Another drop in Northern Rock shares

Following the turmoil and chaos that took hold in September of this year, high street lender Northern Rock has seen its share prices plummet yet again, this time falling to their lowest level yet.

According to recent reports shares in Northern Rock, which were worth £12 back in February of this year, fell to under £1 per share on Tuesday. This comes in the light of concerns over whether the bank will be bought out, as although there have been a number of potential purchasers there has been no firm offer as yet.

The serious woes faced by Northern Rock began in September, after it became widely known that the lender had approached the Bank of England for an emergency loan of billions of pounds. Once this became public knowledge, savers flocked to the bank to withdraw their savings amidst worries that the bank was about to fold, and over the space of several days over £2 billion was withdrawn from the bank.

Share prices also plummeted, and Northern Rock gained a reputation as one of the highest profile victims of the credit crunch and the turmoil that has swept across the financial sector.

One bank official stated: ‘Based on the information it has so far, the board of Northern Rock believes that the range of values for the existing equity implied by the proposals is materially below the market price at the close of business on Friday.’

Chairman Bryan Sanderson added: ‘The value to shareholders from any proposals… remains highly uncertain and will be dependent, among other things, on when and if there is an improvement in market conditions including access to liquidity and the value created, if any, from the run-off of the assets and liabilities remaining in the company following any disposal of all or part of its business.’

Tom Smith
25th November 2007

Tags: prices, drop, bank, shares, rock

FSA investigation leads to two arrests

An investigation into a so called boiler room operation by the Financial Services Authority has led to two arrests, according to a recent report.

The Financial Services Authority has been investigating claims of illegal share selling, which are known as boiler rooms, and after raids on a number of homes last week two men were arrested. The raids were carried out by the FSA along with police officers.

The two men arrested are thought to be involved with Universal Management Services (UMS), which is said to be a boiler room, which means a front for illegal share selling. It is thought that consumers that have fallen victim to this scam may have lost over £5 million collectively. Although these boiler rooms are usually operated from abroad, which means that the FSA cannot take action, the agency can act on those based and operated in the UK.

Reports claim that consumers were cold called in order to sell them the shares. Victims are talked into purchasing shares that are actually worthless of worth very little. The company responsible is not authorized by the FSA. The investigations started after a number of consumers complained about the pressure put on them by sales people, who then told purchasers to write cheques out to UMS.

Jonathan Phelan, head of retail enforcement at the FSA, stated: “This the first time we have taken this action and it shows that we will not hesitate to use our powers to protect consumers, including launching criminal investigations where appropriate.” As part of the investigation over £5 million worth of assets have been frozen, according to the report. The FSA also pointed out that there are at least four other companies with similar names in the UK but that they are not related to UMS.

Tom Smith
10th November 2007

Tags: dealings, fsa, financial, shares, boiler

Endowments Still Failing

Despite the last four years seeing a rising stock market, millions of endowment policies are still unlikely to be worth enough to pay off the mortgages they were meant to cover.

 There have been soaring share values around the world, and record growth in commercial property, but for six million mortgage endowment policy holders in Britain it will still not be enough.

The Association of British Insurers has produced figures that reveal that to the end of 2006, two thirds of endowment policies in force were still in the red band – that is, they will not deliver the target sum upon maturity. Those achieving a green rating were only 18%, and should deliver the target amount. The figures are only marginally better than at 2004, when 71% were red and 14% were green. Amber policies make up the rest – these are at risk of not paying the intended maturity value. The booming stock and property markets do not seem to have had much of a positive effect on these policies.

Deeper investigation shows that the overall trend disguises huge differences between insurers. Where there are some companies forecasting that nearly all their endowment policies will hit the targets, others have only a meagre number that are expected to deliver the goods.

Sadly it is some of the bigger companies, who between them number two million endowments, who are failing. Norwich Union, Standard Life and Friends Provident are those with the highest number of prospective shortfalls.

One couple in Fareham, Hants have two endowments they hoped would pay off their £41,300 mortgage. A Legal & General policy started in 1983 is due to mature next year and is expected to beat its target of £22,800 by around £2,000. The other policy was taken out with Royal Insurance in 1988. It is now run by Phoenix, part of Resolution. Due to mature in 2013, the latest projection in spring suggested it would fall short of its £18,500 target by somewhere between £5,000 and £7,000. They will have to re-invest the £2,000 from Legal & General to help pay the shortfall of the Phoenix policy.

The Phoenix policy’s recent performance has been poor, giving returns almost less than investment. How can that be the case with such good growth in the markets in recent years?

Most endowment policies are invested in “with-profits” funds. These spread the money from savers across a number of assets that include shares, bonds and commercial property. In the past five years shares have managed average returns of 10%, and commercial property has average returns of over 15% in the same period. Bonds only grew by an average of 4.6% per annum, and the in past twelve months have actually gone down in value. The problem was that many insurers got cold feet in the share and property market in 2002 and 2003, and transferred large parts of their funds to bonds. Thus, the funds have failed to take advantage of the rising stock market and commercial property prices.

Small companies Wesleyan and Liverpool Victoria have no policies in the red, and Legal & General now has half of its policies in green, up from 20% in 2002. Conversely Standard Life has 88% policies in red, up from 68% in 2002.

It seems that most endowment investors have missed out as equity markets have soared.

Tom Smith
18th July 2007

Tags: profits, Mortgages, invest, short, shares, red, black, shortfall, stocks

Online Share Dealing Increases In Popularity

Now that some sort of stability has returned to the UK stock markets, and with the London FTSE 100 back over 6100, more and more individual investors are returning to the stock market in the hope of getting their share of the profits to be made.  Unlike previously, however, increasing numbers of individual stock market investors in the UK are electing to cut out the middle-man broker and invest themselves online.

In a report recently published by Saga Share Direct, 73% of all individual respondents declared that they now preferred to manage their own stock portfolio online rather than use the services of a UK stock broker.  This represents an 8% increase on the number of reported individuals using online stock dealing services in January of 2006.

Rather amazingly, however, 57% of all individual stock market investors in the UK felt they were now getting better returns on their investments from having taken control of these investment than they were previously getting using the services of UK brokers.  A trend on which Andrew Goodsell, chief executive of Saga, commented: “With more people returning to the market, demand for a well priced and competitive online share-trading service is high.”

Profit margins alone, however, do not appear to be the ultimate driving factor behind so many Brits moving into online share trading.  Saga’s report also shows that 56% of respondents felt that “maintaining personal control” over their share portfolio was sounded enough reason to prefer online stock trading over using the services of a UK stock broker.

With UK private individual investors having pumped in a £2.6 billion investment in UK stock market equity investments during August and September, the growing trend of Brits electing to invest in the stock market online only looks set to go from strength-to-strength.  Nevertheless, Brits looking to go it alone and make stock trades online should ensure they stay clear of the usual pitfalls associated with online stock market trading.  All of the usual research and analysts will need to be done, and much of this will now be down to the individual themselves as many UK online stock trading services will not offer investment research services without having to pay hefty membership fees.  Moreover, individual UK stock investors will also need to make sure the computer software they have is capable of transacting secure online trades, as well as keeping up-to-date tabs on where the UK stock market is going. 

That said, there are clearly profits to be made from stock dealing in the UK and cutting out the broker middleman’s fees is one sure way to ensure that you maximise those profits – provided, of course, that you know what you are doing and pick the right stock.

Tags: prfofit, sell, shares, stocks, dealing, online, cost. charges, buy