Bond probe spreads to advisers

INDEPENDENT financial advisers who aggressively pushed 'precipice bonds' to novice investors are to be the focus of the Financial Services Authority's investigation in the wake of the £100m Lloyds TSB settlement.

'A lot of these products were also sold face to face by IFAs,' an FSA spokesman said. 'We are now looking at sales by those intermediaries.' The question is whether they were sold to unsuitable people, he said.

The regulator is also scrutinising mailshots and advertisements published by dozens of institutions selling precipice bonds at the height of their popularity in 2000 and 2001 to satisfy itself they contained suitable risk warnings.

Barclays, HSBC, Abbey National and GE Life were among dozens of blue-chip organisations to launch precipice bonds to meet demand from customers disenchanted with sliding interest rates on conventional savings products.

The FSA estimates that a quarter of a million people invested about £5bn in the products, which have collapsed in value alongside the share market slide.

The FSA today slapped a £1.9m fine on Lloyds and ordered it to pay £98m compensation to 22,500 investors who were wrongly advised to buy its ill-fated Extra Income & Growth Plan bond.

It said the bank was guilty of a string of failings, including failing to emphasise to branch sales staff the importance of customers having balanced portfolios. Staff, whose bonuses depended on meeting sales targets, were not given specific training on suitability. The after sales procedures failed to identify unsuitable sales.

Lloyds had previously earmarked £100m to cover the cost of the scandal. Its shares were resilient today at 422p, up 3p.

It is the second FSA fine for Lloyds in less than a year. In December its Abbey Life arm was fined £1m for wrongly advising customers buying investments to repay mortgages.

Another 28,500 buyers of the bond, who were more experienced or who invested only a small portion of their savings to the product, are not in line for compensation, though they can appeal.

Some 12% of precipice bonds were sold through IFAs, according to FSA estimates, compared with 10%-15% through bank branches. But most were marketed on an execution-only basis through mailshots and newspaper adverts.

All-clear for Kiwi sell-off

AUSTRALIA'S ANZ bank has unexpectedly been cleared by regulators to buy the National Bank of New Zealand from Lloyds TSB.

ANZ is the last declared bidder after Australian rival Westpac pulled out, saying it would be 'too diverting'.

The ball is now back in Lloyds TSB's court. There is mounting speculation that, in the absence of more bidders, the bank may float NBNZ. Lloyds TSB expects it to fetch up to A$5bn (£2bn).

NBNZ, the second-largest Kiwi bank, made a net profit of NZ$503m (£180m) last year. It has been part of the Lloyds stable since it was founded in 1872.

Commentary

THERE is a whiff of fudge about the settlement of the Lloyds TSB precipice bond scandal.

Tens of thousands of customers were plainly badly advised. Savers who wouldn't normally have touched a share with a bargepole were somehow persuaded by branch staff to switch savings into these stock market-linked bonds.

Systems failed. Controls were ignored. Sales people went untrained. Managers must either have been asleep at their posts or turned a blind eye. Yet not a single head has rolled. No one has carried the can.

Mike Ross, the Scottish Widows chief who departed two days ago, went for entirely different reasons, the bank insists, clutching a £430,000 pay-off.

Lloyds is unable to say whether a single employee has even been reprimanded and three years on it still has not completed an investigation into 'a handful' of cases where sales staff may have broken rules.

'It would be wrong to hold any individual or any particular area of the business responsible,' a bank spokeswoman said.

This is not good enough. Unless senior people are held to account, it is only a matter of time before another City mis-selling scandal surfaces.

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