Citibank Whinging About Ns&i Index Linked Being Too Good

[Frank Hovis]

Now that's what I call advertising!

How dare people protect their cash from inflation rather than see it lose money in a rubbish account with Citibank? Pirrocks.

National Savings unnecessarily expensive, says Citigroup

By Harry Wilson

6:00AM BST 07 Jun 2011

CommentsComments

The certificates are a "bad idea", the investment bank said, and are likely to be an "expensive" form of funding for the Government given that they have a higher yield than gilts and the interest is tax-free.

Citigroup analysts criticised the Government's expansion of National Savings and Investments (NS&I) and said that it should instead be looking to reduce the size of the scheme and raise funds through the sale of gilts.

"While the new national savings index-linked certificates appear highly popular with many investors, we believe they are a bad idea for the government: they are likely to prove a highly expensive form of funding and will hinder the important task of reducing the UK banking sector's reliance on wholesale funding," said Citigroup. [please force people to put their cash into our worthless accounts]

The five-year certificates offer a rate of interest equivalent to 0.5pc over the retail price index, giving a yield of about 90 basis points over that of gilts of the same maturity.

With RPI inflation forecast to average 3.6pc over the years 2012-2015, they will have an annual yield of about 4pc, while conventional gilts offer 2.2pc.

The relatively high yield is not just more expensive for the government, but is likely to make it harder for banks to attract retail deposits at a time when they must wean themselves off state support programmes like the Special Liquidity Scheme.

NS&I certificates are set to raise about £2bn this year, which while relatively small given UK retail deposits total more than £1 trillion, must be put against the low growth in the size of deposits in recent months.

This echos the concerns of a recent Deutsche Bank research note, which warned that UK retail deposits are insufficient to cover all the lending made by domestic banking businesses.

Deutsche Bank estimates that Barclays, Lloyds Banking Group and Royal Bank of Scotland have a funding gap of £150bn between their outstanding UK lending and the retail deposits they have to cover the lending.

With insufficient deposits to cover lending, Deutsche Bank said lenders must issue more debt to finance themselves.

Citigroup adds that the NS&I certificates are mainly likely to appeal to wealthier investors, rather than their traditional target of poorer individuals without access to mainstream banking services.

"They have, in effect, become a form of welfare for upper income savers," said the bank. [or one of the few ways not to see your welath destroyed by rampant inflation]

[Peter Hun]

"They have, in effect, become a form of welfare for upper income savers," said the bank

Whereas banks rely on government welfare to pay their bonus, not just 'in effect', its a direct funding.

A less direct form of subsidy is low interest rates which are not passed onto borrowers, so the banks get Welfare from their customers and the government.

[Peter Hun]

"They have, in effect, become a form of welfare for upper income savers," said the bank

Whereas banks rely on government welfare to pay their bonus's, not just 'in effect', its a direct funding.

A less direct form of subsidy is low interest rates which are not passed onto borrowers, so the banks get Welfare from their customers and the government.

Edited June 7, 2011 by Peter Hun

[exiges]

Must be hurting them. Good

[rantnrave]

Whack up your mortgage rates so you can offer savers a better deal. Simples!

['Bart']

Citigroup adds that the NS&I certificates are mainly likely to appeal to wealthier investors, rather than their traditional target of poorer individuals without access to mainstream banking services.

Was that really their target market?

A mate of mine used to have such a poor credit record that he could only get a basic bank account. I doubt if NS&I would have been trying to get his business as he didn't have any money to save in those days.

[Nationalist]

They don't like it up 'em!

[geezer466]

Nationwide phoned me yesterday for the first time in 25+ years....... Pure co-incidence of course I had pulled a large lump out to buy a certificate.....

Was handy actually as she reminded me about the pisspoor rate ISA offers so will be moving that soon as well.

[Bloo Loo]

Of course, the very best rates and protected deposits were last seen in Iceland, 3 yeas ago.

[Guest eight]

Was that really their target market?

A mate of mine used to have such a poor credit record that he could only get a basic bank account. I doubt if NS&I would have been trying to get his business as he didn't have any money to save in those days.

Is that one where you can like, pay money in, and then take it out again later?

eight

[Peter Hun]

Of course, the very best rates and protected deposits were last seen in Iceland, 3 yeas ago.

In a bank, not a government. They were protected in Iceland, all retail depositors got their money back almost immediately.

[The Masked Tulip]

I am not a violent person, well, outside of the dungeon anyhow... but I am slowly coming round to the idea that 6 billion of us would be better off without a few hundred thousand bankers.

[Dorkins]

In a bank, not a government. They were protected in Iceland, all retail depositors got their money back almost immediately.

And as everybody knows, governments always repay their debts.

If NS&I index-linked certificates really are the first 100% safe place to store value in the history of mankind, it's quite an achievement.

[Ash4781]

I dont think the buildings society association like them either!

[newbonic]

Some bankers are looking into the future and seeing reduced bonusses - c'mon folks throw your saving at them so they can generate their bonusses! Holiday cottages and skiing in klosters doesn't pay for itself you know.

[Sour Mash]

And as everybody knows, governments always repay their debts.

If NS&I index-linked certificates really are the first 100% safe place to store value in the history of mankind, it's quite an achievement.

They're safer than any other form of container for sterling debt, except (arguably) physical notes. Certainly a lot safer than a commercial bank which might have only 5% of it's given debt obligations covered by assets, in a time of economic crisis.

If the government default then sterling is worthless anyway as it merely represents a debt from the state.

Of course I'd argue that holding your wealth as the fiat currency denominated debt of someone else (even the state itself) is a bad idea anyway.

[Tired of Waiting]

Must be hurting them. Good

+ 1

[caparn]

Interest rates are so ridiculously low at the moment it is worth increasing your mortgage to invest in these NS&I index linked certificates.

[The Knimbies who say No]

Nationwide phoned me yesterday for the first time in 25+ years....... Pure co-incidence of course I had pulled a large lump out to buy a certificate.....

Was handy actually as she reminded me about the pisspoor rate ISA offers so will be moving that soon as well.

Very good, ha.

[R K]

Well clearly the entire system of how the whole thing works is clearly broken. And it broke about twenty odd years ago.

It's very simple.

You lend money to the bank. They lend money to the borrower. They take a margin between savers and borrowers.

Saver gets a real return on their money. Bank is okay but not obscenely wealthy so that its employees don't feel they are entitled to raping the tills because they are so wonderful. And asset/house prices are kept in check by the discipline of homeowners paying an interest rate in excess of inflation (on average).

What happens? We get globalisation. Wholesale funds (recycled trade surpluses) look very cheap relative to retail funds so the interest savers can get goes down in time and the share of wholesale funding rises. Bank rate fails to rise because they measure cpi which is being depressed by self same globalisation process.

Banks have now operated on this basis of looking at retail versus wholesale funds for nigh on 20 years and somehow think this is normal. It isn't. It's a symptom of a broken global capital and trade system.

So the banks now want ultra cheap savers rates so they can 'wean themselves off wholesale funding'.

The whole world is bonkers.

So they can continue to pay themselves outrageous salaries and bonuses, whilst continuing to offload risk onto the taxpayers via compliant govt.

Institutionalised criminality.

Madoff's already in prison yet Turner hasn't even interviewed the RBS board to ask them what happened.

Edited June 7, 2011 by Red Karma

[_w_]

"They have, in effect, become a form of welfare for upper income savers," said the bank spokesman, speaking from his yacht off the coast of Bermuda.

The old divide and rule technique, a tad difficult to swallow coming from these people.

[The Knimbies who say No]

Dare I say it, Citi have a point though.

The Government is saddling itself with index-linked debt as a sort of acknowledgment that its interest rate policy is a joke.

Some people in the UK now have their savings, mortgages and pension entirely under the control of Government. That is not a good situation.

[Nationalist]

I am not a violent person, well, outside of the dungeon anyhow... but I am slowly coming round to the idea that 6 billion of us would be better off without a few hundred thousand bankers.

Strangely, about 200 years ago the French had the same problem - a parasitic elite was doing none of the work but taking all the wealth. They invented a device which solved their problem quite effectively...