 Feb 2020, banking an assured annual return of 0.62% till 30/6/2120 (it did fall to even 0.45% on 2 Nov 2020). Today that is E42.01 for E100’s worth, with a running yield to repayment of 2.4%pa and remember, no inflation-linking. Hands-up anyone who thinks that is a great investment… You may not have seen but the oil price has been falling heavily. The crude price is back to Dec 2021 levels so that will feed-through to cheaper petrol and also heating oil shortly – at last. That’s 40% off its peak last spring and whilst Saudi’s Aramco saw the biggest ever profit for any corporation in history, profits of energy companies are plummeting and dragging their shares down too. We had cut our holdings quite usefully at recent peaks but aren’t avoiding all the falls – albeit protected by good dividend income whilst we wait. Lower energy prices have a big impact on inflation, not only ‘itself’ but because so many goods must reflect energy in production and transportation costs in their prices.  Chooseday – Tuesday 21 March The next one is at 10.30am till noon tomorrow – feel free to come along and join us! Come and share some company, coffee and cake. You don’t have to be a client!  Some important points from the Budget for a few wealthier people below! Well, there were some interesting things in there, including North Devon’s Constituency (MP, Selaine Saxby) having a special mention because of her raising the awful problem of unacceptable pot holes – and welcome funding relief as a result. This was the 39th financial statement which our Chancellor has experienced so perhaps we do need to laud his experience! I actually believe that the Budget will achieve one of its goals too, that it will encourage more people to work, work more or/and to continue working rather than retiring and including the higher skilled professions where they have been opting-out through penal tax situations on pensions. He hasn’t reduced Corporation Tax so will companies look to leave the UK for more tax-favourable regimes or will they stay as their senior staff can be better rewarded through what is now a superior pension funding opportunity? Apparently only 10% of businesses will pay the full rate and generous incentives for businesses to invest in plant etc will reduce their tax bills too (only those with profits £250,000+ pay the full rate – but on all profits. It is 19% if profit is below £50,000 and tapered from there to the £250,000 figure). And what a shock – the OBR suggests we shan’t go into recession after all, despite the Governor of the Bank of England predicting one more than once. For Pensions, whilst still digesting the consequences but if you have not been contributing because of the Lifetime Limit… the doors are now open again for you to do so, so don’t delay and don’t miss this tax-year’s contribution threshold for those continuing to work, now £40,000 (£60,000 post 5 April) and carry-forward from the last three years. ‘Certification’ is effectively going to be null and void in due course when the Budget is approved… The other issue here too is the Inheritance Tax benefit and what happens at age 75! The value to some people of this will be significant indeed though not many broach the limit. Sir Keir Starmer noted that this was a significant give-away to the 1% top earners and biggest Income tax payers. However, in reality it is not, because they are still constrained by what they can contribute. If earnings exceed £240,000, the contribution limit falls to as low as £4,000pa, so if my calculations are right, someone on £352,000 can only contribute £4,000 gross (that is rising to £10,000 from 6 April and a new upper earnings’ limit of £360,000). Tax-free cash has been capped at £268,275 maximum. The biggest gainers will be those professionals and business people in the ‘middle’ such as doctors and consultants, etc, who won’t be so discouraged to give up work as they have been (their salary-related benefits are converted into a financial equivalent sum (but not a cash pot) so the £1million limit was easily breached, let alone annual contributions). If you do contribute, please just don’t die before the rules change…! Remember too, even if you have no earnings you can still contribute £2,880pa net of tax into a Pension till you are 75 – a great savings’ plan and also IHT friendly so if you have been over the limit till now, you can do that ‘now’ and every 6 April hereafter. The Chancellor has also increased the maximum contribution limit to £10,000 for those still working but already having drawn taxable benefits from pensions – well done. That’s simply ‘common sense’ rather than a tax-raising or spending matter. Planning ahead too, those with children and earning over £100,000 will lose the free child care. Again, as with Child Benefit and the £80,000 rule, for those earning from say £100,000 to £160,000pa, the marginal tax benefit to them of contributing up to £60,000 gross into a pension is strong as they will again qualify for that help – as well as regaining their Personal Tax Allowance which they had already lost. If they can use ‘salary sacrifice’ then they secure NI savings too…  St James’s Place performance St James’s Place is reviewing its business model in the light of the new Consumer fairness guidance. The industry has long-challenged the model which has significant deferred charges levied against new investments or transfers made with the group and effectively hefty penalties if investors wish to withdraw, of up to 6% (but high comparable fees taken annually instead anyway, if they stay). However, that is a worry for them and not for us but it will be interesting to see if this changes. However, now a damning report suggests that 80% of all its funds (it is restricted to only selling its fund range so not independent either) have been underperforming. Yodelar’s report is very critical and summarises its findings saying ‘high charges and poor performance’. It offers regulated advice from fund experts. 80% of SJP funds underperforming, analysts say SJP manages £1.4trillion presently, so many investors are impacted by whatever the Company does or achieves. That is 10.3% of all ‘UK Retail Funds’. Read the article and make up your own mind, whilst we shall concentrate upon what we do instead and independently!  Investment trust discounts More good news last week as Abrdn Latin American Income Trust announced it is going to present a motion to wind-up. We have over 8% of this Trust though the performance has actually been good. It was one of the few funds to go up in 2022 when most other things went down! I had not expected such a proposal from this one, at this stage, though in theory if the closure was the day before the announcement our investors should enjoy an instant uplift of some 11% – a very nice bonus for their patience. That’s all good news but as a major shareholder it would have been nice to have been consulted beforehand perhaps. For us this has been an unusual but welcome asset, counter-balancing other parts of our overall portfolios and with a handsome income whilst we wait. There aren’t many alternatives but one comes to mind into which we can shuffle across and see if the exercise is repeated a few years down the road. For our investors, this is the fourth such special bonus announcement this year already, one you will never have if all you hold is unitised holdings and not ‘closed-end’ variants. Costain also reported encouraging results and against the market, saw its share price (at last) hit the highest levels since January last year and up over 50% since last July – it all helps, especially as genereal volatility is impacting valuations indiscriminately elsewhere).  Portafina/Portal Financial services I see this company has collapsed and the FSCS has announced it is eligible for compensation claims now, with over 300 complaints upheld by the Ombudsman Service already. We flagged this Company’s marketing approach as a serious concern in July 2017 and where it concentrated on encouraging people to access cash from their pensions as the primary objective, regardless of whether this was the ‘best’ thing for them to do or not. Transfers from defined benefit pension schemes were also included. All I’d say if you have a failing via that firm is don’t appoint a claims’ management company but make a claim direct to the FSCS for free. If you are entitled to compensation, then a payment will be awaiting you there.  Funny how it goes… reach True Potential A client who we ‘inherited’ and have never met, started the process to transfer his pension to True Potential to assimilate with four plans he had there already. We sent the details of the Plan here and the current value and noted our concerns over present volatility and the dangers of switching with that at its heights and he replied saying:- ‘Thank you for latest information update, I have been looking at one of my other pensions and it isn’t doing as well as what you are doing with mine, so I want to transfer my pension from True Potential as its been with them for over two years and it’s still at a loss of £3,000’. What can I say? My best wishes Philip J Milton DipFS CFPCM Chartered MCSI FPFS FCIB Chartered Wealth Manager Fellow Of The Personal Finance Society, Fellow Of The Chartered Institute Of Bankers |
What does the banking crash mean for us?
