Barclaycard Visa, Barclaycard MasterCard

Reasons for the proposal:

The interest rates are far too high, especially considering the interest rates at which banks borrow money at the moment.

If there is a higher credit amount outstanding one can often only afford to repay interest (and not the credit amount outstanding) in one month.

Comment of the jury:

Revolving credit cards can lead to the consumer´s impression that he is solvent even though he is not. Unlike conventional credit cards, a revolving credit card is a loan and not primarily a payment instrument. High interest rates and debt levels lead to social distress, which is unacceptable.

This product does not seem to be threatening at first sight. However, the simplicity of the product creates risk. In Austria, this product was advertised by banks in the 90s for people building their own houses. Austria is reputed to account for half of the loans denoted in foreign currencies in the Eurozone.

The private house builder finances the construction of his house by a loan denoted in Swiss Franks. Therefore he is not only exposed to interest rate risk but also to foreign exchange risk. Moreover, the loans are mainly repaid upon final maturity, i.e. during the term of the loan only interest has to be paid. Using a repayment vehicle one saves for the repayment at final maturity. The repayment vehicle invests in stocks and bonds. Therefore one is exposed to investment risk as well.

Hence, the classical house builder is unnecessarily exposed to interest rate risk, foreign exchange risk and investment risk. And all three types of risk were important with the onset of the financial crisis.

Comment of the jury:

These loans – that seem to be cheap at first sight – imply a double risk which is often not realized by the borrowers: Due to the foreign currency they are exposed to exchange rate risks – and at the end of the maturity of the loan one cannot expect that the amount of money that was accumulated and invested on financial markets yields the expected return. That is why thousands of households were running into difficulties in Hungary and Austria.

Moreover, these foreign currency loans created systemic risks: They led to a credit bubble because many people were attracted to take mortgages they could not afford. In addition, there is a huge risk for the domestic banking system since the devaluation of the domestic currency reduces the quality of all mortgages denoted in the foreign currency.

Daimler reverse convertible bond, ISIN: DE000DX45QY2

Reasons for the proposal:

The Daimler reverse convertible currently sold by Deutsche Bank (ISIN DE000DX45QY2) was issued in late January 2013 and will expire in mid December 2013. The product is advertised with a highly attractive interest rate of 8%. However, if the share price of Daimler is less than 40 euros after the expiration of the reverse convertible, one does not receive the 10.000 euros invested but 250 Daimler shares. Hence, investors that were initially attracted by the high interest rates of reverse convertibles become shareholders in the event of falling share prices – especially to shareholders who started with a low stock price but had to pay a high price for their stocks due to their position as the writer of the put option. Therefore, one is at the mercy of the development of the share price although the investors intended to buy a product generating secure interest rate payments. In addition, the buyer of a reverse convertible is exposed to issuer risk. If the issuer of the product becomes insolvent (as it was the case with Lehman Brothers a few years ago) the investors suffer a total loss – even with a positive price development of the underlying stock.

A reverse convertible bond is therefore a highly dangerous and also useless product. Normally, no one would want to spice up interest earnings with a risky put strategy. Those, who prefer secure assets can only expect low interest rates at the moment. But if you want to exploit the higher potential returns of the stock markets, you should rather buy stocks or stock funds. We do not need a “shareholder through the back door” via a reverse convertible.However, for one party involved this product is profitable in any case – the issuer. He passes the risk to the investors. Moreover, he also makes a profit by setting up and trading the product. This is suggested by the trade volumes: According to the statistics of the German Derivatives Association more than 50,000 reverse convertibles are currently traded. Also, the product with the ISIN DE000DX45QY2 is only one product of many – on the internet platform of Deutsche Bank there are 5,000 convertibles listed.

Comment of the jury:

The (German) name of the bond suggests a reliable financial product with a known risk although the investor is in fact exposed to risk arising from the share option. Therefore, this product is an example of how the financial sector misleads customers by using specific words.

RBS Sands TR Equity Index Certificate

Reasons for the proposal:

This product tries to reflect the performance of the Sustainable Oil Sands TR Index. The index is designed to measure the performance of companies whose operations in oil sands and gas include oil exploration, production, refinement, marketing, storage, transportation, provision of equipment and/or provision of services (from the fact sheet).

We consider the different methods for the extraction of natural gas (such as fracking) and oil sand reserves to be dangerous to the environment. The highly complex and energy-intensive techniques threaten the local water habitats and leave a huge carbon footprint. The extraction of oil sands and oil gas postpones a general necessary transformation of getting away from a fossil-fueled economy endangering our climate. We also consider the name of the index misleading since sand oil extraction is by no means sustainable to the environment.

Comment of the jury:

The extraction of oil shale has a significant negative impact on the environment and also prevents the transformation of the economy to post-fossil fuel technologies. Financial products as the one described promote the extraction of oil sands.

DWS Go Uranium Exploration Index Certificate

Reasons for the proposal:

The focus is on companies that deal with the exploration and extraction of uranium and profit from the current tight supply situation.

Do we not have enough of all the nuclear waste that will contaminate the earth for millions of years? Do we have to build more nuclear power plants as “deterrents”? Do we really need so many ticking time bombs – also called nuclear power plants? And are we so unscrupulous that we still want to benefit from it, by buying a certificate to finance uranium producers?

Comment of the jury:

The extraction of uranium as well as the subsequent use of uranium over a long period of time is very dangerous. Financial products such as the one described above help the uranium industry to continue their business.

Solit 2 Gold & Silber GmbH & Co. KG

Reasons for the proposal:

With Solit 2 Gold & Silber GmbH & Co KG, investors can invest in silver that is physically deposited. The investors become limited partners of the company and are therefore granted the right to receive the purchased amount of gold and / or silver without time limitation. The amount of silver purchased may be delivered to the investor. However, generally it is deposited in a “bonded warehouse” in Switzerland of which 77% is owned by the AXA insurance. Depositing in the “bonded warehouse” has the “advantage” that there is no obligation to pay VAT when purchasing the silver bars. In Germany, one would have to pay 19 % VAT for the purchase of silver bars. The purchase of gold bars is exempt from VAT in Germany as well.

Besides the questionable evasion of VAT for the purchase of silver when depositing the silver in Switzerland, one has to question why the silver – which was extracted out of the earth causing damages to the environment and violating human rights – is deposited under the earth again without any productive use.

The meaningfulness of this procedure can be doubted especially when considering that the resource silver as one of the few noble metals is becoming scarce in the foreseeable future. The Federal Institute for Geosciences and Natural Resources (BGR) in Germany estimates that the silver resources are used up in 29 years. The deposit of silver only for speculative reasons can therefore increase the scarcity of silver and lead to price increases. Silver is used for essential techniques such as radiography and parabolic mirrors in solarthermic power plants. Hence, this financial product can directly lead to price increases of these techniques.

Comment of the jury:

These products cause harm to the economy and society since they increase the scarcity of silver by physical storage and lead to environmental damage when extracting silver out of the earth. The scarce resource silver is used e.g. for the production of parabolic mirrors, solar thermal power plants and is urgently needed. In addition, depositing silver in Switzerland leads to an evasion of German VAT.