London

Web Q & A with David Kuo - featured below...

The sudden collapse of the American bank Lehman Brothers last week, sent ripples of fear through the capital’s financial sector.

With billions of pounds wiped off share prices and tens of thousands of jobs on the line, the mood for workers on the financial front lines could hardly be worse.

But it’s not just bankers who are being affected by the crash – people all across the capital are feeling the effects of the economic meltdown.

On Inside Out London, Finance expert David Kuo from fool.co.uk explains what the fallout means for everyone. 

“We all know there’s been an economic downturn over the past few months. 

"We've seen the problems with Northern Rock, the collapse of Fanny May but the fall of the Lehman Brothers is something quite different.

Crash shocked workers and investors

"This investment company has been a huge player over the past few years, lending to our high street banks and controlling the market.”

Collapse fallout

It’s not just employees at Lehman Brothers who have lost their jobs, thousand of individuals who offered their services to the company have felt the impact. 

Sphinx Patterson ran aerobic classes at the bank for employees four times a week.  It’s going to reduce his income by £200 a month.   

“It impacts greatly I’ve got my car, a sizeable mortgage ...it’s really going to hit me and make a big difference.”

Ross Thompson set up a tailor’s business last year offering a service in Canary Wharf.  A third of his clients were from Lehman’s and with its collapse he’s lost more than a hundred customers. 

Many of the small businesses are still owed money.

Credit crunch

Even those of us who don’t own businesses or work in the city are affected by the collapse of Lehmans. 

Credit is already much harder to come by as high street banks don’t have as much money to lend. 

Mortgages will be harder to come by as banks won’t be prepared to take risks and rates will go up making repayments much higher.

We’re all going to be tightening our belts and the effect of this is being felt all across London. 

The fear is this is just the start of the downturn and the forecast looks set to get worse.

Your questions answered...

We asked David Kuo to answer your questions...

Stocks and shares...

Q. I have a stocks & shares individual savings account 1998/1999 PEP with Fidelity international which I was advised to invest in by a financial advisor at the time who has now disappeared I know not where? He never kept in touch but he did say that this money should be a long term investment at the time so I didn't do any more about anything, but I am worried now.

David Kuo: I rang Fidelity on 15 August saying I wanted to cash in the plan, they told me it would be better to wait until March 09 as the term of 10 years would be up and my investment would not be at a lose by early cashing in.

They advised at Jan 2008 the value was £8.636.16

Retirement plans

Q. I am not sure what I should do as I retire in 13 months and I do not want to lose my savings. I work part-time and do not have a pension apart from state one to look forward too having opted many years ago when I was married to pay a married woman's contribution. I have since divorced my husband some 20 years ago, put never changed my tax status. Can you advise please.

Maureen Gibbons

David Kuo: The stock market is going through a turbulent time, and many people who invest in shares may find that their investments are worth less today. But remember when you buy shares, you are effectively buying bits of a businesses.

Many of those companies will do all they can to weather the financial storm, and most will come through this difficult period, perhaps a little battered but nevertheless in one piece. Take a look at Tesco. Many thought it would be hurt by the economic downturn, but its shares have doubled since the start of the Millennium.

Bank bonds

My name is Mr Darr, I have a large amount of money tied up in Natwest banks bonds, the bonds I took out was the one with the the least risk and it was for a period of six years.

My question is as the financial market is so volatile at the moment am I better of taking my money back from Natwest bank and loose money on the termination fee and place the money in a normal savings account so I can have access to it when I like, or is my money safe to be kept in the Natwest bonds?

Mr Darr

A. David Kuo: We have to distinguish between bonds that are loans to a company, and bonds which are fixed-term deposits.

The former are covered under the Financial Services Compensation Scheme as investments, and the maximum level of compensation is £48,000. The latter are covered under deposit protection, and the maximum level of compensation is £35,000.

Length of loan

Q. I currently have a loan which I repay £429 a month. The length of the loan is seven years and the repayments have only just started. I called my bank to see if I could reduce the repayments but they said I wasn't able to reduce it because the amount paid so far isn't significant.

I haven't missed any repayments so far but now my circumstances have changed and I'm now struggling to repay the loan so I'm planning on stopping the repayments altogether.

I know that this will affect my credit ratings and they might try to seize any properties  have but as I do not have much of investment, or any property, I really have nothing to loose and also as the loan is an unsecured loan.

My question is should the bank take me to court, what sort of judgements can the court pass against me? Can this lead to imprisonment and what is the biggest action the bank can take to recover the moeny?

John Williams

A. David Kuo: Try speaking to your lender to negotiate a longer payment term.

My back-of-envelope calculations suggest that the size of your loan may be around £25,000. If you can get your lender to lengthen the term to 10 years, your monthly repayments will reduce to £330.

You will, of course, pay more interest because you will be paying the loan back over a longer period.