Nordea sold new savings products which had expected negative returns
Monday, 29 April 2013
Evidence that banks help destroy lives became known when Norwegian media reports hold that Nordic region's largest bank, Nordea sold services and products that had no returns. That means these products have a greeter chance of loosing the investors money that making them money.
Norwegian business daily, Dagens Næringsliv reports that Nordea's own calculations, of a five companies in which its new product, "Rentebevis" encourage people to invest in had the likelihood of lower gains and larger losses. But the that bank still went on to recommends investors to invest in them even though statistically it is expected that those put their money in those companies tied to the product will loose.
The paper wrote on Saturday that more financial experts are now warning that the product, which has seen a large number of Swedes, Finns and Norwegian investing in, is dangerous.
Briefly, Rentebevis according to reports is targeting ordinary small savers with the chance to emulate an investment in corporate bonds. The type of investment is otherwise reserved for large institutional clients, because it usually requires millions of mini strong placing. Traditionally, at Nordea a similar exposure with a minimum deposit of Nkr10, 000 is the nature of that approach in placing this investment.
The assessment made by experts is that upside of the product is that one can get a current interest rate of return, which may be a few percentage points above the interest rate on a secure high-interest bank account. The downside is that one risks of losing much or at worst, the entire investment if the companies invested in faces financial distress of go bankruptcy.
Several financial experts are now warning against the financial product, as they believe that the risk of losing a lot of money is too large compared to the opportunity to earn a lot if all goes well.
In a letter to the editor of the paper, last Wednesday the new Nordea product was discussed as a "financial weapons of mass destruction." The item in Nordea's interest receipts are said to be credit derivatives (credit default swaps, cds), an instrument in which the legendary investor, Warren Buffet has referred to as financial weapons of mass destruction.
The five companies the investment, "Rentebevis" is linked to and expected returns is presented here as follows
| If 3M *Nibor rate is >>> | 2.0% |
2.5% |
3.0% |
3.5% |
| TUI |
-2.98% |
-2.52% |
-2.05% |
-1.59% |
| Nokia |
3.13% |
3.62% |
4.10% |
4.59% |
| Stena |
2.16% |
2.65% |
3.13% |
3.62% |
| ARCMITTAL |
1.44% |
1.92% |
2.41% |
2.89% |
| UPC |
-2.61% |
-2.15% |
-1.69% |
-1.22% |
| *Nibor rate: Norwegian Inter Bank Offered Rate | ||||
Note according to the analysis:
The probability that one of the companies getting payment problems or bankruptcy is based on historical bankruptcy rates of companies with similar rating from rating agencies. Calculations taking into account management fees, but before any commissions and in addition to the aforementioned bankruptcy rates based on the estimated residual value of 40 percent and the interest rate is fixed for the period.
Scancomark.com Team
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