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Thursday, 27 June, 2002, 09:22 GMT 10:22 UK
Six Forum: Will the WorldCom crisis affect you?

  Click here to watch the forum.  

  • Click here to read the transcript


    Stock markets around Europe have plunged, as investors reacted to news of a massive accounting fraud at US telecoms firm WorldCom.

    The company has owned up to overstating its profits by $3.8bn.

    In an immediate attempt to salvage some of its business, the firm has made 17,000 redundancies and sacked its chief financial officer, Scott Sullivan.

    The news is also another damning indictment of auditor Andersen which was responsible for approving the accounts of WorldCom as well as Enron.

    Even before the news of WorldCom's problems, shares in New York slumped to levels last seen shortly after terrorists attacked the World Trade Center on 11 September.

    How will WorldCom's troubles affect your money?

    Vivienne Starkey, from Independent financial advisers Equal Partners answered your questions in a LIVE forum for the BBC's Six O'clock news, presented by Manisha Tank.


    Transcript


    Manisha Tank:

    We've had news of yet another massive corporate accounting scandal in the United States. This time Worldcom, the US's second biggest telecoms company, has unveiled some fiddling on its balance sheet. It's now admitted losses of more than $3 billion. The news has hit stock markets in London and New York - shares in London plunging to below levels that were seen on September 11th even. So what does it mean for your personal finances?

    Let's start with an e-mail received from Gary in the US: Will this affect people like me who don't actually have shares?


    Vivienne Starkey:

    I think he needs to look at whether he has got shares. A lot of people think they don't own any shares but they have a pension fund, they may have an endowment - something supporting their mortgage. So it may well affect him, yes.


    Manisha Tank:

    Amanda Holliday, Derby, UK: As part of my divorce settlement, I've been given shares, unit trusts and had PEPs in my own name. These have dropped quite a lot in value in the last six months alone. Should I trade them in now and put my money somehow else, bearing in mind, that at the moment I don't have a pension?


    Vivienne Starkey:

    It is worrying for people like Amanda. You get a large sum of money, it's got to last you for a long time and provide you with an income. I think she shouldn't panic. She should get someone to look at it and the underlying investments because some of them may be quite sound - they might be lower at the moment but there's no reason to believe that they won't go up. So it could just be that market sentiments are against her.

    She really ought to look at it anyway to make sure that she has a properly balanced portfolio - so she has bits in different sectors so that it's all working for her - when one bit is not doing very well, another will be doing better.

    As regards a pension - a pension is invested usually anyway so that's not a way out of her trouble. So I think she needs to take a long calm look at it and go through it with someone who can actually explain what the different bits are.


    Manisha Tank:

    Roy Mars, Birmingham, UK: Is this a good time to invest with equities? Will I be able to reap the rewards as stocks recover?


    Vivienne Starkey:

    I think we'd all like to know. Nobody ever knows where the bottom is and obviously the time to invest in the market is when the market is down - he is right in a way. You should always remember that if you are going to invest, it's got to be for the medium to long term. So you're looking five years ahead. If he's going to put money in that he thinks, well I can make a profit and come out in six months time - there is scope for disappointment I think. So, in the medium to long-term, yes.


    Manisha Tank:

    Malcolm, Pontefract, UK: Surely markets have fallen to levels that represent buying opportunities. Has the fear factor been overstated?


    Vivienne Starkey:

    I think undoubtedly there is a fear factor. But also if you are going to take pension this year, you've got to make a move at some stage and it does drive prices down. So I think that just because prices are cheap it doesn't mean to say that it is not a good buy. So I think he needs to do a bit of research into the company he is going to buy into.


    Manisha Tank:

    Mark Kilby, UK: I added to my Abbey National shareholding just after the news about Worldcom was announced as I believe they are a relatively safe investment. Abbey National say they have no material exposure to Worldcom. What do they mean when they say that there is no material exposure?


    Vivienne Starkey:

    They probably mean that they are not investing in it themselves - it is not actually something that affects their core business. But it doesn't mean to say that the price of Abbey National may not move - it depends how many people are coming out of the market or moving their money around. So it doesn't mean in the short-term that the price of Abbey National won't go down but it's not going to sink them.


    Manisha Tank:

    Muji, UK: I've just invested in an ISA specialising in bonds - will they also take a battering?


    Vivienne Starkey:

    I think they probably mean corporate bonds which in fact are loans to companies - you lend the company money, it then redeems it at a certain time and it pays you a rate of interest on top of that. Bonds have been doing quite well lately. Some of the big pension funds - Boots are a primary example, came out of equities and put their money into bonds because they thought they were a better bet. I think the enemy of bonds is rising interest rates and inflation but I think it's quite a good cautious investment.


    Manisha Tank:

    But it is the case that interest rates around the world are at all time lows.


    Vivienne Starkey:

    Yes, we expect interest rates to go up - edge up slightly here - maybe two quarter points in the next year - who knows what's going to happen. But if interest rates went soaring off, it can knock the capital value of a bond. But he's getting a good return on it - if he did an ISA, it's very tax efficient because there is no other tax taken from the interest - dividends are treated in a slightly different way.


    Manisha Tank:

    Rod Owen, Andover, Mass., USA: Will my 2011, 7.5% bond from Worldcom, be worth anything whether they stay in business or go into Chapter 11?


    Vivienne Starkey:

    I specialise in advice in the UK so the US is not my province. I think he should take advice from a stockbroker - someone who deals in the actual stocks themselves perhaps and not a generalist - because he needs to look at what may happen to them, what the laws are there, what his tax position is etc. I can't really give him any guidance but I think he should take specialist advice.


    Manisha Tank:

    Angela, Acton, UK: In the wake of Enron and now Worldcom, would you advise anyone to invest in a company that has been audited by one of the Big Five accounting firms?

    Obviously everyone is concerned about the fact that Andersen was involved in auditing Worldcom's accounts and Andersen was also involved in the Enron scandal. So there's a great deal of talk about what's going to happen in the accounting industry.


    Vivienne Starkey:

    Well it hasn't done them any good. I think the problem is that very large companies have to have big firms to do their auditing. So you'd be hard pushed to invest in one of the major companies that wasn't audited by one of the Big Five. So I think you can't avoid them altogether. I might think twice actually about Andersen if it was my money but you can't say they've got it wrong all the time. But this has done their reputation no good at all I think.


    Manisha Tank:

    Seline, Reading, UK: I'm looking to invest in the European market. Do you think this is a good time or are things just going to get worse from now on?

    There was often a time where European markets tracked what was happening in the US. Does this mean the two are perhaps going to go their separate ways to a certain extent?


    Vivienne Starkey:

    I think the US market has an effect on all of us - it always will - it's a very big economy. Europe has been behind the UK - our shares went down - they've had a tougher time I think - they went into recession perhaps later than we did. But with any of these things, you should never put all of your eggs in one basket - it is a part of your portfolio - you'd got to build up a spread across different things and at some stage you probably going to add Europe to it. So I think you've got to look at the areas that you're going into and make your decision from there.


    Manisha Tank:

    So there's everything to be said for diversifying in that case.


    Vivienne Starkey:

    Yes.


    Manisha Tank:

    Steve, London, UK: Will this have an effect on the price of a Big Mac?


    Vivienne Starkey:

    I think that was probably affected more by the foot-and-mouth scandal. But probably not - I think his burger is probably safe in the medium term - it's a very competitive market.

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