Loan plan for share buyers
Borrowing money to buy a home is second nature to Kiwis. Borrowing to buy shares has long been a no-no.
Wednesday, May 4th 2005, 7:59AM
by The Landlord
But ABN Amro is going out of its way to distinguish between traditional "margin lending" on shares and its latest venture into the risky world of leveraged share investments.ABN Amro's rolling investment warrants let investors part-pay for blue chip shares, and borrow the rest.
The investor then pockets all the dividends and imputation credits, which, with the tax advantages, give an enhanced yield.
Using borrowed money increases exposure to investment opportunities beyond the financial resources of individual investors.
But as well as exaggerating share price gains, it will exaggerate losses.
ABN Amro warrant sales director Aaron Milne said the risk of big losses had been limited with rolling instalment warrants.
In the worst case, an investor would lose only the initial payment they made on their warrant, he said.
And the warrants did not involve margin calls - demands for more money to cover losses - which are the bugbear of traditional margin lending on shares.
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