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Investor protection locks savers out of the bond market

PIt is difficult for private investors to find bonds that suit them. This is in large part due to well-meaning but poorly thought-out investor protection, which virtually locks consumers out of the important asset class of corporate bonds. There are numerous negative examples of this among the bonds issued in the past few days.

Examples include the Swiss pharmaceutical company Novartis, the Wiesbaden forklift manufacturer Kion, the Dutch home improvement chain Maxeda, the consumer goods group Mondelez and the international brewery group Carlsberg from Denmark.

A bureaucratic footnote is to blame for the misery: According to the EU definition, bonds with a harmless and customary right of termination by the issuer are considered packaged securities and may only be sold with the basic information sheet and risk information. Most of the companies mentioned above pay reasonable interest rates, have solid creditworthiness and products that are resistant to economic cycles, so they are perfectly suitable as debtors in a private investor’s bond portfolio.

Issuers do not have to rely on private investors

However, the minimum denominations of 100,000 euros or more represent an exclusion criterion, and there are no basic information sheets for the securities that, according to investor protection regulations, must provide an overview of the issuer, the conditions and the risks. Because companies want to protect themselves against liability risks vis-à-vis private investors and avoid regulatory burdens, they quickly choose high denominations and forego the basic information sheets.

The issuers can afford to do this, as they are receiving abundant money from institutional investors suffering from investment pressure. For private investors, on the other hand, it’s just look, don’t draw. However, in accordance with EU rules, you can buy far riskier securities, such as leverage certificates on Wirecard shares or the volatile oil price. For such products, the issuers are only too happy to enclose the information sheets so that sales can flourish. It doesn’t make the investment any better.

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