Walker Crips Global Financials Kick-Out Plan

Our New Investment Opportunity Linked To Bank Shares

We have worked in conjunction with Walker Crips to offer clients a structured product opportunity linked to bank shares. The six year plan is based on the share prices of five global banks, which are Barclays, HSBC, J P Morgan Chase, Wells Fargo and Credit Suisse. The plan offers the potential of a return equivalent to 10% per annum (not compounded) if four out of the five banking shares are at or above their initial price at one of seven observation dates, starting from year three and every 6 months thereafter. Initial capital is not 100% secure with this plan. If the plan did not kick-out at any of the observation points, initial capital would be reduced by 20% of the fall in the worst performing share. The counterparty is Citigroup, and therefore the capital protection is dependent on Citigroup fulfilling its obligations along with the investment being held until maturity.

Plan summary

Banking

Banks have clearly had a difficult few years and parts of the banking sector remain in a fragile position. However, there are some interesting dynamics appearing in the banking sector. The large global well capitalised banks, such as Barclays, HSBC, J P Morgan Chase, Wells Fargo and Credit Suisse, are likely to become stronger at the expense of some of the banks that rely on State aid and need to restructure their balance sheets. The banks that have done well over the last few years have been those that have been cautious by reducing leverage, have diverse income streams and solid asset and liability bases.

The continuing problems around the eurozone have hit the bank shares hard, with most banks being down between 20-60% since the start of the year. This has impacted banks regardless of exposure to the region and we think there is an opportunity by looking at some of the stronger banks that have seen their share price fall despite having any material problems in their asset book. With deposit rates at all-time low levels, banks have a very cheap source of funding and have wide spreads for banking to personal and corporate bodies. Therefore, we believe there is a real opportunity for banks to make attractive returns in the next few years.

Walker Crips Global Financials Kick-Out Plan

This six-year plan has the potential for kicking out at seven observation points, which are at six monthly points from year three onwards. The plan will kick-out if four out of the five share prices are higher at any of the seven observation points compared with their initial level. The benefit of this plan is that we do not need all of the shares to be up and we can afford for one share price to be down at any observation point and still receive an attractive return. If one of the five share prices is up at any of the seven observation points, the plan will mature early with a return of 10% per annum for each year the plan has been in force. For example, if at the second observation point after three years and six months four out of the five share prices are up, the plan will mature with a return of 35%. If four out of the five share prices are not up at any of the seven observation points, the initial invested capital will be reduced by 1% for every 5% fall in the worst performing share.

Capital protection

The capital protection of this plan is dependent on Citigroup fulfilling its obligations along with the investment being held until maturity. The initial capital is used to purchase securities in Citigroup, which have similar characteristics to investing in corporate bonds. In the unlikely event of default, investors will be creditors of Citigroup and it is unlikely it will qualify for cover in relation to the Financial Services Compensation Scheme (FSCS). However, there are circumstances under which you could apply, for example, if Citigroup was found to be in breach of FSA rules.

When Walker Crips receives your money it will be held as a deposit by HSBC (earning 0.1% gross per annum). Therefore, during this period, in the unlikely event of HSBC’s insolvency, claims will be applicable to the FSCS under deposit business for up to £85,000 per individual.

Capital at risk product

Initial capital is not 100% secure with this plan. If the plan did not kick-out at any of the observation points, initial capital would be reduced by 20% of the fall in the worst performing share. Please refer to page six of the enclosed brochure for more information.

Costs and commission

All costs associated with this plan are taken into account in the pricing of the plan. No additional costs are levied for the initial placing and the on-going investment management of the plan. These charges take into account commission payable to Mattioli Woods and this is calculated at 3%. In effect, if the plan lasts for six years the management fee would be the equivalent to 0.5% per annum.

Citigroup

Citigroup is an American multinational financial services firm which can trace its routes back to 1812. Citigroup is organised into four main segments, being consumer banking, securities, brokerage and asset management and consumer lending. Citigroup has over 200 million customer accounts, does business in more than 160 countries and employs 260,000 people around the world. Citigroup has total assets of $1.9 trillion as at the end of 2010. Citigroup has a long term credit rating of ‘A’ from Standard & Poor’s, ‘A3’ rating from Moody’s and ‘A+’ from Fitch ratings. Standard & Poor’s classify an ‘A’ rated company as a company that has a strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.

Investment

This plan is open to SSAS, SIPP, corporate, pension and trust monies until 9 December 2011. The minimum investment is £3,000 per plan. Whilst the plan would be very effective for pension schemes which are fully tax exempt, you may wish to consider the plan for personal investments. Any growth payments from this plan are likely to be subject to Capital Gains Tax. Any gain derived when investing through an ISA would be fully tax exempt.

Further details and investment placing

For further information on the Walker Crips Global Financials Kick-Out Plan, click here to view as a pdf.

To discuss this product in more detail, please contact us.

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