# Anglo Capital Plus Account Issue 3



## philips (21 Mar 2007)

Got a letter from Anglo about this today - 100% capital security tracking the UK commercial property index and also the FTSE EPRA Euro Zone Public Real Estate Index. Minimum investment 20,000e for 3 years and 9 months. No fees or charges and 100% participation in any gain of the indices. Would be interested in comments.....or warnings!....about this product. 
Thanks.


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## CCOVICH (21 Mar 2007)

Hang on


100% capital guarantee?
100% participation?
NO fees or charges?
Doesn't sound right.  What's in it for Anglo?


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## philips (21 Mar 2007)

Exactly what I was thinking CCOVICH which is why I posted looking for comments. Definitely says in black and white on the letter received today "No Fees or Charges" but for some strange reason does'nt say it on the website.


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## messyleo (21 Mar 2007)

and no currency risk either - interestingly enough. sounds good!


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## CCOVICH (21 Mar 2007)

I would be inclined to go back to Anglo and ask for a prospectus etc.


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## messyleo (21 Mar 2007)

they have the brochure and all the T&Cs online
[broken link removed]
at the bottom of the page


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## ClubMan (21 Mar 2007)

The prospectus would be a much more detailed document and should clarify all detailed issues about the product. However it may also be necessary to read the detailed documentation about any underlying financial instruments/derivatives as well.


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## philips (21 Mar 2007)

I have been on the Anglo website and read through the Product Brochure, Terms and Conditions etc. and still can't find the catch.  Only negative I can see is that there is no access to the money until maturity.
gravitygirl, you had asked about the same product (Issue 2?) a while back - did you go ahead with the investment or are you still considering..........and also looking for the drawbacks??!!


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## messyleo (21 Mar 2007)

I didn't actually, though was tempted at the time! however as far as i remember, it was only 80% participation i.e. you only got a max of 80% of any gains, during the second issue, which is why it seems strange now that they are offering 100%. I also trawled through the T&Cs, where you would expect to find all the relevant conditions, surely?


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## ClubMan (21 Mar 2007)

Remember that the 100% capital security is on the nominal and not the real value of your money.


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## messyleo (21 Mar 2007)

indeed, it goes without saying that inflation is a risk (and a significant one given the rate these days!), however if that is the only risk, it seems a decent product in terms of charges and risk imho.


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## CCOVICH (21 Mar 2007)

Yes, it looks like an interesting offer-on the proviso that the indices in question outperfrom cash deposits over the term.  Tax at 23% will be payable on any gain.


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## ClubMan (21 Mar 2007)

The formula in the terms & conditions for calculating returns looks a bit complicated to me - especially when read in conjunction with the definitions section. This sort of obfuscation puts me off things like this.


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## messyleo (21 Mar 2007)

as far as i can see it's just a weighted average of 100% of the gain in the two indices used, where the weights are 0.5 each i.e. both indices are invested in equally.


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## ClubMan (21 Mar 2007)

But what do the asterisks on A1 and B2 mean and why don't the terms used correspond to those in the definitions section?  


> Gross Interest =
> Max { 0%, 100%*[50%*((A2-A1)/A1) +50%*((B2-B1)/B1)] }
> 
> Where:
> ...


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## messyleo (21 Mar 2007)

apologies, i hadn't seen the asterisks on the pdf - my eyes must be failing me in my old age  well spotted clubman!


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## Sunny (21 Mar 2007)

What is the 3% extra tax on top of the 23% DIRT.


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## ClubMan (21 Mar 2007)

Confusingly they say in one place that _DIRT _is 23% which is wrong but elsewhere clarify that the exit tax is _DIRT _+ 3% = 23% on any gains. That is the normal tax that applies on indirect share investment (e.g. unit linked fund) gains.


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## messyleo (21 Mar 2007)

it's standard for this type of product (e.g. index trackers etc.) due to the rollover nature i.e. the fact that you don't pay dirt on an annual basis (as far as i know anyway but im open to correction! )


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## Sunny (21 Mar 2007)

Fair enough. Still don't believe that there are no charges. Someone is paying for the capital protection.


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## ClubMan (21 Mar 2007)

I agree. The costs must be hidden somewhere - perhaps subsumed into the underlying derivative (?) and reflected in a reduction in yield with respect to the performance of the underlying investment tracked. This would be fairly typical tracker bond smoke and mirrors stuff.


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## Sunny (21 Mar 2007)

ClubMan said:


> I agree. The costs must be hidden somewhere - perhaps subsumed into the underlying derivative (?) and reflected in a reduction in yield with respect to the performance of the underlying investment tracked. This would be fairly typical tracker bond smoke and mirrors stuff.


 
Possibly. Am intrigued by it. Wonder can anyone get the prospectus off them. The brochure is too simplistic.


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## Protocol (21 Mar 2007)

What happens is that Anglo Irish put all your principal on deposit in their bank.  That's how they can guarantee it.

They then buy an insurance product from a counterparty, in this case I think it's Goldman Sachs. This provides the return.

They pay for this out of the interest they earn by lending your funds onwards.

It is complex, yes. It lacks transparency, yes.

But it does seem to be a good deal.

One issue: the rental income that these properties earn, is that reflected into the property index value?


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## ClubMan (21 Mar 2007)

Protocol said:


> It lacks transparency, yes.
> 
> But it does seem to be a good deal.


These statements are contradictory in my opinion. Without transparency it's impossible to say whether or not it's a good deal.


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## CCOVICH (22 Mar 2007)

If it looks like a tracker bond, walks like a tracker etc.

I would assume that the asterisks queried above are meant to refer to the fact that there is averaging involved in computing the final return, but that's just my own interpretation.

100% security and 100% participaton is an odd combination-I would have expected some sort of trade off, i.e. 80% security with 100% return or vice versa.


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## oldtimer (22 Mar 2007)

I bought into their Issue 1 last August, 100% security and 70% participation. Wish i had waited.


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## CCOVICH (22 Mar 2007)

Well I presume they are now offering greater participation because they are taking the view that the overall return for someone who invests now will be less than if you had invested 2 years ago etc?


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## max (22 Mar 2007)

They are only guaranteeing the nominal sum invested, which in five year's time will be worth much less. Perhaps this is where the charge is?


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## Ret45 (22 Mar 2007)

But your cash is only tied up for three years and nine months, not five years.

Without having read the fine print it certainly looks like a less expensive way of getting exposure to the overseas commercial property market than all those property syndicates that are popping up all the time now.


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## Happy Girl (25 Mar 2007)

Just see advertisement on front of Sunday Indo today re Capital Plus Account. Did anyone do further investigations re hidden charges. It all seems too good to be true!!!!


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## Happy Girl (26 Mar 2007)

Hi folks. I have just been on to Anglo and they assure me that there are definitely NO fees involved with this account. I asked the question that with 100% security/100 participation and no charges what is in it for Anglo? Basically she explained that Anglo are mainly a lending bank and the clause that no withdrawals can be made from the account for its 3yrs 9mths duration means that they are assured of the money for lending purposes for that timeframe. She gave me previous issue performances - Jan05-Jan07 78.97% and 31/1/06-31/1/07 41.58%. Think I will go with it.


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## ClubMan (26 Mar 2007)

The detailed prospectus would still be the best document to check for details of how they make money on this.


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## Happy Girl (26 Mar 2007)

Just spoke to Anglo again and there is no prospectus available for this product or indeed for any of their products. Again explained to me that it is cheaper for them to provide this type of product that having money on deposit from customers as deposit interest is payable on deposit accounts. With this Capital Plus Acc money stays in account at no cost to Anglo for duration of term. Also they are on a mission to get new customers and feel this account will draw a lot of attention. Have I enough information here to make an informed decision to go with it?


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## ClubMan (26 Mar 2007)

If I was in your position then I would not proceed without more info.


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## Happy Girl (26 Mar 2007)

Hear what you are saying clubman but what information am I looking for other than what is provided in the data on their web page?


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## Janman07 (27 Mar 2007)

I may be bending the rules here by mentioning a specific alternative but this IS a discussion about a specific product.

Rather than giving Anglo 20k for 3 years and 9 months, could you not buy iShares FTSE EPRA/NAREIT UK Property Fund (IUKP) and iShares FTSE/EPRA European Property Index Fund (IPRP) through a discount broker and end up with more or less the same product? The difference being that you could sell them whenever you wanted and you would also receive the pooled dividend payments from the funds.

You would not have any capital guarantee and would be exposed to changes in currency rates. Personally, I am not impressed with a capital guarantee in almost 4 years time as it represents a serious loss in the real value of your money. I also believe that the chances of property being worth less in 4 years time than it is now are extremely slim. There is always a currency risk no matter what you do - if Sterling gets stronger over the investment period you will lose out as a result of being 'protected' from currency risk by the Anglo product.

I may be missing something crucial and would be glad to hear criticism of the above alternative.


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## philips (29 Mar 2007)

Just wanted to say I appreciate the extremely helpful contributions from posters which has given me lots to think about. I intend to make a decision one way or the other over the Easter break. If I do go ahead - and am still here in 3yrs 9mths - I might resurrect this thread and let you know how it went!

Thanks everyone.


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## pator (29 Mar 2007)

Have been following this thread and have a "slightly" off point issue.  Am thinking of going for this account as well. Like the capital guarantee so taking risk but still have someit, also have always liked anglo in the past, (the power of building up good customer relations/image!)  Thinking of putting the ssia into it and wondering will it attract a lot of ssia's.  

For me if it was min €10k would definetly go for it and still have some of the ssia left for _other _purposes.  Discussions in work  have been on the basis that its money u haven't had access to so far so can tie up for next three yrs nine mths.  If there was such a €10k capital guaranteed surely it would attract alot of ex ssia money?


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## oldtimer (29 Mar 2007)

At face value this bond appears very attractive alright. Will appeal to SSIA savers who can lock up money for 3 years 9 months. However most SSIA money due for pay-out in May and closing date for this is April 27th. If Anglo's intention is to target SSIA money would be a good idea to extend this date.


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## Happy Girl (29 Mar 2007)

following this thread also with great interest. Seems v attractive but still awaiting answer from clubman as to what other information I should be trying to get before making my decision.


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## Sunny (30 Mar 2007)

Happy Girl said:


> following this thread also with great interest. Seems v attractive but still awaiting answer from clubman as to what other information I should be trying to get before making my decision.


 
The structure of the product does sound attractive but you should probably look more into the underlying indices and see what exactly you are exposed to.


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## verbatim (30 Mar 2007)

Here is a quick explanation of how a simple 100% capital guaranteed tracker bond works.

Lets say the details are like this.
Bank XYZ offers:
5 year bond
100% capital guarantee at maturity
100% participation in the growth of the EuroStoxx

You invest 10,000 euros in this bond.
Bank XYZ must give you 10,000 euros at maturity so they put just enough money in a deposit account at the 5 year interest rate to give exactly 10,000. Let's say that the amount that needs to be put in the fixed account is 8,000 euros (this would be the case if the 5 year rate was about 4.5%).

Now there are 2000 euros left over. The bank has guaranteed you all of the growth and none of the downside of the EuroStoxx. They have effectively sold you a derivative called a Call Option on the EuroStoxx. Bank XYZ will determine the price of this Call Option, usually by asking an investment bank which is a specialist in making prices for these kinds of derivatives. Lets say the investment bank charges Bank XYZ 1500 euros for the option.

Now Bank XYZ is perfectly positioned to give you exactly what they promised they'd give you at maturity. The 100% capital guarantee is taken care of by the fixed rate account, the growth of the EuroStoxx is taken care of by the Call Option. And they've also in the middle of this managed to pocket 500 euros of your money. This is what the bank calls Margin.

So

10,000 = 8,000 + 1,500 + 500
10,000 = Amount in fixed account + Call Option + Margin

This is the usual way that a tracker bond works.

The Anglo Capital Plus Account works in exactly the same way.

This raises a couple of questions though.

How can they say there are no fees when they are creaming off this margin? In actual fact they may be doing this for zero margin.

So why would they offer this product for no profit? Anglo are a bit of a different bank compared to AIB and BOI, they don't have a big deposit base. They have leant out much more money than they have on deposit. There are regulations which require them to have a certain amount of money in their reserves for every euro they lend. The main way (apart from deposits) that any bank meets these capital requirements is by borrowing on the Interbank market. But it actually works out cheaper for them to borrow from you and me. That's why they'll do this for zero fees, because they don't have to pay the extra cost of funding themselves on the interbank market, and they can keep lending till the cows come home.

There were also some questions on here about how could they possibly offer 100% participation now when they only offered 80% participation 2 years ago. The participation is determined purely by how much money Anglo have to spend on the Call Option (lets assume zero margin). Two years ago interest rates were lower so Anglo would have had to put a larger amount of you cash in the fixed deposit account and so would have had less cash to buy the option. Now with higher rates they don't have to put as much money aside for the capital guarantee, because the money that they do put aside will grow faster. So they have more now to spend on buying the option from the investment bank. Hence higher participation.

Also, it's not correct to compare 100% participation in one index with 80% participation in another index. Let's say Bank ABC offered 60% of the growth of the ISEQ over 3.75 years. You might think that's nowhere near as good as 100% of the growth of the EPRA and IPD basket that Anglo is offering. But the amount of money to buy the Call Options is exactly the same in both cases and so the capital markets are saying that these two trackers have equal expected payoffs.

What I'm trying to say is that the terms of the deal that are offered to you are dictated by the interest rate markets and by derivative markets. Not by someone saying "Property isn't going to do as well as 2 years ago so lets offer them 100% participation instead of 80%".

In my own opinion, the reason you're getting 100% participation (apart from better interest rates) is that the IPD is probably a very low volatility index, and it probably has low correlation to the EPRA. If you were investing in a tracker which was only linked to EPRA you might only get 70 or 80% participation. The presence of IPD makes the option cheaper and hence the participation higher.

Also, very important, check out the averaging in the deal. If it involves averaging throughout the lifetime then it's not as attractive as it sounds. If it only involves averaging in the final 6 months or 3 months then that's more acceptable. Generally the less averaging the better.

In conclusion, I don't think you're being ripped off here. Banks generally do take margin, and how much they should be allowed to take is a question for another day. I think it's perfectly possible though that Anglo are doing this for zero margin. What you need to be asking yourself is; am I happy giving up the guaranteed growth of a fixed rate, for the potential growth of the EPRA and IPD?

Disclaimer: I work for a bank, not Anglo though.


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## Hesadub (30 Mar 2007)

Excellent post Verbatim!  Really throws some light on the product for those amateurs among us!


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## CCOVICH (31 Mar 2007)

Yes, very good post Verbatim, thanks for taking the time to post in such detail.


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## Happy Girl (31 Mar 2007)

Is it still a good investment?


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## pennycent (15 Apr 2007)

Was interested in this account but the fees are in the way they calculate the return. Correct me if I am wrong but I got the information and the formula is different than the one posted earlier on this thread.
It is 50%((A2-A1) + 50%(B2-B1))
               ____              ____


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## pennycent (15 Apr 2007)

further to my last post


A2-A1 and B2-B1 are divided by A1and B1 respectively,  50% of B2-B1/ B1  is taken added to the A2-A1/A1 this is then multiplyed by 50% which means you dont get the full % increase in the indices.

Do you still think this is still agood investment?


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## Del3D (15 Apr 2007)

verbatim said:


> Here is a quick explanation of how a simple 100% capital guaranteed tracker bond works...



I found this very interesting, I wondered if this would also work for Joe Bloggs, so I applied it to any stock at random - I picked the S&P 500 and have neglected currency risk in this example.

Invest $14,532 in SPDRs (SPY) S&P 500 Index
Gross Expense Ratio 0.0961%  - not really relevant to this example I think?     

Dec'09 call SPY (currently $145.32) - Closest in the money call is:
145.00    FYNLO.X    19.40    Up 0.40    19.50    19.90    1,500    3,305

$14,532 exposure to SPY,
~$1,990 cost of option (taking worst of spread)
Capital left is $12,542

Interest at US interest rates in trading account, currently 4.84% (BM-0.5%) on $12,542

Apr 2007 to Dec 2007 @4.84% = $454 to $13,016
Jan 2008 to Dec 2008 @4.84% = $630 to $13,646
Jan 2009 to Dec 2009 @4.84% = $661 to $14,307

I am short by $225 - $32 = $193

_________________________________________________
Outcome A: With traditional pure stock purchase

With traditional investment of $14,532. If at outcome, value was $19,532, 
gain is $19,532 - $14,532 = $5,000 profit, gives tax of $1,000

I have also neglected the spread on a purchase of $14,532 worth of SPY, so if the spread was
~1% then it would make up for the $193 difference. 

Profit, approx $4,000

_______________________________________________
Outcome B: With this capital assured investment form

If at outcome, value was $19,532, gain is $19,532 - $14,500 Strike 
= $5,032 - $1,970 option cost, so tax is $612
Tax on interest is approx $400, so total tax $1012 is approximately the same?

Profit, approx $4,000

Obviously with capital assured investments there is still the risk of a loss of interest over this period - approximately $2,000 in this example if the $14,532 was placed in a high-yield deposit account.

Please correct any errors or misplaced assumptions that I have made.

I suppose a question arises then, why do people not always invest in this way?


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## dayzer (16 Apr 2007)

does that mean just as cheap to buy a capital guarantee option? is so is there anyway as janman said rather than giving Anglo 20k for 3 years and 9 months, could you not buy iShares FTSE/EPRA European Property Index Fund (IPRP) through a discount broker but actually do it with a capital guarantee option?


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