Savings: How safe?

THE collapse of Lehman Brothers two years ago sent shockwaves through the structured product market as several providers for which it acted as a counterparty hit the wall as a result.

• A worker leaves the Lehman Brothers headquarters in New York after the firm's collapse in 2008. An estimated 6,000 investors in structured products backed by the American investment bank lost their money. Pic: Getty

An estimated 6,000 investors in structured products backed by Lehmans lost their money, including customers of NDF and Keydata, which hit the rocks after the US banking giant went bankrupt in September 2008.

Keydata, which went into administration, owes HM Revenue & Customs about 12 million and the battle for compensation for investors who lost out in its collapse rumbles on.

Few structured investment products are covered by the Financial Services Compensation Scheme and while the probability of counterparty failure may be low, this means the impact of a default could be catastrophic.

Haig Bathgate, head of investment at Turcan Connell, said: "The underlying capital protective element will be in the bonds of the underlying bank.

"While the probability of the UK banks defaulting on their debt is slight , as the Lehman Brothers issue shows us, it is not a given and I'd be pretty sure that this is often not explained by banks."