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Invest to Protect Your "Money in the Bank"

Personal_Finance / Credit Crisis 2015 Jun 10, 2015 - 01:56 PM GMT

By: ...

Personal_Finance

MoneyMorning.com Peter Krauth writes: "Like money in the bank" was once a phrase for something safe, predictable, and reliable.

Like holding money in the bank.

Lawmakers worldwide at the highest levels are currently transforming banking laws, and depositors are footing the bill for their ill-advised monetary maneuvering.


It's one overwhelming, scary trend.

But if we understand what's happening, we can easily get on top of the situation and make sure our profits, not the banks, come first. Here's how…

"Bail-Ins" Threaten Your Savings

A while back I highlighted how an ominous risk to your capital was growing.

I explained how the 2013 bail-ins that took place in Cyprus banks were a trial balloon. And a successful one at that. Essentially bank depositors were tapped to help prevent a Cypriot collapse.

Since then, a growing list of nations have been joining the bail-in movement.

Overseeing this process is the Financial Stability Board (FSB), an international body set up in the wake of the 2008-2009 financial crisis to develop and recommend changes to deal more effectively with large financial institutions that can be deemed "Too Big to Fail."

Still, some European nations aren't signing up as many bail-in club members quite fast enough.

EU member nations have been implementing rules known as the Bank Recovery and Resolution Directive (BRRD). These are being set up to allegedly shield taxpayers from funding bailouts.

The idea is, à la Cyprus, failing banks would actually dip into customer deposits to bail themselves out, thus the term "bail-in." The EU's 28 members were to have joined in and passed such laws by the end of 2014.

But according to a recent Reuters article, the European Commission has warned France, Italy, Lithuania, Luxembourg, the Netherlands, Malta, Poland, Romania, Bulgaria, Czech Republic, and Sweden to get a move on. They've been told they have just two months to comply, after which they may be referred to the EU's Court of Justice.

In many jurisdictions, depositors expect they can count on deposit insurance to offer some measure of protection should their bank become unstable or unable to pay out its deposits. In the U.S., the structure is the Federal Deposit Insurance Corporation (FDIC). Yet the FDIC claims in its 2014 annual report that its entire insurance fund holds merely a fraction of one percent of the entire bank system's deposits.

According to 2013 figures, the FDIC had $25 billion in its insurance fund versus $9.3 trillion in deposits at commercial banks. Hardly reassuring, is it?

In virtually all jurisdictions with such an insurance fund, the support is completely inadequate to provide anything beyond trivial coverage. The Austrian government passed a law in April removing itself as guarantor of bank deposits up to €100,000. Replacing that is a bank deposit insurance fund that's as inadequate as any other.

Just two years ago, Federico Ghizzoni, chief of the Milan-based banking group Unicredit, said it was "acceptable to confiscate savings to save banks" and that savings that aren't guaranteed by insurance or other means could be tapped to rescue failing banks.

Ghizzoni called for a common European solution, but went even further, saying the Basel Committee representing all countries should instead roll out such rules. That would, of course, leave nowhere to hide. Dalvinder Singh said in his book Banking Regulation of UK and US Financial Markets, "The bank-customer relationship of debtor and creditor provides that a bank does not have a continuous obligation to account for its decisions as to how it uses depositors' money."

He then added, "In general, unsecured creditors, such as depositors of a bank, will have very little redress to recover their debts if a company is put into liquidation."

Threatened deposits are not isolated to Europe. Australia is another country whose banking language, when read closely, offers little reassurance to depositors that their funds will be fully refunded in the event of a catastrophic fiscal event.

I could easily go on, but I think by now you get the picture. Don't expect your bank deposits to be safe in a bail-in scenario, and that includes the so-called "insured portion."

So what can offer protection?

This Company You Can Bank on and Profit From

This "silver bank" can.

Silver Wheaton Corp. (USA) (NYSE: SLW) essentially invented the streaming business model.

Similar to royalties, a silver or gold "stream" is a contract that allows the owner to purchase, in exchange for an upfront payment, all or a portion of the byproduct silver or gold produced by a mine it neither owns nor operates.

This model is beneficial to both parties. The streaming company gets large quantities of silver or gold production for many years at what is often at a huge discount to the market price. Silver Wheaton, for example, pays about $4 per ounce of silver and $400 per ounce of gold.

In return, the producer gets a large upfront cash infusion, typically used to finance construction or expansion. It also gets an ongoing payment for each ounce delivered.

Today, SLW boasts more silver reserves (the highest quality ounces) than any other silver company, around 750 million proven and probable ounces. More than 88% of SLW's production is from assets that are in the lowest cost quartile. Estimated growth from 2014 to 2019 is a whopping 40%, from 35.3 million ounces to 51 million ounces.

In 2015, SLW's forecast production is expected to be a mix of 62% silver and 38% gold, and by 2019 that will progress to 54% silver and 46% gold.

Silver Wheaton currently receives production from 21 producing and 6 development assets, many of which are operated by some of the largest mining companies, including Barrick, Goldcorp, Vale Glencore, and Eldorado.

And this is a profitable business, with an operating margin of 44% and a profit margin of 32%.

Although very modest for now at just 1%, SLW does pay a dividend. But the way that dividend is calculated makes it very sustainable. The company pays out 20% of the average of the previous four quarters' operating cash flows to shareholders. That low payout ratio gives management more flexibility in maintaining a dividend while building up its cash hoard. And with silver and gold prices likely near their cycle lows, it's a great time to add Silver Wheaton to your portfolio for precious metals exposure.

Look at Silver Wheaton as a very low-risk, yet relatively high-growth silver miner offering massive upside potential. It's a great way to play the precious metals space, providing the protection of hard assets, without exposure to confiscatory "bail-ins."

Let us know what you think – leave a comment below. Are bail-ins a real threat? And what are some other ways to avoid having your money confiscated to ensure TBTF banks continue tottering along?

Source :http://moneymorning.com/2015/06/10/invest-to-protect-your-money-in-the-bank/

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Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.


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