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Tuesday, December 16, 2008

L&G Play Ostrich

Legal & General (L&G) have been acting like an ostrich recently, as they have put off telling investors in their structured products backed by Lehman Brothers that they may lose up to 20% of their investment.

L&G finally told 2,300 individuals the "good" news last week. This is of course a tad tardy, as Lehman Brothers went into liquidation three months ago. Indeed, the delay is even more surprising given that other structured products providers such as Meteor, NDFA and Arc warned investors within weeks of Lehmans' failure that their investments were at risk.

Why would L&G put off what was clearly inevitable?

Seemingly, according to some financial advisers, L&G wanted to avoid the negative publicity around Lehman Brothers.

I can't say that has worked, if that really was the reason, given that L&G now look rather foolish to say the least.

The two L&G plans affected are the Protected Capital and Growth Plan four and the Accelerated Growth and Investment Plan two. The plans were backed by Lehman Brothers, Barclays, Yorkshire Building Society, Citigroup Funding and Dresdner Bank.

Investors will now only be able to recover 80% of their capital in July 2011 if, when their plans mature, the FTSE 100 is below the level set when they were launched in July 2005.

I wonder if the FSA will look into this, given that financial markets are meant to be transparent?

Were I an investor in one of these products I most certainly raise this matter with the FSA.

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