April 15, 2024

Spaniards Fight to Get Savings Back

He and his wife put aside $87,000. But four years ago, as the economic crisis took hold here, a bank official called Mr. López at home to suggest he move his money into a new “product” that would give him a 7 percent return.

“I asked, ‘Is this safe?’ ” Mr. López said. “I trusted him. He knew the money was for my son.”

Today, Mr. López is one of about 300,000 Spaniards who, in the midst of a brutal recession, have seen their life savings virtually wiped out in what critics call a deceptive and possibly fraudulent sales campaign by banks that were threatened by the implosion of Spain’s property market. Many, like Mr. López, are older and lack formal education, and were easily misled when bank officials hit on the idea of raising capital and cleaning debts off their books by getting people with savings accounts to invest in their banks instead.

For many of these savers, the first hint of trouble — and understanding that they had bought into risky investments — was when some of these banks essentially failed about two years ago. Overnight, they were unable to withdraw their money.

Soon, they came to understand that they had purchased complex financial products, originally designed for sophisticated investors. They had become creditors, and not at the head of the line, either.

The plight of these small-time savers — who invested $40,000 on average but have lost a collective $10.3 billion — has captured headlines and left the country torn about what should be done for them. Some say no matter how unsophisticated they were, they should have known better, especially when they were offered such a relatively high interest rate. They signed pages of documents saying they understood.

But others accuse Spain’s savings banks of fraud, by taking advantage of their most vulnerable customers when they already knew they were in trouble and facing possible bankruptcy. Spain’s construction boom collapsed in 2008, and according to a recent government report, the peak sales of these hybrid financial instruments occurred the next year.

Miguel Duran, a lawyer who is representing about 1,800 investors, including Mr. López, said almost all his clients had been called at home and told to ignore the pages of forms they were signing because the contents were only formalities.

He said even the name of the preferred shares they had been sold, called “preferentes” in Spanish, was deceiving. He said most of the clients believed they were getting a good rate because they, as longtime clients of the banks, were preferred customers.

In the past two years, the Spanish banking sector has been restructured and bailed out by the European Union. Most of the savings banks have been merged or absorbed into the country’s sturdier banks.

But most of those rescued were big international banks and investors, not the small timers who were steered into these risky investments — and who, like Mr. López, have lost about 88 cents on the dollar.

“I have such a sense of impotence,” Mr. López said. “And anger. It is hard to believe that it is all gone.”

Among the unhappiest investors are those who had their money in the seven failed savings banks that were merged into Bankia, a new nationalized bank. Last month, the bank exchanged their hybrid products for shares in the new bank, discounting them by 38 percent as dictated by the terms of the bailout. But once these shares went on the open market, their value plunged to 18 percent of their original value.

Hundreds of these shareholders have taken to protesting every Thursday night in the Puerta del Sol here, in front of a Bankia building that still bears the signage of the now defunct Caja Madrid savings bank. They chant accusations of fraud, their anger and despair close to the surface. Some are unemployed, behind in their mortgage payments or scraping by on state pensions, badly in need of the cash they had painstakingly saved.

Rachel Chaundler contributed reporting.

Article source: http://www.nytimes.com/2013/07/09/world/europe/spaniards-fight-to-get-savings-back.html?partner=rss&emc=rss

Bucks Blog: Beware of Investments Promoted as ‘Just Like a C.D.’

Carl Richards

Carl Richards is a financial planner in Park City, Utah, and is the director of investor education at the BAM Alliance. His book, “The Behavior Gap,” was published last year. His sketches are archived on the Bucks blog.

A recent New York Times article highlighted the sad trend of investors getting fleeced after putting their money in exotic, alternative investments they hoped would help them recover from past investing losses.

I understand the problem. Many of us lost a bunch of money in 2008-9. And if you’re retired or coming up on retirement, the situation is even tougher. You’re sitting on less money than you planned for and have little time to rebuild your savings.

At the same time, you may have been planning to live off the income from that money. But with interest rates near zero, the income you can safely earn has been cut dramatically.

It’s a double whammy! Less money, earning less interest.

That is leading to a frantic search for alternative investments that can make up the difference quickly.

Often the search for a “solution” comes in two flavors:

  1. Looking for investments that will grow fast. This is a bit like doubling down at the casino to make up for losses, often with the same outcome.
  2. Looking for investments that pay higher interest. This is also called “chasing yield.” When traditional, income-generating vehicles like savings accounts or certificates of deposit are paying next to nothing, you start looking for something “just as safe,” but with a higher interest rate.

Enter slick salespeople with alternative investments that just happen to solve your problem. One sentence in the Times article perfectly illustrates this point:

While the offering was unfamiliar — part ownership in a fleet of luxury cars — Ms. Beck bought the pitch because her broker had been around for years, and the product offered what seemed to be a modest annual interest rate of 7 percent.

Who wouldn’t prefer a “modest 7 percent” return to living with stock market gyrations or earning 1.5 percent on a bank C.D.? Sign me up!

It would be great if we could find an alternative investment like this, but what we’re really talking about is finding an alternative to the basic idea of taking a risk to generate a return. The trouble is that risk and expected return are still — and will always be — closely related.

Take, for instance, stock mutual funds, which come with the risk that the value of your investment will go up or down a lot in the short term. The reward comes over the long term, with the higher returns historically associated with owning stock versus other types of investments.

Now there are other “safer” investments that don’t come with as much risk, but offer a smaller reward, like bank C.D.’s. It’s common to see alternative investments pitched as comparable to these safe investments, but the numbers tell a different story.

The current average one-year C.D. nationwide pays 0.6 percent, and a five-year Treasury bill yields 0.78 percent. Those returns should give you a benchmark for the return on a relatively low-risk investment.

So when someone comes to you offering an investment that’s “just like a C.D.,” but it pays 7 percent, guess what: This investment is NOT just like a C.D. If it was just like a C.D., it would pay you what you expect a C.D. to yield.

Yes, we’re in a terrible, tight spot. But the answer isn’t to hope that a dubious, new product someone sells you will solve your problem. The odds are high it will only make things worse.

Let’s use these sad stories of fraud and loss as a important reminder. Be honest with yourself if you discover what appears to be a brilliant loophole to the fundamental rules of investing. As tough as the current situation is, you’re likely to make things worse when you think you can separate risk from expected returns.

Article source: http://bucks.blogs.nytimes.com/2013/02/26/beware-of-investments-promoted-as-just-like-a-c-d/?partner=rss&emc=rss

Bucks Blog: Fewer Wealthy Americans Say They’re Conservative Investors

Traders at the New York Stock Exchange in August.Getty ImagesTraders at the New York Stock Exchange in August.

Fewer affluent Americans describe themselves as “conservative” investors, suggesting that their tolerance for risk may be rebounding after some tumultuous years.

Thirty percent describe themselves as leaning toward lower-risk investment and savings options (like “mutual funds, bonds, savings  and money market accounts”), down from 36 percent a year ago and 50 percent two years ago, according to findings of the Merrill Lynch Affluent Insights survey.

The telephone survey, of 1,000 adults with assets of more than $250,000 to invest, was conducted in August by Braun Research on behalf of Merrill Lynch Wealth Management. The margin of sampling error is plus or minus 3 percentage points.

The shift in attitude toward risk is most clear among affluent investors younger than 50. For instance, about a quarter of investors age 18 to 34 describe themselves as conservative, compared with 52 percent two years ago. These are investors who had become quite wary of the stock market, because of its volatility in the economic downturn. And a quarter of those age 35 to 50 also describe themselves as conservative, compared with 45 percent two years ago.

What is your risk appetite these days? Are you willing to consider individual stocks or alternative investments, or are you sticking with index funds and savings accounts?

Article source: http://bucks.blogs.nytimes.com/2012/09/27/fewer-wealthy-americans-say-theyre-conservative-investors/?partner=rss&emc=rss

Bucks Blog: Those Incredible Shrinking Savings Account Rates

As far as savings accounts go, 2012 appears to be a continuation of last year’s Incredible Shrinking Rates.

“It is a bit of an Alice in Wonderland environment, where everything is getting smaller,” said Richard Barrington, senior financial analyst at MoneyRates.com, a banking Web site.

Rates were already anemic at the end of 2011, according to a quarterly report on the “best” savings rates from MoneyRates. (The list highlights banks that have consistently higher rates on savings accounts, rather than one-time promotions, and is based on average rates over the quarter.)

That analysis found just two banks — Sallie Mae and Discover, both online banks — that offered an average of 1 percent annual yield on their basic savings accounts in the fourth quarter. But a check of the two banks’ Web sites on Tuesday showed that only Sallie Mae is actually offering 1 percent now. (Discover’s rate is now 0.90 percent.)

The other online banks, which are typically able to offer better rates because they don’t have to maintain brick-and-mortar branches, have also dropped their rates since the end of last year.

Customers of ING Direct are particularly unhappy about the continued decline in that bank’s savings rate. On the bank’s Facebook page, an ING post observing that “Savings don’t hurt” prompted several responses like this one: “But interest rate cuts every month do.”

ING Direct is now offering 0.80 percent on its savings account — compared with an average of 0.899 in December, according to MoneyRates. That’s roughly on par with the current offering from Capital One, which has an agreement to buy ING Direct. (The deal is under review by federal banking regulators.) A spokeswoman for ING Direct said in an e-mail that the bank is offering competitive interest rates, given the current market, and that it continues to see people saving money.

Mr. Barrington of MoneyRates said that despite consumer skepticism of the ING Direct’s acquisition by Capital One, the rate change at ING Direct has to be seen in context of the overall low-interest rate environment. “You can’t look at any one bank in isolation,” he said. Even with interest rates at historic lows, he noted, “they manage to maintain a relatively competitive rate.”

And that’s how consumers have to think right now, he said. Even though rates over all are low, some banks are offering better rates than others. So you should shop around. As paltry as the “best” rates being offered may seem, they far outshine the overall average rate for the quarter of 0.217 percent, according to MoneyRates. “Interest rates may be lower,” he said, “but people have more information at their fingertips. So they should avail themselves of that.”

Have you seen the interest rate on your savings account drop? Are you thinking of moving your funds as a result?

Article source: http://feeds.nytimes.com/click.phdo?i=449a7c22727a3c6e32fc6785edcd8540