# Would savings be safe from 'haircuts' and 'Bail-ins' with an investment company



## burmo (7 Apr 2013)

Hi,

Setting aside the concerns about a Euro collapse, and focusing purely on depositor haircuts. 

Would a cash fund with the likes of Zurich or New Ireland be safer for my savings than deposit accounts in Ireland?


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## North Star (8 Apr 2013)

Burmo,
We have been looking at this item for our clients and especially so post Cyprus. Our position is that such investments are technically an insurance contract and would have avoided the bail in deposit haircuts in Cyprus. No one can guarantee that the same would happen if the situation were to be repeated here, however it is reasonable to expect that such "Insurance policies" would avoid deposit haircuts. Even if this were not to be the case then our view is that you would be no worse off than having funds over €100k in a deposit account in Ireland.
If you were even thinking about this route we would suggest that Standard Life are worth considering as all investments with them are covered ( in the event of insolvency at Standard Life ) for up to 90% of their value at the time of insolvency, by the U.K FSCS. This is an explict guarantee by a Govt that is still rated AAA by S&P and Aa1 by Moodys compared to our domestic rating of BBB+
On a seperate point if you were looking at this structure as a deposit alternative, we would recommend that you select an option where you have access to the funds at short notice rather than tying up the funds for a longer period.
From a risk management perspective you are doing the right thing by asking these type of questions. If you are interested please send me a pm and we can provide you with a briefing note we have prepared for our clients on this item.
regards Vincent


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## burmo (8 Apr 2013)

Hi,

I'm looking at Standard Lifes Deposit Savings Options... they seem to link to external banks? 

[broken link removed]

And moreover they state: 





> In the event of a deposit provider being unable to meet any claims  against it, money from your policy held with that provider will not be  covered by schemes such as *the Financial Services Compensation Scheme or  the Deposit Guarantee Scheme*.


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## North Star (8 Apr 2013)

Hi, Yes that is also our understanding and is the case for all of the life company deposit options. The contract would be between the life company and the deposit taking bank and in our view such deposits are treated as "normal" deposits and would be at risk of hair cut or bail in.  I should have perhaps clarified  that instead of deposit options with an investment company, we are recommending using a mix of low to medium risk fund options which have produced reasonably consistent deposit beating returns after all charge etc. We would look at options such as Corporate Bond funds, Inflation linked bond funds or Absolute Return funds such as GARS. You get the benefit of the FSCS, hopefully avoid any deposit haircut risk. You have to accept some element of investment risk to avail of this protection and any investment risk means that the investment may fall as well as rise in value. These options may well lead to improved/inflation matching returns which is an important consideration in a very low interest rate environment. We havent been able to find a "risk free" option for protecting against the deposit hair cut risk you raised. We would always recommend that you research and fully understand the risks involved and make an informed decision as to whether or not it is a suitable option for you. This investment risk should be weighed against the low probability but high impact risk of deposit haircut.


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## Lightning (8 Apr 2013)

burmo said:


> Would a cash fund with the likes of Zurich or New Ireland be safer for my savings than deposit accounts in Ireland?



I would *guess* that this would be classified as a corporate deposit. Deposits from corporates are generally not covered by Irish deposit insurance.

From the NCA  ...



> Who can make a claim under the Deposit Guarantee Scheme?
> Personal customers
> Sole traders and small businesses
> Partnerships
> ...


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## helvetica (10 Apr 2013)

Would you put everything you have into GARS? Does it contain enough diversity within itself to be a good all-in option?


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## monagt (12 Apr 2013)

> ESM sub 4 Ire banks needs to be +20bn otherwise we are bunched. Failure + further recap wud lead to deposits haircuts, Govt bonds n An Post


Ref:Eddie Hobbs. @RealEddieHobbs 12:29 12/04/13

Would banks like Danski Bank, Ulster Bank (RBS) Rabo be safe from the haircuts?

Would savings products in Standard Life, Irish Life & Eagle Star be safe?


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## North Star (12 Apr 2013)

In our view, when considering the low probability but high impact event of bail in/deposit haircut scenarios; then all onshore deposits are a highly visible "target". Offshore deposits may avoid initial action but may fall in line for a later "levy".

We would hold the view that "Insurance Policies" which cover investment bonds with Life companies are a less obvious target and less likely to be hit by any bail in or haircut type measures. No one can guarantee this, and as such all opinions are speculative. In or view  a diversified approach  with a combination of deposits in domestic banks,  offshore deposits and investment bonds (albeit with full access to the funds) is a sensible and pragmatic approach to mitigate both haircut risks and the consequences of capital controls were they to be introduced.


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## monagt (14 Apr 2013)

fyi.


> Getting worse more slowly is not the same as getting better......Stock market investors need to be aware that the next few years will be characterised by gut-wrenching sell-offs and jaw-dropping rallies as policy-makers try new ways to inflate away the problems. Huge currency fluctuations should be expected. Most importantly if you think the confiscation of savers' capital in Cyprus was unique you really have not being paying attention.


(Paul Sommerville.....http://www.independent.ie/business/paul-sommerville-join-the-stimulus-party-itll-be-a-riot-29194676.html


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## DerKaiser (14 Apr 2013)

burmo said:


> Would a cash fund with the likes of Zurich or New Ireland be safer for my savings than deposit accounts in Ireland?



Some of the cash funds available from insurers are simply deposits with banks. This is made very clear (the bank is explicitly mentioned) as is the fact that any failure of the bank will be passed on to the customers.

Other funds, e.g. secure fund, invest in a range of safe short dated securities, such as German government bonds, and these will be safer than Irish Bank deposits (but probably return less).


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## Marc (14 Apr 2013)

I am always interested when I see reference to the 90% UK Financial Services Compensation Scheme for Standard Life that no one ever mentions Equitable Life.

At its peak Equitable had "just" 26 Billion Pounds in assets and when it ran into serious difficulty, the various parts were sold off to amongst others, the Halifax who pumped a billion into the with profits fund in return for the assets and the salesforce.

Standard life has at the end of last year 167 Billion in Assets under management.

How on earth is the FSCS really supposed to underwrite 90% of all policy values? 

Surely the more practical reality is that if Standard Life ran into financial difficulty it too would be forced to put itself up for sale?


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