THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION PRINTED HERE.

MONEY BOX

Presenter: Paul Lewis

TRANSMISSION 29th DECEMBER 2001 1200-1230 BBC RADIO 4

Independent Insurance

Stock Market Outlook

The Banking Code

Ethical Investment

Latin Challenge Result

LEWIS: Hello. In today's programme

Angry creditors say they'll sue the Regulator over the collapse of Independent Insurance

The Stock Market ends lower for the second year running - is this the death of shares?

The Banking Code gets an independent overseer

The ethics twirl from the Co-Op

And judging our Latin Christmas Challenge

LEWIS: First though the Financial Services Authority will now face legal action in January over the collapse of Independent Insurance. The company went into liquidation in June leaving more than half a million people without cover on their homes and businesses. Although many of the individual policy holders will get some compensation small businesses and other companies were not protected. Hundreds of millions of pounds have been lost; from the start creditors have accused the Financial Services Authority of failing to act on warnings from its French counterpart - La Commission d'controle des Assurance. Next month they'll go to Court to get access to confidential documents to try to prove negligence and claim damages. Stephen Alexander from the solicitors Class Law represents the creditors.

ALEXANDER: If the Regulator is given warning signs, as in this case by the French regulator, but didn't take any positive action then clearly they must have a responsibility to those people who continue to trade with the company right up until the day until it went into liquidation in June of 2001.

LEWIS: But that depends doesn't it on knowing what the French regulator actually said and we don't know that at the moment

ALEXANDER: No we don't. I mean we've obviously seen details of the announcements made by the French and I'm aware from some conversations that have taken place in France that they're not happy with the way the English regulator dealt with the matter. We are aware that they stopped Independent from doing any new business at all in France until, as they called it, the mother company, had issued fresh capital in London. That was a very clear sign to the FSA that something was clearly wrong yet the company continued until June.

LEWIS: Now if you're right about the Financial Services Authority, what kind of action can you bring because they're immune from being sued in the Civil Courts aren't they?

ALEXANDER: Under statute they're certainly granted immunity for anything other than misfeasance which obviously is a very serious matter and is not what we're alleging in this case. We're alleging pure and simple negligence, we've taken detailed advice from counsel and various professors of law who specialise in European matters and we believe that under European law an insurance policy is a product and under European law an individual has certain rights for the protection of their property which would effectively supervene any statutory immunity, so we're actually challenging the statuory immunity granted by Parliament to the FSA.

LEWIS: And if you succeed in that what will the people who've lost money through Independent hope to get?

ALEXANDER: If we can lift that barrier, then if the FSA have been negligent, and obviously the first step would be to obtain disclosure of their files and documents to see in which way they may have been negligent, then obviously they would be entitled to receive damages in the normal way and if they've suffered loss as a result of that negligence they should be able to make a full recovery

LEWIS: Yes I must say the FSA have certainly said to us that they will vigorously defend this action and needless to say they don't accept what you say. If you are successful will this have implications for other people who may find the Authority has been negligent, people for example who've lost money with Equitable Life.

ALEXANDER: Certainly, it was because we were already acting in Equitable Life that the whole concept of looking at the way the Regulator was able to hide behind statutory immunity was already being discussed and I think if we are successful this will open the possibility of bringing claims if the Authority has been negligent, after all what's the point of having an Authority that's meant to be responsible for looking after the public interest when if they've failed in their duty the public are left with no recourse.

LEWIS: Stephen Alexander.

LEWIS: For the second year running share values in London will end the year lower than they started. The first time that's happened since the economic crisis of 1973 and 74. In 2000 the share prices of our 100 biggest companies fell by 10% and this year they look set to be another 16% down. Although the attack on America has helped keep share prices low, on the day before the 11th September they had already fallen by a fifth since the start of 2001. And it's not just capital growth which is failing, dividends are being cut to the bone. The average investment return on shares in the top 100 companies is now barely 2 � % a year, half what you could earn by keeping your money in the bank or government bonds. So will history see the start of the new century as the end of shares as the key to successful investment? First how exceptional have these past two years been? David Schwartz is a stock market historian

SCHWARTZ: There's been five occasions in the last century when the UK stock market fell two or more years in a row. In some of those occasions it fell three and four years in a row so don't make any predictions that we're going up in the year ahead because we've been down twice in a row.

LEWIS: So we could go down another year or even more?

SCHWARTZ: Theoretically we could but I think a number of historical signals are telling us that we're going to rise. The rip-roaring rally that we've had in October and November, if you recall, the market bottomed out in that panic sell-off that we saw in mid-September after the World Trade Centre bombing and since then we've gained over twenty per cent and rallies of that magnitude and strength have only happened in bull markets throughout the last century.

LEWIS: Well with me is Hilary Cook of Barclays Stockbrokers. Hilary are we seeing what David Schwartz described as a bull market - one which is rising despite these big falls?

COOK: Well it would certainly be nice to think so. It does seem to be that the market is beginning a much more sustained rally and that is based on value. At the moment shares do look cheap, profitability of companies are still very robust we're seeing a lot of cost-cutting measures by companies, they took very prompt action this time which has been very painful, particularly for workers. That will restore profitability next year, as the economic news begins to get better and we believe it will. We're beginning to see better news out of America already, it's twelve months since we had the first interest rate cut and that should be feeding though quite strongly now. We think shares will continue this rally.

LEWIS: Well it's all very convincing but last year the view among analysts, including Barclays I think, was that the FTSE index would be over 7000 now, it 5242. You were all wrong, why should we believe you this time?

COOK: Because if you look at the fundamentals this is much more soundly based. Shares are always very, very subject to sentiment. Swings and all we had coming out of the last millennium was this irrational exuberance Alan Greenspan referred to, we've had too big a swing back of the pendulum if September 11th hadn't happened we would have seen it swinging back much sooner but it certainly feels like it's swinging now.

LEWIS: Well also with us is David Kauders of Kauders Portfolio Financial Management, you make a living of the opposite point of view?

KAUDERS: Correct. We're happy to encourage people to keep clear of shares and to stick to government bonds, gilts, US Treasury bonds, very low risk, use compound income to achieve capital growth and above all avoid the risk to your capital.

LEWIS: There is some risk in bonds though, aren't there?

KAUDERS: There is a risk if one was to see severe inflation, but severe inflation is not possible now, we're now in a deflationary economy and what we're doing in Britain is following the path set over the past eleven or twelve years by Japan where low interest rates and lower share prices have been the norm and even though there's been the occasional year when the Japanese stock market has rallied for a whole year or more the trend has always resumed. Lower prices in shares, lower interest rates, and if you have a government bond you step off the treadmill you lock into your income and you know your capital is safe.

LEWIS: Yes but that's Ok if you've got a lot of money, I mean if you've got ten million pounds you can comfortably live on four or five per cent interest from that but if you've got just a few thousand pounds, modest savings, the stock market seems to offer attractive prospects for big growth.

KAUDERS: I would disagree with that because first of all you get very little income with the stock market, a lot of major shares are paying very low returns in relation to the money you spend, Vodaphone is an example where the yield is less than one per cent now.

LEWIS: A lot of them have cut their dividends haven't they?

KAUDERS: Dividend cuts have happened, in fact what happens is share price falls come first and dividend cuts come later, that's quite normal in a bear market, as indeed the rally that we've seen over the last few months is normally bear market and unlike Hilary I think it's going to end fairly soon and we'll see a renewed downturn as the deflationary forces resume themselves.

LEWIS: Well also with us is Diane Hay who's Chief Executive of ProShare which promotes share ownership. What do you make of David Kauders' view that people shouldn't be in shares at all?

HAY: Oh I don't think I would agree with that. I think everybody needs a portfolio of savings and investments that will satisfy their current needs and their future needs. I think shares form part of that portfolio as with some fixed income securities as well.

LEWIS: But are the needs they satisfy just a need to gamble really, the safest thing is to have those guaranteed interest rates even if they are low?

HAY: Well it may be the safest thing, to have fixed income security, but you're trading risk against reward aren't you and I think if people are looking for sustained long-term growth then a balanced share portfolio that you are going to be holding for several years has proved conclusively that it is going to be a better investment.

LEWIS: But isn't that a contradiction, you say risk and then you say sustained long term growth, surely risk is the opposite of sustained long term growth?

HAY: No I think what we're saying is that with a balanced portfolio what you're trying to do is to trade off risk of individual shares into something that is going to provide a good income over the years to come.

LEWIS: How are the companies managing to sell shares at the moment, it must be an uphill struggle?

HAY: I think a lot of private investors are looking at the moment, they're not trading very much, I think what we've seen is not the demise of shares but investors lying low, but I think they are coming back into the market and where we're getting a lot of interest is through company share schemes and that's where I think a lot of the growth over the next couple of years is going to be. It's going to be through employees getting shares in the company they work for. We've seen the launch of the Chancellor's new plan, one million new investors from that.

LEWIS: Hilary Cook, your resolution for this year as far as investment is concerned.

COOK: Well don't miss out on the opportunity to shelter your investment in a tax free environment with your ISA, you might want some of that in bonds, you should certainly look at bonds or equities.

LEWIS: Go for an ISA, David Kauders?

KAUDERS: Learn more about gilts

LEWIS: And Diane Hay?

HAY: One word - diversify

LEWIS: Out of shares?

HAY: No build yourself a nice balanced portfolio and you can have a few fixed income as well.

LEWIS: Ok, well three useful resolutions for us all there.

LEWIS: And Britain's high street banks have their own resolution to do better in 2002. A couple of weeks ago the government let the banks off the discipline of full statutory regulation of their retail banking services but they agreed to strengthen their own self-regulated Banking Code and to appoint an independent overseer of the Code from outside the banking world. They've also agreed that from January it'll be quicker to transfer or change banks so will things really get better for us in 2002? Simon Pitkeithley is a director of the British Bankers Association and he's in Ipswich to talk to us. Simon you must be delighted to have escaped statutory regulation of your activities?

PITKEITHLEY: Well I think what we're delighted about is that there's been an endorsement of the practice that we have with the Banking Code to date. This has been a successful voluntary regulatory process.

LEWIS: Yes but you do face the discipline now of someone outside the banking world overseeing the code and its amendments?

PITKEITHLEY: That's right we do, but I think we see that as a good thing as well and I can announce that we've appointed Elaine Kempson from Bristol University as our independent reviewer.

LEWIS: Why have you chosen her?

PITKEITHLEY: Because she's somebody who has the respect of both government and the industry as well as being respected among the advice and the consumer sectors.

LEWIS: Tell us a bit more about her background

PITKEITHLEY: She works for Bristol University at their Social Policy and Research Centre, she's a Professor of Personal Finance. She was also part of the Treasury led policy action team fourteen on access to financial services in 1999, she's a member of the DTI task force on over indebtedness, she has a lot of credentials in that area and like I say, she's someone who both understands the consumers' needs as well as what the industry can and can't do.

LEWIS: And what will professor Elaine Kempson be doing now, now she's in place?

PITKEITHLEY: She'll be taking representations from anyone who cares to give them, we expect them to come from the consumers sector, from the money advice sector as well as from government and industry and she'll publish a report on her findings towards the end of the summer, so that will be publicly available so people will be able to see what she thinks the next review of the Code should encompass and then it's up to the industry to respond to that.

LEWIS: And will it include things it doesn't cover? I mean we've had a lot of complaints on Money Box about old accounts, very low rates of interest, bank charges, about the time it takes to clear money, the list is endless, none of those things are in the Code at the moment are they?

PITKEITHLEY: Well that's what the reviews are about. Let's hear what the problems are, the industry is committed to improving its relationship with the customer as the Banking Code is a way of doing that and so yes all those things are for review.

LEWIS: And of course how banks deal with people in financial difficulties, that's been a particular source of concern hasn't it?

PITKEITHLEY: Absolutely yes, and specifically that's something that Elaine Kempson will be looking at.

LEWIS: And five working days to change your bank from the New Year - how will that work?

PITKEITHLEY: Well we've halved the time that the old bank has to provide the new bank with information about your direct debits and details of your account.

LEWIS: So that's the five days, the new bank has to tell the old bank, it's going to take longer to actually change from one bank to another

PITKEITHLEY: That's right, the time limits we set are five days for the information to be transferred and five weeks for the process to be completed.

LEWIS: Simon Pitkeithley, thanks very much. And Money Box will be watching how the new code works and on the subject of banks, one complaint is their short opening hours, especially during the holidays, and you can find details of the times the high street banks are open over the New Year on our website www.bbc.co.uk/moneybox

LEWIS: Now, one thing the Banking Code doesn't talk about is ethical investment. Only one high street bank, the Co-operative, has an ethical policy. Its ethical manifesto was launched nearly ten years ago in May 1992 and here's how the managing director then, Terry Thomas, explained on Money Box what it would mean for customers

THOMAS: We want to give our customers, all our customers, two new rights. The right first of all to know how their money, because it's not the bank's money, is being used when they're not using it or how it's not being used. And the second right we want to give them is the ability to choose as to whether that ethical stance, or the way we use their money, is or is not acceptable to them.

LEWIS: And ten years on that commitment to customers continues. This Christmas the Co-op is asking all its two and a half million customers what they want from the ethical policy. Here's what we found when we asked people on a busy London street.

WOMAN: I've had a bank account with the Co-op for about 25 years at the time it was the only bank that didn't have major investments in South Africa or with, you know, tobacco companies. MAN: To be honest I really don't know what my bank invests my money into. I just hope they invest it wisely and safely and they take care of my money. There are some things I wouldn't want them to invest in but I don't see how you can stop it quite frankly. WOMAN: If my bank was putting money into a project that I didn't support I'd move my money to another bank.

LEWIS: Barry Clavin, the current ethical policy manager for the Co-operative bank is in Manchester. Barry, ten years in May, has ethics been a success for the Co-op?

CLAVIN: It certainly has been a success for the Co-operative bank Paul. When we launched our policy we had a customer base of around a million, today we have about two and a half million and of those customers something like 30% join us for our ethical policy, as the main reason, and we've also enjoyed something like seven years now of record profits, on the back of our ethics. But we always say, and one of the things that was picked up in your vox pops there, was that it's not just about ethics, it's about ethics and it's about good banking service products and rates.

LEWIS: It must cost you money though, you must turn some business down?

CLAVIN: We do unfortunately have to turn some business down as part of that policy, if fact we have an ethical policy unit at the bank which is there to screen potential business investments for the bank against the criteria set out in our policy and they will turn down around 20% of the business referred to them by our relationship managers every year.

LEWIS: So you're the bank that likes to say no. What will this consultation do?

CLAVIN: Well part of the commitment that you heard Terry Thomas introduce there was that the ethics in our policy, or our customers' ethics, are not the banks. We always made that very clear that the bank wouldn't dictate ethics to its customers so it's up to customers on a regular basis to have the opportunity to advise the bank what are their current concerns and whether current policy reflects those concerns accurately. So we go out on a regular basis, usually every three years, and we effectively start with a blank piece of paper and ask customers to tell us what are their current concerns, does the current policy reflect them, if it doesn't where does it need to be developed.

LEWIS: Barry Clavin thanks, and with me is Alan Kirkham who's a director of an independent financial advisors called Investing Ethically, I suppose a company that does just what it says on the tin. You only sell ethical products are there any financial services you can't get ethically now?

KIRKHAM: Well there's a really wide range of ethical products you can get. I mean there's a few that you can't and usually those are the direct insurances like term assurance, car insurance, that sort of thing, although there are firms that help with that. But what you can get is a whole range of things right down the risk profile from VCT's, unit trust, corporate bond. You can go right down through fixed interest, even tracker funds now, so it's grown up, it's tremendously widespread now.

LEWIS: So you could have a diverse portfolio as we were talking about earlier with some bonds, some shares, some fixed interest, some cash, it could all be ethical?

KIRKHAM: It can indeed and I mean it very much depends on what the individual wants, both for their risk profile and for their ethical profile as well.

LEWIS: And what about the conflict that people sometimes see of performance against principal, do people who invest ethically pay a price for it?

KIRKHAM: Well I think there's a common sense answer to this because I mean those people that are evangelical about ethical investment will prove to you it does better than anything, those that don't like it will prove to you it's a load of rubbish. We've gone from three billion pounds to four billion pounds in just over a year, if it was doing worse than anybody else nobody would be investing in it as a big size thing and if it was doing better, then everybody would be doing it.

LEWIS: And how has it changed over the years do you think?

KIRKHAM: Oh it's grown up, I mean it's gone as I say from almost one unit trust fits all to a tremendous diversity both in its ethics and in its product range.

LEWIS: Alan Kirkham from Investing Ethically, thanks, and earlier we heard from Barry Clavin of the Co-op bank.

LEWIS: Now it started as a bit of a joke but our Latin competition has clearly occupied many of you all over Christmas. Hundreds have responded to our challenge, you remember that was to translate into Latin our motto ' If it seems too good to be true, it probably is'. Well I never did Latin but many people remember Latin lessons like this -

(Latin comedy sketch)

LEWIS: Our centurion is Peter Jones, a classics professor and the founder of the charity Friends of Classics, who's in Newcastle, where he's been judging our Latin Challenge. Peter, what standard were the entries?

JONES: Oh extremely high standard, we had a vast range of people translating it straight as it stood in best Ciceronian form, people turning it into verse, people making jokes about free lunches and porkie and pokes, the full range

LEWIS: We even had one Greek one I think, was there a clear winner among all these?

JONES: Yes there was indeed one clear winner and this was Mary Tredennick, she saw that, she got to the nub of the thing, and the nub is the balance, the more that's being offered the worse it's going to be, and the Latin idiom for that is Quo with the comparative and Eo with the comparative and the Tredennick answer is snappy, jingly, like all mottos should be, and hit the nail right on the thumb - ouch! 'Quo felicius, eo fallacius' - the rosier, the dodgier.

LEWIS: The rosier the dodgier, I think we might adopt that in English actually. So she tackled the problem well, from Rugby. What about literal translations.

JONES: Yes we got a lot of literal translations, but they don't make good mottos because they get a bit plodding, but I mean, for example Richard Ashdowne came up with a lovely straight literal translation 'Quod melius videtur quam ut verum sit, verisimile est id falsum esse' - what seems to be better than is true, that is likely to be false.

LEWIS: Yes the fascination to me was we had over three hundred, as I said, and almost all of them were different, Latin is a kind of mental puzzle really like that isn't it?

JONES: That's right, the listeners obviously got tremendous pleasure out of this intellectual puzzle, toying with the idiom, a modern idiom, ancient language, how do we translate 'too good to be' in Latin, lots of ways of doing it, and then thinking about the real meanings of words. I mean 'too good to be true' is 'bonus' the right word, that has moral overtones I'm not certain it is, I think we want a word like profitable or flashy or specious or something like that.

LEWIS: This one will obviously run and run. We have some though that were just funny not really Latin at all.

JONES: It was an outrage, some of the form turned it into a joke! Cotterell M said ' If something seems too good to be true - Railtrackus est'. Deary me! Someone else said if it sounds too good to be true 'Probabilissimus Archer est', as for Rowe D, well words fail me Rowe, 'Bonus maximus est, bummer maximus est' , that has to be the worst of the lot and probably wins the bummer prize.

LEWIS: Ok Peter, and in a word, why is it important to have things in Latin?

JONES: Well I think it's important to have things in Latin because it's terrific fun, it introduces an ancient culture but also it solves all your future wealth problems. As a professor of Greek at Oxford has supposed to have remarked, 'The study of the ancient tongues not only refines the intellect and elevates about the common herd but also leads not infrequently to positions of considerable emolument and if it doesn't it teaches you to despise the wealth its disqualified you from earning', advice not lost on Money Box listeners, classical scholars to a man.

LEWIS: Indeed, Peter Jones thanks. And the full results will be on our website in the next few minutes. Congratulations to our winners, the prize will be some of the new euro, hot off the press from Italy, where Money Box is off to tomorrow to report on the first days of euro notes and coins in Florence, that report on Money Box next Saturday. You can get more information on the items on the programme by calling the BBC Actionline on 0800 044 044, calls are free, 0800 044 044. Or you can look at our website www.bbc.co.uk/moneybox and briefly Peter Jones, Happy New Year in Latin.

JONES: Novum Annum Feliciem, non fallacem, vobis omnibus

LEWIS: Thanks Peter and from all of us here, a prosperous and a Happy New Year