The  Government has created a new company, known as UK Financial Investments Ltd (UKFI),  to manage its interests in banks in which it is taking a share as part of their recapitalisation efforts. One of its objectives will be to ensure that management incentive schemes do not reward failure.  

The company will also take over the running of Northern Rock and Bradford & Bingley, the two failed banks that the Government was forced to nationalise earlier this year.

The safeguards on so-called guaranteed products are not always clear - and in fact may not even be there at all. Peter McGahan of Worldwide Financial Planning explains that unwary investors in supposed 'protected products' could find themselves exposed to financial risks they could never have  imagined.

You will see a plethora of guaranteed investment products in the market today, but be very careful what you are buying.

All too often we are left holding the baby because of small print, and too many investors are easily led into capital protected or guaranteed products without realising what they are getting into. Here is a breakdown of one that appeared 'nice' at the outset, but in reality offers poor value, and there is - as with most if not all of these investment schemes - the potential to lose all your capital.

If you thought Iceland was bad, look out in case Russia's escalating financial crisis blows up. Not so long ago the Icelanders were looking to Moscow to bail out their banks with a multi-billion dollar loan, but funds are now leaving Russia as fast as they can go, as panic spreads from Hungary, Belarus, Romania and Ukraine.

The markets are starting to think the unthinkable and consider the risk of a sovereign default, according to the Daily Telegraph. Insuring against the risk that Russian bonds might not pay out – the famous Credit Default Swaps – has become very expensive: the spread reached 1,123 yesterday, which was higher than Iceland’s when its financial sector was going into meltdown.

Asian shares have tumbled amid growing fears of a global recession. Japan's Nikkei index fell by about 10% today while  shares in Hong Kong are down 7.6%. Australian, South Korea and Indian share indexes all fell by at least 4%.

Stocks had risen earlier in the week after governments relieved nerves by making cash injections into banks, but it apperars that these gains have mostly been lost.

Now investors fear that efforts to stem the banking crisis will not be enough to prevent a recession.

New York's Dow Jones index saw its worst one-day percentage fall since October 1987 on Wednesday, closing almost 8% down.

There were also big falls in London and other European markets on Wednesday.

The leaders of the G8 major industrialised nations yesterday agreed to hold a summit with other states to discuss global financial reform.

Stock markets plunged across Europe this morning, as panic selling set in. The FTSE 100 dipped below 4000 for the first time in five years, with bank stocks leading the rout, and the German Dax index was down 10% within hours of opening. In Russia, regulators suspended stock market trading indefinitely.

Earlier there had been heavy falls in the main Asian markets, with Japan’s Nikkei index suffering its biggest one-day fall for more than 20 years, and the Yamato Life insurance company was declared bankrupt.

The markets reacted generally favourably at first to the  government announcement of a £50bn rescue package for the financial system yesterday, and the 0.5% interest rate cut.

But they stumbled later in the day, and at the close the FTSE 100 was down 1.21% at 4313.8.  There were similar declines in the French and German stock markets, and the Dow Jones fell to a five-year low. Fears of a  world recession seemed to be outweighing the earlier optimism about the effectiveness of financial rescue packages in the minds  of  investors.

The FTSE 100 index of leading shares fell by 250 points in the first few minutes of trading this morning, and later drifted down to a four-year low of 4,557.9, wiping more than £90bn off the value of Britain’s leading companies in the process. Banks were among the biggest casualties, with Barclays, Royal Bank of Scotland and HBOS down between 11.8 and 15.5%.

The rest of Europe was in chaos, too, following the failure over the weekend of the four biggest economies to agree on a coordinated action plan to bail out the financial system.

Bradford & Bingley reported a loss of £26.7 million for the first half-year, compared with a £180.4 million profit for the same period last year.

Credit impairment charges for the six months rose to £74.6 million from £5.3 million in the first half of 2007, mainly because there was a sharp increase in the number of mortgages in arrears for three months or more. The bank said it "anticipated this trend to continue throughout the second half".

Only one in 100 financial advisers still think insurance bonds are the best place for their clients to put their money.  It used to be one in three. Almost half of all advisers with clients who have insurance bonds are considering reviewing their policies, with a view to switching them where appropriate into mutual funds, and a further 26% are wondering whether they should do the same.
 
These are the findings of a survey of more than 230 advisers by Fidelity FundsNetwork. Fidelity's fund platform, which offers advisers and their clients the ability to invest, manage and monitor their investments in one place.

Teachers' Private Capital, the investment arm of the C$108.5bn (£53.4bn) Ontario Teachers' Pension Plan, admitted last night that it had made an out-of-the-blue ‘preliminary’ takeover approach to financial comparison website moneysupermarket’s founder, Simon Nixon, who owns 54% of the group’s shares. He rejected the approach.

TPC, which manages assets of about C$17bn, is one of the world's largest private equity investors. It says it may make another approach within the next six months, if the board recommends a bid, another group makes an offer for the company, or there is a ”material change in circumstances”.

Bradford & Bingley, the leading buy-to-let lender, may now be virtually worthless. The company’s shares fell by a further 8p (16%) to 42p yesterday, far below the 55p at which the £400 million rights issue is priced.

Investment bank Fox-Pitt, Kelton, which specialises in the financial services industry, said: "We cannot rule out the possibility of an effective failure, with shareholders receiving little or nothing for their shares," and one of FPK’s analysts wondered whether B&B may be “Northern Rock in slow motion.

Bradford & Bingley shares fell sharply today, despite the bank’s announcement of plans to salvage its £400 million cash injection package. That collapsed after the US Cavalry, in the shape of private equity firm Texas Pacific Group (TPG), rode away from the deal last night.

TPG had agreed to pay £179 million for a 23% stake in the bank, but lost interest after credit rating agency Moody’s announced that it was downgrading B&B’s debt for the second time in little more than a month.

Resolution has pulled out of its bid to acquire a £400 million stake in Bradford & Bingley, citing the "entrenched" position of the board in denying Resolution due diligence access to B&B’s books.

The investment company, head by Clive Cowdery, says the bank’s board has prevented the constructive engagement necessary to finalise its proposals, and adds that it cannot responsibly recommend its proposals to shareholders without this engagement from the board.
 

Prudential has decided not to go ahead with a reattribution of its £8.7bn inherited estate, held in the With-Profits Sub-Fund (WPSF).

The life assurance company has been considering such a move since March 2007, but concluded that maintaining the current operating model for the WPSF would be in the best long-term interest of both current and future policyholders and shareholders.

Bradford & Bingley, Britain’s biggest buy-to-let lender, has blocked a proposal by the Resolution investment group to inject £400 million into the bank, by refusing to allow due diligence access to B&B’s books.

Resolution, headed by Clive Cowdery, sees B&B as part of an overall £2bn consolidation plan, involving a number of smaller banks that have been affected by the credit crunch. But B&B’s refusal, after talks between the two sides’ representatives broke down last night, has put this scheme on hold; Resolution says is “considering its next move”.

Bradford & Bingley has turned down an offer of £400m from Clive Cowdery’s Resolution that would have usurped the current offer from private equity group TPG and seen the proposed rights issue scrapped.

While failing to turn the offer down outright, B&B said in a statement that it would not recommend the Resolution offer to shareholders.

Ron Sandler, who was appointed as chief executive of the beleaguered Northern Rock after it was nationalised in February,  has announced that he is to step down to make way for someone with more relevant experience.

He will, however, remain on the board in the role of non-executive chairman, as he looks for a candidate with more banking experience to head the bank.

Barclays Bank is seeking to raise up to £4 billion through a rights issue.

The bank is said to be holding talks with six potential investors, believed to include the China Development Bank and Temasek, a Singaporean government-backed fund. Both of these funds are already shareholders in the bank and are sitting on losses after paying more than the current trading price for their shares.

The FSA, Britain’s financial watchdog, is to take action over "short selling" of shares, which is believed to have helped to drive down the price of HBOS shares as the bank was promoting a rights issue.

From next week, anybody who has a "short" position in companies offering a rights issue will have to declare it.  Short selling is betting on shares falling in price, then buying them back at a profit when they are cheaper.

The HBOS rights issue will include a free dealing service for more than two million private shareholders.  This will enable them to sell all or part of their entitlement to new shares, which are being offered at 275p each.

The details were set out in a circular which the bank began mailing to private shareholders today. It invites them to sign up for £4bn worth of shares, to help restore the bank's finances.

The HBOS rights issue will include a free dealing service for more than two million private shareholders.  This will enable them to sell all or part of their entitlement to new shares, which are being offered at 275p each.

The details were set out in a circular which the bank began mailing to private shareholders today. It invites them to sign up for £4bn worth of shares, to help restore the bank's finances.

With-profits investments look set to obtain extra protection under new rules. City watchdog the Financial Services Authority (left) has today published a consultation paper which proposes that the insurance companies that manage the funds will no longer be permitted to plunder them to pay compensation for mis-selling.

The with-profits industry has become tarnished in recent years as thousands of customers have brought claims for recompense after being persuaded by zealous salesmen to take out with-profits policies to finance mortgages on their homes.

Bank shares, including HBOS and Royal Bank of Scotland, shares fell sharply today in the wake of the Bradford & Bingley profits warning. Both HBOS and RBS are, like B&B, attempting to raise funds through rights issues. Shares in HBOS, which is seeking to raise £4bn, dropped 38½p to 361½p, while RBS shares fell 5p to 223½p, but later recovered to 228½p. RBS’s £12bn rights issue closes on Friday.

Bradford & Bingley, Britain’s struggling buy-to-let mortgage lender, has won a £179 million investment from Texas Pacific Group (TPG), one of the world's biggest private equity companies.

The cash injection, which gives TPG a 23% stake in B&B, Britain’s eighth-largest bank and the biggest in the buy-to-let market involves a redrawing of B&B’s controversial rights issue. Existing stakeholders will now be asked to provide an additional �258 million of new capital.

Barclays Stockbrokers has a special discount offer on five funds until the end of June. The funds, from some of the better-known investment managers, cover a range of growth and income investment objectives. They will be available until 30 June with a 0% initial service charge, said the stockbroker.

Northern Rock’s restructuring plan could be undermined by the credit crunch, executive chairman Ron Sandler admitted yesterday. He told the Treasury Select Committee: "If house prices decline 5%, 10%, 15%, it would certainly put a great deal of stress on how we would deliver the plan. I don't want to pretend it is without risk, and I don't think we should take anything for granted at this stage.

“The key risks are what is happening in the wider economy. If we suffer a downturn and this leads to higher levels of unemployment, then this would place considerable strain on the ability of the company to deliver the plan."

Norwich and Peterborough Building Society (N&P) will be offering commission-free share dealing throughout June and July for customers who open a new nominee share dealing account during those months. Standard dealing fees for UK transactions will be scrapped during the offer period.

The execution-only share dealing service offers nominee trading by telephone or online, with the flexibility to track investments 24 hours a day.  N&P's website also offers a selection of handy research tools, including free access to share prices, previous performance charts, market news, company information and dividend announcements.

Embittered Northern Rock shareholders are taking the Government to court over compensation. The former owners of the crisis-hit bank are submitting an application for a legal review into the terms of the Rock's nationalisation. Their aim is to get fair payment for their shares. The problems stem from the fact that shareholders are only getting what their investment would have been worth had the government not propped up the bank.

Shares in the former building society hit all-time lows at the height of the crisis when the bank was nationalised in February. Shareholders believe they are owed around £5 a share, but fear the Government will only pay out a neglible amount - perhaps as little as 5p a share.

RBS Group, parent of the Royal Bank of Scotland and NatWest, has outlined its plans to raise £12bn from its shareholders to boost its finances. The move comes ahead of its annual general meeting in Edinburgh tomorrow.

The company is to launch a rights issue, under which 11 new shares will be issued for every existing 18 shares at 200 pence each.

A record number of investors are putting their savings into the individual savings accounts (ISAs), Government figures show.  Preliminary numbers published by HM Revenue and Customs through the third quarter of the 2007-8 Tax Year show significant increases in most areas. 

The first three quarters of that period saw the most people subscribing the most money into ISAs since the scheme was created. 

Nervous investors should take a cautious position in the current fluctuating market, and should consider "dripfeeding" money into the market to avoid the worst of the ups and downs.

Nick Raynor, investment adviser at online brokers The Share Centre,  has put together a portfolio of ten stocks that should appeal to cautious investors.

Raynor said: "Investors who are wary of equities at present, but still wishing to invest, may want to think about gradually investing money into the market via a dripfeeding approach. This strategy can help investors to reduce the risk of entering positions in overpriced securities, as the investments are spread out. It can also help to smooth out market fluctuations as the investor will benefit from pound-cost averaging (a fixed contribution each month will result in more shares being purchased at low market prices than at high prices).

Northern Rock has promised to pay back the state support it has received by 2010 despite giving a warning that it was likely to remain a loss-maker for three years.

It said that it made pre-tax losses of £167.6m in 2007 and its losses would continue to be "significant" this year.

Critics of the beleaguered bank, which the Government took into national ownership in February, are angered that the former chief executive, Adam Applegarth, has been paid a total of £785,000 as part of his severance agreement. Mr Applegarth will receive £760,000, plus £25,000 in non-cash and other benefits. The total will be split into monthly payments.

Vince Cable, the Liberal Democrats' Treasury spokesman, called the payment “outrageous”. He said: “This is a straightforward case of reward for failure.”

Northern Rock may be paying back its loan from the Government faster than hitherto believed possible.

Evidence from the Bank of England's weekly return suggests that the beleaguered mortgage bank may already be making significant inroads into repaying the debt.

Simon Ward, Economist at New Star, says: “Other assets” on the Bank of England’s balance sheet have fallen in each of the last four weeks and are now £4.8 billion below a peak reached in late January.

"The most likely explanation for the decline is that Northern Rock is repaying its loan from the Bank as it enjoys a cash inflow from redeeming mortgages and savers attracted by its competitive rates and the unlimited government guarantee. If correct, this would support analysis suggesting Rock may pay back its loan much earlier than the three to four year horizon indicated in its business plan released this week."

Senior management at beleaguered mortgage bank HBOS have expressed confidence in the company, which has been hit by a wave of stockmarket rumours, by buying shares with their annual bonuses.

Directors and managers, including chief executive Andy Hornby (left), bought around 1.4 million shares last Thursday at 446p per share using their bonus entitlements, the company said in a statement.

The bank, which trades in the high street as "Halifax" and "Bank of Scotland", had been hit by rumours that it was facing funding difficulties.  The company denied the rumours and the City watchdog, the Financial Serivices Authority, has launched an investigation into the possibility of market abuse when it was reported that at least one hedge fund trader had made £100m by "short selling" shares in the bank as the price fell.

IFAs are tipping Asian equities (ex Japan) as the asset class they think will perform best in 2008, according to new research from James Hay.  As the latest ISA season draws to a close, James Hay’s adviser poll reveals that the experts are favouring emerging market equities, but UK equities are also expected to perform well in 2008.

Over the longer term, however, the James Hay study reveals that UK equities are expected to move up the rankings into second place, as advisers predict the asset class will perform better than Asian equities over a five year time period. Emerging market equities top the five-year forecasts, expected to perform the best over the medium to long term.advise from across the whole market.

Investors remain confident in their actions despite recent market conditions, according to research from Barclays Stockbrokers.  Active traders and bullish investors are seizing the opportunity to benefit from falling share prices, with more than half, 52 per cent, planning to buy in the current market conditions. 

In addition to this, a significant number of investors have long-term confidence in the market – almost four in ten (37 per cent) have opted against selling their stocks and are preferring to hold on to them.  A minority of investors however, are more wary of the current volatile climate, with 11 per cent deciding to sell their investments.

Amy Nauiokas, MD and Head of Barclays Stockbrokers, said: “It is an optimistic sign to see investors so confident in the present market climate and taking advantage of cheaper stocks.  The findings of this survey reveal their assurance as self-directed investors, and exposes them as keen to exercise increasingly sophisticated techniques to maximize their returns – even in times of market jitters.  Other investors who aren’t quite so bullish are wise to hold on to their stocks instead of selling at the bottom of the curve.  With investors having better access to a broad range of market and product types there is clearly more scope for confident choices and bold decisions.”

Barclays and BP’s substantial dividend hikes are good news for investment trust investors; this year and for years to come, according to Aberdeen Asset Managers.

Aberdeen believes recently announced increases in the dividends paid by some UK companies will benefit investment trust investors this year and over the long term.

Last week Barclays announced a 10% rise in its dividend, while recently BP and National Grid have also raised their dividends by 35% and 15% respectively.