Azure Global : 05/23/13

Thursday 23 May 2013

'Investment calculator' offers investors transparency on fees

A new tool launched on Wednesday promises British investors a way to cut through what its authors call the "smoke and mirrors" used by investment firms to charge hidden fees and get a more realistic valuation of their investments.

The True and Fair Calculator works out the cost of investments in pounds and as a percentage, giving an estimate of returns after all costs and fees.

It is based on data streams from investment research firm Morningstar and was devised by True and Fair, a campaign to boost transparency in the industry spearheaded by Alan and Gina Miller, founders of wealth management boutique SCM Private.

It builds on a similar tool created by the United States' Securities and Exchange Commission in 2005, which was used by more than a million consumers in its first three years.

The investment industry has come under mounting scrutiny in recent months as the public and regulatory backlash since the 2008 financial crisis spreads beyond the banking industry.

Britain's financial watchdog has already called for an end to hidden fees levied by asset managers.

"We hope this drives new levels of cost transparency which results in greater competition among product providers, gives information to aid better decision making by consumers and their advisers and provides a foundation for more realistic investment expectations," said Gina Miller.

Profits raised by the Calculator will be donated to charities for financial education and care for the elderly, True and Fair said.

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Article source: http://uk.reuters.com

US Fed's Ben Bernanke hails benefits of stimulus

US Federal Reserve chairman Ben Bernanke has told Congress that it is too soon to end the central bank's monetary stimulus programme or raise interest rates.

He said the Fed's policies were "providing significant benefits" and changing course now could harm growth.

He warned that a "premature tightening of monetary policy" would risk "slowing or ending the economic recovery".

US rates have been between 0% and 0.25% since December 2008.

However, later on Wednesday the minutes of the Fed's last meeting were released, highlighting divisions on the policy-setting Federal Open Market Committee over when the Fed should start to wind down its $85bn-a-month asset purchasing programme.

"A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth," the minutes said.

Mr Bernanke said the recovery could slow if the Fed changed its policie

"However, views differed about what evidence would be necessary and the likelihood of that outcome.

"One participant preferred to begin decreasing the rate of purchases immediately, while another participant preferred to add more monetary accommodation at the current meeting and mentioned that the Committee had several other tools it could potentially use to do so."

Deflation risk

US stocks turned negative after the minutes were released, with the Dow Jones down 25.84 points at 15,361.74.

Shares have been hitting record levels in recent weeks, held up by the prospect that monetary policy would remain generous to help strengthen the weak economy.

At the same time, the Fed's willingness to continue its support underlines the weakness of the US economy and is causing some investors to fear company profits may be held back by tepid growth.

Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors, said the minutes had been "largely superseded" by Mr Bernanke's testimony "but they do reinforce the idea that the doves - who are the ones making policy - will need a great deal of persuading to change their stance".

The Fed has pledged to keep US interest rates at their record low level until the US unemployment rate falls below 6.5%.

In his latest testimony to the Joint Economic Committee, Mr Bernanke noted that unemployment had now fallen to a four-year low of 7.5%, but the job market was still weak.

He added that inflation was running below the Fed's long-term target of 2% and said current monetary policy was helping to counter "incipient deflationary pressures".

The Fed's purchases of US government securities had "kept inflation from falling even further", he said.

The Federal Reserve buys bonds as a way of increasing the money supply and improving liquidity in the financial system, in the hope of sparking economic growth and supporting employment.

Article source: http://www.bbc.co.uk

Osborne prepares ground for RBS and Lloyds sell-off

IMF calls on chancellor to devise a 'clear strategy' for bailed-out banks and pour more taxpayer funds into them if necessary

George Osborne is preparing to set out his plans to return bailed-outLloyds Banking Group and Royal Bank of Scotland to the private sector after the International Monetary Fund called on him to devise a "clear strategy" for the two banks.

The Washington-based body, in London to present its annual health check on the UK economy, also told the chancellor that if the two banks needed more capital to bolster their financial strength he should pour in more taxpayer funds, as it would prove beneficial to the economy.

Some £65bn of taxpayer money is already locked up in shares in RBS and Lloyds, which both issued stock market announcements to insist they did not need to tap investors – particularly taxpayers – for fresh funds to plug capital shortfalls, estimated to be about £10bn.

There is mounting speculation the government is preparing to kickstart a sell-off of part of its 39% Lloyds stake

The intervention of the IMF forced Osborne to give the clearest indication yet he will outline his strategy for the two banks next month, with speculation focusing on his Mansion house speech in June.

More generally, the IMF said banks should be required to raise equity, cut dividends and show restraint on remuneration rather than cut back on lending.

Osborne said he would reveal his decision on Lloyds and RBS after the crucial report by the Parliamentary Commission on Banking Standards, which is expected to report next month . The report may call for full nationalisation of RBS, already 81% state owned. Lloyds is 39% owned by the taxpayer.

"Having refocused their business, now is the time for a clear strategy on how to return RBS and Lloyds to the private sector in a way that protects value for the taxpayer," Osborne said.

Shares in the two banks rose after they said their long-running discussions with the new City regulator, the Prudential Regulation Authority (PRA), over capital requirements ended. The banks said they could sell off businesses and cut down on risks rather than raise fresh funds to fill the shortfall.

Lloyds ended nearly 2p higher at 62.96p – above the 61p level the government now sees as break-even – and RBS ended 7.4p up at 349.6p.

The IMF presented a dilemma for Osborne by making clear that value to taxpayers should be central in any sell-off. Shares in both banks are firmly below levels the City regards as break-even: 73.6p for Lloyds and 502p for RBS, levels leaving taxpayers with £17bn of losses..

"Any strategy should seek to return the banks to private hands in a way that maximises the value for taxpayers, strengthens confidence and competition in the sector, and minimises outward spillovers," the IMF said as it indicated a strategy should be outlined by the end of the year. "In this context, if a sovereign backstop is required to meet a capital shortfall, it should be provided, as this would have a high multiplier."

The IMF did not indicate when stakes should be sold off and noted that "challenges remain" as the banks had failed to sell the branches which the European Union had demanded should be disposed of in return for £65bn of state aid.

The specific capital shortfalls of Lloyds and RBS were not disclosed but are thought to make up a large part of the £25bn hole identified by the the Bank of England's financial policy committee in March.

The IMF said the new stress tests by the PRA planned for 2014, following this year's exercise for the financial policy committee, should provide more detail about the methodology, results and bank-by-bank capital plans.

Lloyds, which analysts estimate has a £3bn shortfall, said it could plug its gap by generating profits and continuing to sell non-core assets, such as problem loans – ensuring taxpayers and other investors would not need to buy new shares or other types of financial instruments.

To underline the point, Lloyds raised £500m just after the stock market closed by selling another tranche of its stake in wealth manager St James's Place. Since March, Lloyds' stake in the firm has fallen from 57% to 21%.

RBS said it could fill its capital shortfall by selling off part of its US business, Citizens, and scaling back its investment bank.

The PRA said that further announcements would come from other banks once discussions over capital had been concluded. The City is most concerned about the outcome of discussion with Co-operative Bank.

Article source : http://www.guardian.co.uk