Bank Interest Rate Raised, the Prime Minister’s Tax Return and Credit Suisse Bond Wipe Out

The Bank of England has raised bank rate to 4.25% which will create howls of anguish among mortgage holders. The US Federal Reserve also raised its rate. But with UK inflation still above 10% p.a. it is quite justified in my view. We do need to get back to reality with real interest rates, i.e. they should be at or above the rate of retail price inflation. At least PM Rishi Sunak has made it his top priority to clamp down on inflation. Let us hope he sticks to it.

High interest rates will certainly put a damper on stock market investment but the short-term pain is worth it. As I suggested in my comments on the budget, the probability of inflation falling to 2.9% by the end of the year is a grossly optimistic forecast.

We also now have sight of Rishi Sunak’s last tax return. The prime minister paid £325,826 in capital gains tax and £120,604 in UK income tax in the last tax year. Good for him is all I can say. He clearly has a lot of investment holdings but might have done better with his tax planning. However he has contributed to the UK exchequer so we should not complain. But the politics of envy always rule in such circumstances.

The key point to remember is that someone from a modest background can become both Prime Minister and wealthy in the UK – it’s clearly the land of opportunity! Note: you don’t need to tell me how he acquired his wealth, but it was legally I believe.

Another disaffected group are those who held the Credit Suisse AT1 bonds who have been wiped out by the terms of the rescue by UBS. Investors are complaining that ordinary shareholders should have been wiped out first in priority as is normally the case. But these bonds have rather specific terms and were acquired by sophisticated institutions. They should have read the small print, as always when investing in bonds.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )You can “follow” this blog by entering your email address below. You will then receive an email alerting you to new posts as they are added

Luxembourg Regulators Inept?

There were a couple of interesting articles on Luxembourg financial regulation in Mondays FTfm publication. The first was on the allegation by victims of the Madoff fraud that the regulator was “inept” because UBS were not being forced to compensate investors in the $1.4 billion Luxalpha fund that fed money to Madoff. UBS were the funds investment manager and custodian and should therefore have paid compensation under the regulator’s rules. But they are declining to enforce their own rules it is claimed. There also seem to be difficulties in investors pursuing legal claims in Luxembourg over this “due to bureaucratic hurdles”.

I have past experience of dealing with the Luxembourg regulator (the CSSF) over the actions of Paypal some years back. Paypal in Europe (and the UK) was and still is regulated by the CSSF. They proved to be totally useless in dealing with my complaint. I came to the conclusion that Paypal chose that regulatory venue for good reason.

I would be very wary of investing in any business that was registered or regulated in Luxembourg. The UK regulator might be quite inept at times, but at least they try to some extent to deal with complaints. The Luxembourg regulator seems to be asleep at the wheel or to simply not have the resources to provide the required service.

Surprisingly the second article in FTfm was how funds are moving to Luxembourg and Ireland spurred by Brexit so as to give them access to EU markets. This is being done by the use of “supermancos” (super management companies) that provide administration services for multiple fund providers and effectively it seems act as a “front” with the appropriate regulatory licences. The EU has laid down some rules that require them to have some “substance” but all that means apparently is that they need to have up to seven staff rather than just one or two. Does that inspire confidence? Not in me.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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