Since 1988 ECU has managed hundreds of multi-currency loan facilities at over 20 banks, with differing terms of business which have evolved over time.
The GBP benchmark Managed Multi-Currency Mortgage track record illustrates the pro-forma performance of a £1m multi-currency loan under ECU's management. It has been created by taking actual foreign exchange transaction data which, subject to the notes below, is materially consistent with all foreign exchange transactions executed by ECU on all GBP benchmark loans throughout the period.
Debt Reduction
Debt reduction is defined as any gross reduction in the size of a GBP loan, rebased at the beginning of each year, resulting from foreign exchange movements. Debt reduction is positive performance and, conversely, any increase constitutes negative performance.
Interest Differrential
Interest differential is calculated as the difference between the interest which would have been paid on a GBP loan at a rate of 1.75% above the weekly closing 7-day inter-bank GBP LIBOR rate, and the interest payable in the currency(ies) in which the loan has been denominated at a rate of 1.75% above the weekly closing 7-day inter-bank LIBOR rate applicable to those currencies. An interest saving is shown as positive performance. An interest loss is shown as negative performance.
Daily interest is calculated at a rate of 1.75% above the weekly closing 7-day inter-bank interest rates for borrowed money in the relevant currencies divided by 360 for all currencies except GBP, which is divided by 365.
Gross Performance
Gross performance is the sum of any debt reduction (or debt increase) and the interest saving (or interest loss).
Net Performance
Net performance reflects the benefit to a client compared to a GBP interest-only loan paying a rate of 1.75% above the weekly closing 7-day inter-bank GBP LIBOR rate, net of the following costs:
A switch fee of £75 per switch.
A annual management fee of 0.925% of the original £1m loan charged monthly in advance.
An annual performance fee
equal to 20% of the combined benefit of any interest savings and debt reduction, net of management fees and performance fees already paid and/or due.
Underlying Transaction Data
Some of the historical ECU-managed, multi-currency loan facilities were provided by banks that no longer exist or have been sold or merged. As a result, independent verification of historical data is not always possible. ECU's trading instructions to all banks are identical save only three main respects: (a) the amounts vary from bank to bank; (b) although they are given at broadly the same time, it may not have been possible to instruct or execute with all banks simultaneously; and (c) two of the lending banks that historically provided multi-currency loan facilities to ECU's clients were unable to place debt in more than one currency at a time.
From November 1988 to December 2009, the performance data is based on actual foreign exchange transactions executed for clients at Royal Trust Bank of Canada, who were then taken over by Kleinwort Benson Private Bank and subsequently by Kleinwort Benson (Channel Islands) Ltd. From January 2010, the performance is based on actual foreign exchange transactions executed for clients at HSBC. ECU believes this to be representative of the capital and interest rate savings of a £1m multi-currency loan managed by The ECU Group plc over these periods. The trading and performance data of ECU's multi-currency debt management programme is periodically reviewed by independent accountants. The trading and performance data of ECU's multi-currency debt management programme is periodically reviewed by independent accountants.
Trading in foreign currencies is not suitable for everyone and a client must ensure that they fully understand the risks involved before proceeding. A client should consult their financial adviser if they have any doubts about their suitability or the risks involved. Foreign exchange movements can be sudden and substantial. At no stage should a client expose themselves to the high risks of foreign currency trading if they are not able to afford the potential losses that could result from sizeable adverse currency movements. Past performance is not a reliable indicator of future performance.
Please note that for compliance purposes telephone calls may be recorded.
Specific additional risks for our currency management products are as follows:
Private client multi-currency mortgages
a) At no stage should a client be exposed to the high risks of foreign currency borrowings if they are unable to afford the potential losses that could result from adverse currency movements and the higher interest costs that would arise from having a larger loan.
b) A client’s lender will not tolerate an increase in the GBP value of a client’s loan above a predetermined level as a result of currency losses. The lender will agree a “Conversion Limit” with the client before a client takes out an ECU managed multi-currency loan. If the loan reaches or breaches its “Conversion Limit”, the lender may exercise its right, but not its obligation, to convert the loan back into GBP. However, a loan may be converted back into GBP at a worse level than the agreed Conversion Limit. This would mean that a client’s loan would increase by more than it would if it had been converted at the agreed Conversion Limit. Converting a loan back into GBP may result in a permanent increase in the GBP value of a client’s loan and the associated GBP interest costs.
c) The FSA risk warning is “Your home may be repossessed if you do not keep up repayments on a mortgage”.
Corporate loan management
a) At no stage should a client be exposed to the high risks of foreign currency borrowings if they are unable to afford the potential losses that could result from adverse currency movements and the higher interest costs that would arise from having a larger loan.
b) A client should be aware that their lender may not tolerate an increase in the base currency value of a loan if it exceeds a certain level and will have the right to convert the loan back into the base-currency.
Managed FX accounts
a) A Managed FX account is a margin account which is not suitable for everyone. A client must ensure that they fully understand the additional risks involved in margin trading.
b) A client should be aware that their lender will require additional margin to be paid on demand and will have the right to close any open positions if this additional margin is not promptly paid.
c) As with all margined products it is possible to incur significant losses and to lose more than the margin in the account at any one time.
The UK Regulatory System
The ECU Group plc ("ECU") is authorised and regulated by the Financial Services Authority.
In respect of managing physical liabilities in foreign currencies, ECU trades the foreign exchange markets on a spot basis and issues switch instructions to lending banks on a spot basis. Neither of these activities is currently regulated by the Financial Services & Markets Act 2000 as they meet the "Commercial Purposes" test. Therefore you will not benefit from the protection of the Financial Services and Markets Act 2000.
However, if ECU instructs the Lender, or any prime broker or counterparty with whom ECU effects foreign exchange transactions, to conduct a switch by way of effecting an “option” or “futures” transaction for the Client’s account, such transactions may be considered to be an “investment of a specified kind” under the Financial Services and Markets Act 2000. Consequently, both the execution process provided by the Lender, or any prime broker or counterparty with whom ECU effects foreign exchange transactions, and the currency management services provided by ECU, as envisaged under this Agreement, may be considered to be regulated activities. In such instances, the Client may be required to sign additional risk warnings and the rules for the protection of investors under the Financial Services and Markets Act 2000 will apply.
The distribution of the information contained on this website in certain jurisdictions may be restricted by law, including but not limited to the United States or US Persons (as defined in Regulation S under the U.S. Securities Act 1933). Accordingly persons who are not resident in the UK and who access this website should inform themselves of and to comply with any such restrictions.
The provision of the information in this web site does not constitute an offer of securities to any person in the United States or to any U.S. Person as such term is defined under the Securities Act of 1933, as amended. The information contained in this site about ECU Group and/or any of its affiliates is not directed to any person in the United States. Funds referred to herein are neither registered under the Securities Act 1933 of the USA, nor are they registered under the Investment Company Act of 1940. Consequently, they cannot be offered for sale or be sold in the USA, its territories, possessions or protectorates under its jurisdiction, nor to nationals, citizens or residents in any of those areas.
Other Important information
This website is maintained by ECU and is being issued inside and outside the United Kingdom by ECU for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any investments or financial instruments or to participate in any particular trading strategy in any jurisdiction in which such an offer or solicitation would violate applicable laws or regulations. ECU may not respond to requests for information or further assistance if, in the opinion of ECU, such action might be illegal or contravene any rule or regulation of any jurisdiction.
The views and foreign exchange and interest rate information in this website are based upon information from sources which we believe to be reliable but they are not guaranteed as to their accuracy or completeness. Expressions of opinion herein are subject to change without notice. Any contractual obligation between ECU and its clients will only be on the basis of undertakings contained in an ECU client agreement executed by both ECU and the client, as may be amended from time to time by ECU, and which may vary from any information contained herein. Products and services may be subject to material changes at any time from the information herein. ECU aims to ensure that all information herein is accurate at time of printing, but does not accept any responsibility for its accuracy.
Telephone calls with ECU may be recorded for compliance and training purposes. This website is protected by copyright, and no part of it may be reproduced without the express written consent of ECU.
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