Posted in my blog
MAS, please stop and disallow financial consultants, whoever or whatever title these salesmen use, from selling and pushing financial products. Mis-selling and misrepresentation and conflict of interest are inevitable in selling.
Please stop them before more people get hurt. Financial products range from insurance, to banking and investment products, except motorcars.
Thursday, October 2, 2008
Hong Kong helping distressed people
Hi Mr. Tan,
I just want to share my thoughts. All the best to you in fighting a good cause for us!!!
http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/379786/1/.html
It is good to see that Hong Kong's financial services chief is stepping out to help distressed people, but what about our own MAS?
If DBS can help people in Hong Kong to settle for reasonable compensation deals, what about helping their own fellow singaporeans?
Much has been said at many forums, I just hope that justice has eyes & also cause and effect happening to the 'masterminds' If their conscience is clear, then they won't have to be afraid.
I just want to share my thoughts. All the best to you in fighting a good cause for us!!!
http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/379786/1/.html
It is good to see that Hong Kong's financial services chief is stepping out to help distressed people, but what about our own MAS?
If DBS can help people in Hong Kong to settle for reasonable compensation deals, what about helping their own fellow singaporeans?
Much has been said at many forums, I just hope that justice has eyes & also cause and effect happening to the 'masterminds' If their conscience is clear, then they won't have to be afraid.
High commission and profits
View posted in my blog
To all the victims.
Have you ever wondered why the RMs or salesmen at the banks or the insurance agents are pushing hard on products?
At the banks product sale means high commission from the products as profit to the company and to pay the RMs' high salary.
What about fixed deposit?
The bank got to pay interest to the customers.
Why push products?
If need analysis is used they may not be able to sell anyhting because the products may not be suitable because of risk, the financial circumstances of the clients, their needs. Products pushing ignores all these perimeters.
At Insurance companies.
Pushing expensive and high commission products means high annual premium income(API) to the company. API is used as production figure for ranking and market share and good profit for the company.
Why insurance agents push products?
No need to look into the needs of the client.If they do they may NOT be able to sell a high commission product. They cannot justify.
Without the need analysis any product can do and normally the product is whole life with high commission.
What does it mean to the agents.
High earning and can qualify for mdrt. cot or tot.
What does it mean to the customers?
Wrong product, insufficient coverage ; allocate too much money in this area at the expense of other needs, ie other needs suffer.
What does it tell us?
Products pushing is bad and shortchanges the customers.
Mis-selling, misrepresentation and conflict of interest and other other unethical practices can arise.
Bad and rotten products need a lot of pushing, right? They need greedy and unscrupulous salespeople to use unethical means
to do for the company with promise of high rewards.
Do you hard push a good product?
The current debacle is due to this.
To MAS
Eradicate selling for financial products. Stop bad products to be sold in the market.
The Concerned Singaporean
To all the victims.
Have you ever wondered why the RMs or salesmen at the banks or the insurance agents are pushing hard on products?
At the banks product sale means high commission from the products as profit to the company and to pay the RMs' high salary.
What about fixed deposit?
The bank got to pay interest to the customers.
Why push products?
If need analysis is used they may not be able to sell anyhting because the products may not be suitable because of risk, the financial circumstances of the clients, their needs. Products pushing ignores all these perimeters.
At Insurance companies.
Pushing expensive and high commission products means high annual premium income(API) to the company. API is used as production figure for ranking and market share and good profit for the company.
Why insurance agents push products?
No need to look into the needs of the client.If they do they may NOT be able to sell a high commission product. They cannot justify.
Without the need analysis any product can do and normally the product is whole life with high commission.
What does it mean to the agents.
High earning and can qualify for mdrt. cot or tot.
What does it mean to the customers?
Wrong product, insufficient coverage ; allocate too much money in this area at the expense of other needs, ie other needs suffer.
What does it tell us?
Products pushing is bad and shortchanges the customers.
Mis-selling, misrepresentation and conflict of interest and other other unethical practices can arise.
Bad and rotten products need a lot of pushing, right? They need greedy and unscrupulous salespeople to use unethical means
to do for the company with promise of high rewards.
Do you hard push a good product?
The current debacle is due to this.
To MAS
Eradicate selling for financial products. Stop bad products to be sold in the market.
The Concerned Singaporean
High risk investments
Dear Mr. Tan,
We the investors can not thank you enough for investing your time and effort in helping us to organise ourselves as nobody else in Singapore would so far.
I am not optimistic that we will achieve anything as we are facing very large financial institutions that have a lot of fire power.
The key to me is in two areas that
1)The sales aid materials and the "misleading prospectus". These are the written evidence. Otherwise the selling process is all verbal between the bank employees and the investors and it is difficult to prove one way or the other.
2) The other is the nature of the products which are extremely high risk now that we are aware of. Even a straight forward product like a local company bond, the retail investor has no access as you need to have S$250,000 as a minimum to invest in. So all other structure products that are available to the retail investors should have a lower risk level that a straight company bond. The financial institutions should not have sold these structured products to the retail investors.
I have read the sales materials and the prospectus before investing and I thought I was investing in the bonds of the referenced entities and the bonds are safely kept by the trustee bank HSBC. Now I know better.
I was prepared to take some risk as I believed that since there are several referenced entities, one failure will only hit the investment proportionately. I never expected that Lehman who is an arranger can wipe off my investment!
REPLY
The financial institution that sold the structured product to you has the responsibility to know the nature of the risk and to advice you appropriately. If they fail in their duty, they should make suitable compensation.
We the investors can not thank you enough for investing your time and effort in helping us to organise ourselves as nobody else in Singapore would so far.
I am not optimistic that we will achieve anything as we are facing very large financial institutions that have a lot of fire power.
The key to me is in two areas that
1)The sales aid materials and the "misleading prospectus". These are the written evidence. Otherwise the selling process is all verbal between the bank employees and the investors and it is difficult to prove one way or the other.
2) The other is the nature of the products which are extremely high risk now that we are aware of. Even a straight forward product like a local company bond, the retail investor has no access as you need to have S$250,000 as a minimum to invest in. So all other structure products that are available to the retail investors should have a lower risk level that a straight company bond. The financial institutions should not have sold these structured products to the retail investors.
I have read the sales materials and the prospectus before investing and I thought I was investing in the bonds of the referenced entities and the bonds are safely kept by the trustee bank HSBC. Now I know better.
I was prepared to take some risk as I believed that since there are several referenced entities, one failure will only hit the investment proportionately. I never expected that Lehman who is an arranger can wipe off my investment!
REPLY
The financial institution that sold the structured product to you has the responsibility to know the nature of the risk and to advice you appropriately. If they fail in their duty, they should make suitable compensation.
Compensation to affected investors
Dear Mr. Tan,
According to the announcement, the MAS can only re-examine regulatory and supervisory roles and regulatory actions include "public reprimand" and "files".
Regulatory action could include fines and public reprimands but cannot include requiring FIs to pay compensation to affected investors.
This is too light a sentence for the FIs. Especially those who make the decisions to sell the products fraudulently and the lawyers who draft the prospectus into meaningless jargon!
Their FI will address their complaint quickly and fairly. Where a customer is still not satisfied, he can have the matter referred to FIDReC, which was specifically set up to handle such issues."
The FIDREC can only handle upto a claim of $50,000. So many of us put into far more than that! This "$50,000" limit must be removed! Also, we need the government to give us a fair legal judgement of this mis-selling saga!
Julie
REPLY
The Petition calls for MAS to make an investigation if there were any wrong doings done by the Financial Institution and to take appropriate action in Court on behalf of the investors. The Court can decide on how the investors are to be compensated.
In a similar case involving the "auction rate securities", the financial institutions decide to buy back the securities from the investors, rather than face the Court decision.
According to the announcement, the MAS can only re-examine regulatory and supervisory roles and regulatory actions include "public reprimand" and "files".
Regulatory action could include fines and public reprimands but cannot include requiring FIs to pay compensation to affected investors.
This is too light a sentence for the FIs. Especially those who make the decisions to sell the products fraudulently and the lawyers who draft the prospectus into meaningless jargon!
Their FI will address their complaint quickly and fairly. Where a customer is still not satisfied, he can have the matter referred to FIDReC, which was specifically set up to handle such issues."
The FIDREC can only handle upto a claim of $50,000. So many of us put into far more than that! This "$50,000" limit must be removed! Also, we need the government to give us a fair legal judgement of this mis-selling saga!
Julie
REPLY
The Petition calls for MAS to make an investigation if there were any wrong doings done by the Financial Institution and to take appropriate action in Court on behalf of the investors. The Court can decide on how the investors are to be compensated.
In a similar case involving the "auction rate securities", the financial institutions decide to buy back the securities from the investors, rather than face the Court decision.
MAS announcements
Hi Mr. Tan,
The MAS has posted two announcements about MAS today. Could you post it in your blog? Hope they are useful for your speech at HONG LIM.
http://www.mas.gov.sg/news_room/press_releases/2008/MAS_Approach_in_Dealing_with_Recent_Developments_Concerning_the_Sale_of_Structured_Products.html
http://www.mas.gov.sg/news_room/press_releases/2008/MAS_and_Financial_Institutions_to_Ensure_Investor_Complaints_are_Dealt_With_Quickly_and_Fairly.html
Regards
Julie
The MAS has posted two announcements about MAS today. Could you post it in your blog? Hope they are useful for your speech at HONG LIM.
http://www.mas.gov.sg/news_room/press_releases/2008/MAS_Approach_in_Dealing_with_Recent_Developments_Concerning_the_Sale_of_Structured_Products.html
http://www.mas.gov.sg/news_room/press_releases/2008/MAS_and_Financial_Institutions_to_Ensure_Investor_Complaints_are_Dealt_With_Quickly_and_Fairly.html
Regards
Julie
For defensive investors
Hi Mr. Tan,
I refer to the letter "High Notes 2 Not a Low-risk product" from Ms Janet Mohan, a V.P. of DBS. This letter was published today (2.10.08) on the forum page of the straits times.
In her letter, Ms Mohan stated that "DBS High Notes 2 (HN2) is a five-year, structured, credit -linked note designed for investor seeking enhanced yield by providing exposure to a basket of highly rated entities....."
She went on to state that "HN2 is not a low-risk product nor principal-protected".
However, according to the Pricing Statement (page 14), High Notes 2 is described as “…5-year structured first-to-default credit linked notes designed for defensive investors seeking enhanced yield by providing exposure to a basket of highly rated regional and international banks……”. The description implies that High Notes 2 is a safe investment for "defensive" investor. The word “defensive” was omitted in Ms Mohan’s letter, probably intentionally.
This shows how the bank is twisting its words to defend itself from alleged misrepresentation.
Kindly post this email in your blog as I wish to share my observation with others who could lose their money in HN2.
Thank you.
Wilson Tan .
I refer to the letter "High Notes 2 Not a Low-risk product" from Ms Janet Mohan, a V.P. of DBS. This letter was published today (2.10.08) on the forum page of the straits times.
In her letter, Ms Mohan stated that "DBS High Notes 2 (HN2) is a five-year, structured, credit -linked note designed for investor seeking enhanced yield by providing exposure to a basket of highly rated entities....."
She went on to state that "HN2 is not a low-risk product nor principal-protected".
However, according to the Pricing Statement (page 14), High Notes 2 is described as “…5-year structured first-to-default credit linked notes designed for defensive investors seeking enhanced yield by providing exposure to a basket of highly rated regional and international banks……”. The description implies that High Notes 2 is a safe investment for "defensive" investor. The word “defensive” was omitted in Ms Mohan’s letter, probably intentionally.
This shows how the bank is twisting its words to defend itself from alleged misrepresentation.
Kindly post this email in your blog as I wish to share my observation with others who could lose their money in HN2.
Thank you.
Wilson Tan .
Wednesday, October 1, 2008
Hong Kong Government Meets Banks Accused Of Mis-selling Lehman Bonds
http://www.lloyds.com/dj/DowJonesArticle.aspx?id=406944
HONG KONG (AFP)--Hong Kong's financial services chief on Thursday weighed in on the dispute over the possible mis-selling of investment products backed by failed U.S. bank Lehman Brothers (LEH).
Chan Ka-cheung, secretary for financial services, met representatives of 21 banks, who are accused by disgruntled investors of mis-selling "mini-bonds" that could now be worthless.
"The secretary met with representatives from the Hong Kong Monetary Authority, the Securities and Futures Commission, and the banks today," said a government spokeswoman.
"The meeting was held with the hope that the banks can find ways to step up their communication with the retail investors and increase their transparency."
Some of the banks, including DBS (D05.SG) and DahSing (2356.HK), had agreed to settle through mediation and have been negotiating with individual investors on compensation deals, according to a report in the Apple Daily.
The move has put pressure on other banks to find a solution, prompting Chan to hold the meeting, the report said.
The investors, who bought HKD12.7 billion ($1.63 billion) of the complex financial products, had earlier threatened to sue the banks for not explaining the risks involved before selling them the bonds.
Many of the investors are retired and had put all their savings into the investment because they trusted their banks.
The Securities and Futures Commission said previously it has launched an investigation into some of the institutions on alleged mis-selling.
Lehman Brothers, one of Wall Street's most established banks, collapsed last month, sparking turmoil on financial markets across the world.
Dow Jones Newswires
HONG KONG (AFP)--Hong Kong's financial services chief on Thursday weighed in on the dispute over the possible mis-selling of investment products backed by failed U.S. bank Lehman Brothers (LEH).
Chan Ka-cheung, secretary for financial services, met representatives of 21 banks, who are accused by disgruntled investors of mis-selling "mini-bonds" that could now be worthless.
"The secretary met with representatives from the Hong Kong Monetary Authority, the Securities and Futures Commission, and the banks today," said a government spokeswoman.
"The meeting was held with the hope that the banks can find ways to step up their communication with the retail investors and increase their transparency."
Some of the banks, including DBS (D05.SG) and DahSing (2356.HK), had agreed to settle through mediation and have been negotiating with individual investors on compensation deals, according to a report in the Apple Daily.
The move has put pressure on other banks to find a solution, prompting Chan to hold the meeting, the report said.
The investors, who bought HKD12.7 billion ($1.63 billion) of the complex financial products, had earlier threatened to sue the banks for not explaining the risks involved before selling them the bonds.
Many of the investors are retired and had put all their savings into the investment because they trusted their banks.
The Securities and Futures Commission said previously it has launched an investigation into some of the institutions on alleged mis-selling.
Lehman Brothers, one of Wall Street's most established banks, collapsed last month, sparking turmoil on financial markets across the world.
Dow Jones Newswires
Loss of hard earned money (2)
Dear Mr Tan,
My 71-year old mother is a victim of the recent Lehman Brothers collapse. She worked hard in the civil service for more than 30-years of her life, skimped and saved to provide for her family. Now, her life savings and retirement funds are suddenly lost. All because she invested $100,000 in the mini-bonds sold by Hong Leong Finance just a year ago.
The money was originally in a Fixed Deposit account with HLF until the relationship manager promoted the Lehman product to her last year, saying it would offer her a much higher interest rate of 5%. My mother is not investment-savvy, neither would she be able to read, much-less understand, the fine prints of the 'Agreement' (if there was any at all) that she ignorantly signed on the spot. She did not know that HLF was merely an 'agent' for selling those bonds. She trusted HLF as a secure local banking institution with which she has placed her savings all this while. Therefore, when the bank's executive promoted the mini-bonds to her, she felt safe enough to take it. Afterall, this past one year, she has been receiving the interest as promised. There were no warning signs whatsoever that the minibonds were about to come to zero value and her money might be gone.
Our burning questions as layman in this tumultous financial market are these :
1. Was Lehman Brothers already in dire straits when they sold these mini-bonds? Were these one of their life-lines?
2. Did our local banks know what they were selling to their clients? Did they exercise due diligence by checking up on Lehman's financial standing before they acted as agents for the bank? Were our banks aware of the huge risks that their clients bear vis-a-vis the interest they get?
3. When our agent banks promoted the product to Singaporeans, did they explain in detail the risks and implications especially to the elderly folk knowing that they are putting their entire life savings into this very risky venture, before they enticed them with the attractive interest rates? Did they inform clearly that they were not underwriting any risks since they were just agents for Lehman? Were the sales people just interested in getting the agent's commission?
4. Where does MAS come into the picture here? Is there any auditing on what our banks are selling? Is there auditing on the bank's process and practices? Is there control at all, akin to what insurance companies like AIA are claiming as stringent controls by MAS such that they are now able to stand firm amid AIG's struggles?
Mr Tan, we badly need some answers. You will be well aware how the man-in-the-street, old folks, non-investors, non-speculators, have lost their hard-earned money overnight. The outlook appears grim as there seems to be no legal recourse in sight, and MAS has not taken a stand perhaps because this has not reached industry proportions.
We feel our mother's pain, as well as the suffering of all those who are depending on these funds for their retirement years, medical needs etc. I am sure they are lack of sleep and unable to eat during this period. It hurts terribly to think that life savings have gone to feed the highly-paid executives of Lehman who have probably mis-managed the company and still sitting rich now. Do we just blame it on hard luck?
As if their anxiety counts for nothing, the victims were given a letter by the bank and told to wait for further decision and announcement.
Mr Tan, we appreciate your help in championing this, and are hoping against hope that something reasonable will come out of it to mitigate the suffering of all those affected by this sudden turn of events.
MW
My 71-year old mother is a victim of the recent Lehman Brothers collapse. She worked hard in the civil service for more than 30-years of her life, skimped and saved to provide for her family. Now, her life savings and retirement funds are suddenly lost. All because she invested $100,000 in the mini-bonds sold by Hong Leong Finance just a year ago.
The money was originally in a Fixed Deposit account with HLF until the relationship manager promoted the Lehman product to her last year, saying it would offer her a much higher interest rate of 5%. My mother is not investment-savvy, neither would she be able to read, much-less understand, the fine prints of the 'Agreement' (if there was any at all) that she ignorantly signed on the spot. She did not know that HLF was merely an 'agent' for selling those bonds. She trusted HLF as a secure local banking institution with which she has placed her savings all this while. Therefore, when the bank's executive promoted the mini-bonds to her, she felt safe enough to take it. Afterall, this past one year, she has been receiving the interest as promised. There were no warning signs whatsoever that the minibonds were about to come to zero value and her money might be gone.
Our burning questions as layman in this tumultous financial market are these :
1. Was Lehman Brothers already in dire straits when they sold these mini-bonds? Were these one of their life-lines?
2. Did our local banks know what they were selling to their clients? Did they exercise due diligence by checking up on Lehman's financial standing before they acted as agents for the bank? Were our banks aware of the huge risks that their clients bear vis-a-vis the interest they get?
3. When our agent banks promoted the product to Singaporeans, did they explain in detail the risks and implications especially to the elderly folk knowing that they are putting their entire life savings into this very risky venture, before they enticed them with the attractive interest rates? Did they inform clearly that they were not underwriting any risks since they were just agents for Lehman? Were the sales people just interested in getting the agent's commission?
4. Where does MAS come into the picture here? Is there any auditing on what our banks are selling? Is there auditing on the bank's process and practices? Is there control at all, akin to what insurance companies like AIA are claiming as stringent controls by MAS such that they are now able to stand firm amid AIG's struggles?
Mr Tan, we badly need some answers. You will be well aware how the man-in-the-street, old folks, non-investors, non-speculators, have lost their hard-earned money overnight. The outlook appears grim as there seems to be no legal recourse in sight, and MAS has not taken a stand perhaps because this has not reached industry proportions.
We feel our mother's pain, as well as the suffering of all those who are depending on these funds for their retirement years, medical needs etc. I am sure they are lack of sleep and unable to eat during this period. It hurts terribly to think that life savings have gone to feed the highly-paid executives of Lehman who have probably mis-managed the company and still sitting rich now. Do we just blame it on hard luck?
As if their anxiety counts for nothing, the victims were given a letter by the bank and told to wait for further decision and announcement.
Mr Tan, we appreciate your help in championing this, and are hoping against hope that something reasonable will come out of it to mitigate the suffering of all those affected by this sudden turn of events.
MW
Investigation into potential wrong-doings by financial institutions
Revised (1)
1. Introduction
Many people invested a large sum of money, or their life savings, in the credit linked securities, in the mistaken belief that these securities have low risk and are safe. These securities include the Lehman Minibonds, DBS High Notes, Morgan Stanley Pinnacle Notes and Merill Lynch Jubilee Notes.
These investors lost a large part or all of their investments due to the financial crisis. They were shocked that these structured products had high risk, which they were not properly informed.
I suggest that the Government to investigate if there were any wrong-doing on the part of the financial institutions that created or marketed these structured products.
These wrong doings could be in the form of negligence, dishonesty or fraud.
2. Potential wrong-doings
I suggest that the Government should appoint competent people to look into the following areas:
2.1 Were the products created with the aim of defrauding the investing public? Were the drafting of the prospectus, advertisements and other documents carried out with the intent of hiding the true facts from the investing public?
2.2 Were the financial institutions that marketed the product aware about the real risks of the products? Did they train their front line advisers to hide the true facts? Were they negligent in not understanding the true risk? Did they monitor the conduct of their front line advisers to ensure that the products are sold to the right people, based on their risk profile and preference?
2.3 What were the actual charges taken out of the structured products to pay the distributor and the product creator? Were these charges disclosed in the prospectus? Were the charges at a reasonable level, in comparison with the work that has to be done and the risk taken by the parties?
2.4 Were there conflicts of interest involved in the transactions between the various parties? Were the conflicts of interest adequately disclosed? Were the decisions on the pricing of the products made fairly in the interest of the investors? Was there any arrangement to ensure that the pricing is made based on fair market values?
2.5 Does this arrangement fall under certain laws, such as the Trust Act or more specific laws? Was there any breach of any of the provisions of these laws?
2.6 Does the fund manager break any law, if it takes out money from the structured product that are not authorised by the trust deed?
2.7 Were the financial institutions acting in a negligent or irresponsible manner when they continued to market the structured products after the mortgage market crisis unfolded in the summer of 2007?
2.8 Is there a case of misrepresentation when the financial institutions marketed these products as capital protected or capital guaranteed or as “minibonds” when they were not bonds?
3. Call for action
I hope that the Government look into these areas, to see if there were any wrong doing that led to such large losses among the investing public.
If there were wrong doing, the Government can take the appropriate action to bring the offenders to Court and to seek suitable compensation for the losses suffered by the investors.
I hope that the Government can play an active role to minimise the losses of the investors and ensure that the underlying securities are NOT un-wound at fire sale prices.
1. Introduction
Many people invested a large sum of money, or their life savings, in the credit linked securities, in the mistaken belief that these securities have low risk and are safe. These securities include the Lehman Minibonds, DBS High Notes, Morgan Stanley Pinnacle Notes and Merill Lynch Jubilee Notes.
These investors lost a large part or all of their investments due to the financial crisis. They were shocked that these structured products had high risk, which they were not properly informed.
I suggest that the Government to investigate if there were any wrong-doing on the part of the financial institutions that created or marketed these structured products.
These wrong doings could be in the form of negligence, dishonesty or fraud.
2. Potential wrong-doings
I suggest that the Government should appoint competent people to look into the following areas:
2.1 Were the products created with the aim of defrauding the investing public? Were the drafting of the prospectus, advertisements and other documents carried out with the intent of hiding the true facts from the investing public?
2.2 Were the financial institutions that marketed the product aware about the real risks of the products? Did they train their front line advisers to hide the true facts? Were they negligent in not understanding the true risk? Did they monitor the conduct of their front line advisers to ensure that the products are sold to the right people, based on their risk profile and preference?
2.3 What were the actual charges taken out of the structured products to pay the distributor and the product creator? Were these charges disclosed in the prospectus? Were the charges at a reasonable level, in comparison with the work that has to be done and the risk taken by the parties?
2.4 Were there conflicts of interest involved in the transactions between the various parties? Were the conflicts of interest adequately disclosed? Were the decisions on the pricing of the products made fairly in the interest of the investors? Was there any arrangement to ensure that the pricing is made based on fair market values?
2.5 Does this arrangement fall under certain laws, such as the Trust Act or more specific laws? Was there any breach of any of the provisions of these laws?
2.6 Does the fund manager break any law, if it takes out money from the structured product that are not authorised by the trust deed?
2.7 Were the financial institutions acting in a negligent or irresponsible manner when they continued to market the structured products after the mortgage market crisis unfolded in the summer of 2007?
2.8 Is there a case of misrepresentation when the financial institutions marketed these products as capital protected or capital guaranteed or as “minibonds” when they were not bonds?
3. Call for action
I hope that the Government look into these areas, to see if there were any wrong doing that led to such large losses among the investing public.
If there were wrong doing, the Government can take the appropriate action to bring the offenders to Court and to seek suitable compensation for the losses suffered by the investors.
I hope that the Government can play an active role to minimise the losses of the investors and ensure that the underlying securities are NOT un-wound at fire sale prices.
ANZ pays out $200,000 to elderly investor
Link : http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10535307
ANZ pays out $200,000 to elderly investor
4:00AM Thursday Oct 02, 2008
By Maria Slade
ANZ bank has paid out more than $200,000 to an elderly woman whose life savings are tied up in a credit crunch-affected ING fund.
The 87-year-old, who is in poor health and whose only other income is her pension, put the money into the ING Diversified Yield Fund on the advice of her ANZ financial planner.
The fund, and its companion Regular Income Fund, had exposure to the US sub-prime mortgage market and were indefinitely frozen in March because of the effects of the global credit crisis.
The deal is one of a number of settlements the Herald is aware the bank has reached with people who invested through their ANZ financial advisers. ANZ owns 49 per cent of ING New Zealand. In another case, a family has been paid out a substantial portion of the $90,000 investment their late father made in the Diversified Yield Fund.
With the funds frozen, the family had been unable to settle their father's estate.
Both deals came after the involvement of the Banking Ombudsman.
The deceased man's son-in-law believes without his help the settlement with the bank would not have occurred.
The ombudsman's office says complaints about the ING funds currently make up more than half of its caseload. ANZ was a heavy seller of the investments, and other banks also sold them.
The ombudsman has identified bank customers suffering financial hardship as a result of the freeze on their funds, and helped arrange some relief on a goodwill basis.
In some cases this has come in the form of interest-free loans from the banks in question.
Numerous cases are yet to be settled. Auckland man Murray McNabb and his partner have $80,000 tied up in the Regular Income Fund, and are waiting to hear back from the ombudsman. "We wanted this money to pay off a mortgage. Now we're going to have to refinance the mortgage at 2 per cent higher than what it was."
In its assessment of her investment needs, ANZ characterised the 87-year-old as a "defensive" or conservative investor. In May Steven Giannoulis, general manager of marketing at ING, told the Herald the two funds were at the higher-risk, higher-return end of the ING range of investments.
Financial planner Jeff Matthews, of Spicers Wealth Management, said the advice ANZ gave was poor. "They weren't trying to solve someone's [investment] problem, they were just pushing product."
The ING funds invested in CDOs and CLOs, now notorious financial products which bundle various types of debt into a tradeable security.
With the credit crunch the market for these products all but disappeared and ING was forced to suspend redemptions from its two funds, leaving 8000 investors unable to access a collective $521 million.
When ING announced the freeze in March the unit price for the DYF was 81.05c and the RIF was at 70.5c, down from their $1 issue price.
Last week the unit prices were down to 62.35c and 55.45c respectively - almost half the original price.
ANZ pays out $200,000 to elderly investor
4:00AM Thursday Oct 02, 2008
By Maria Slade
ANZ bank has paid out more than $200,000 to an elderly woman whose life savings are tied up in a credit crunch-affected ING fund.
The 87-year-old, who is in poor health and whose only other income is her pension, put the money into the ING Diversified Yield Fund on the advice of her ANZ financial planner.
The fund, and its companion Regular Income Fund, had exposure to the US sub-prime mortgage market and were indefinitely frozen in March because of the effects of the global credit crisis.
The deal is one of a number of settlements the Herald is aware the bank has reached with people who invested through their ANZ financial advisers. ANZ owns 49 per cent of ING New Zealand. In another case, a family has been paid out a substantial portion of the $90,000 investment their late father made in the Diversified Yield Fund.
With the funds frozen, the family had been unable to settle their father's estate.
Both deals came after the involvement of the Banking Ombudsman.
The deceased man's son-in-law believes without his help the settlement with the bank would not have occurred.
The ombudsman's office says complaints about the ING funds currently make up more than half of its caseload. ANZ was a heavy seller of the investments, and other banks also sold them.
The ombudsman has identified bank customers suffering financial hardship as a result of the freeze on their funds, and helped arrange some relief on a goodwill basis.
In some cases this has come in the form of interest-free loans from the banks in question.
Numerous cases are yet to be settled. Auckland man Murray McNabb and his partner have $80,000 tied up in the Regular Income Fund, and are waiting to hear back from the ombudsman. "We wanted this money to pay off a mortgage. Now we're going to have to refinance the mortgage at 2 per cent higher than what it was."
In its assessment of her investment needs, ANZ characterised the 87-year-old as a "defensive" or conservative investor. In May Steven Giannoulis, general manager of marketing at ING, told the Herald the two funds were at the higher-risk, higher-return end of the ING range of investments.
Financial planner Jeff Matthews, of Spicers Wealth Management, said the advice ANZ gave was poor. "They weren't trying to solve someone's [investment] problem, they were just pushing product."
The ING funds invested in CDOs and CLOs, now notorious financial products which bundle various types of debt into a tradeable security.
With the credit crunch the market for these products all but disappeared and ING was forced to suspend redemptions from its two funds, leaving 8000 investors unable to access a collective $521 million.
When ING announced the freeze in March the unit price for the DYF was 81.05c and the RIF was at 70.5c, down from their $1 issue price.
Last week the unit prices were down to 62.35c and 55.45c respectively - almost half the original price.
NTUC Income Money Market Fund (Flexi-cash)
Dear Mr. Tan,
I have been a close follower of your blog site for the past 1.5 years. Based on the blog postings, I have invested a significant portion of my savings in NTUC Income's Flexi Cash Policy.
The NTUC Income website describes the Flexi Cash Policy as being "As Safe as a Bank Deposit" and "virtually impossible to lose your capital." I understand that the underlying investments are the Money Market fund, and the top holdings of the fund are in Government Bonds and High Quality Corporate Bonds.
However recently I have seen the fund price drop from 1.091 to 1.090 to 1.089. I am concerned because the fund's past trend has been to slowly increase upwards in small increments. This is the first time the fund has been dropping continuously, and with current events, I guess there is a lot of fear and uncertainty in the market.
I would like to ask for your advice on whether I should hold on to my investment or to liquidate and convert to cash as I am worried about further losses.
REPLY
The drop is small. It is probably due to an increase in interest rate. I think that there is no need to worry about it.
If you are still unsure, I suggest that you write to ask NTUC Income to tell you the reason for the drop in price. You can also ask them to confirm that the fund is still invested in high quality assets.
I have been a close follower of your blog site for the past 1.5 years. Based on the blog postings, I have invested a significant portion of my savings in NTUC Income's Flexi Cash Policy.
The NTUC Income website describes the Flexi Cash Policy as being "As Safe as a Bank Deposit" and "virtually impossible to lose your capital." I understand that the underlying investments are the Money Market fund, and the top holdings of the fund are in Government Bonds and High Quality Corporate Bonds.
However recently I have seen the fund price drop from 1.091 to 1.090 to 1.089. I am concerned because the fund's past trend has been to slowly increase upwards in small increments. This is the first time the fund has been dropping continuously, and with current events, I guess there is a lot of fear and uncertainty in the market.
I would like to ask for your advice on whether I should hold on to my investment or to liquidate and convert to cash as I am worried about further losses.
REPLY
The drop is small. It is probably due to an increase in interest rate. I think that there is no need to worry about it.
If you are still unsure, I suggest that you write to ask NTUC Income to tell you the reason for the drop in price. You can also ask them to confirm that the fund is still invested in high quality assets.
European Central Bank - an excellent approach
Hi, Mr. Tan,
I just heard BBC News (Radio88.9) at 8 pm: European Central Bank said banks selling risky products to investors must share risks. Don't know whether SM Goh and MAS officials heard this news.
REPLY
This is an excellent approach. More details are found here:
http://newsvote.bbc.co.uk/mpapps/pagetools/print/news.bbc.co.uk/2/hi/business/7646863.stm
Unfortunately, this proposal does not help investors who already bought the risky products in the past from getting compensation. The compensation has to be obtained through existing channels.
I just heard BBC News (Radio88.9) at 8 pm: European Central Bank said banks selling risky products to investors must share risks. Don't know whether SM Goh and MAS officials heard this news.
REPLY
This is an excellent approach. More details are found here:
http://newsvote.bbc.co.uk/mpapps/pagetools/print/news.bbc.co.uk/2/hi/business/7646863.stm
Unfortunately, this proposal does not help investors who already bought the risky products in the past from getting compensation. The compensation has to be obtained through existing channels.
Signing of Pettion
I need your full name for the Petition. The full name is, for example, Tan Kin Lian. If you give a partial name, it will be rejected.
If you did not give your full name, we will call you and ask for your full name. There is no need to re-sign the petition at this time.
If you did not give your full name, we will call you and ask for your full name. There is no need to re-sign the petition at this time.
Tuesday, September 30, 2008
Pressure on sales representatives to market certain products
http://www.straitstimes.com/ST%2BForum/Online%2BStory/STIStory_284367.html
POSTED IN STRAITS TIMES ONLINE FORUM
I REFER to the current market situation of Lehman Brothers' bankruptcy which led to the DBS High Notes burst recently. I am a personal financial consultant in a local bank. There are some factors I feel must be revealed to protect consumers' rights.
First, banks usually state that there is seldom or no misrepresentation of products sold, and products are usually recommended based on consumers' needs. A financial needs analysis and fact find are usually done to ensure consumers have sufficient funds and a real need for the product. The fact is that we often face pressure to sell certain products so as to hit our sales target.
Take me, for instance. I am a fresh graduate from the National University of Singapore. I have a nine-month contract with a local bank, but I was told, if I did not pass probation in six months (hitting sales target), I would be asked to leave and pay the $3,000 bond.
So far, I have sold $500,000 in insurance based on consumers' needs, so why is my sales record so poor? This is due to product discrimination. We have to sell mainly investment-linked insurance products. To sell 10 of these is equivalent to 60 products I have sold. Thus a fresh graduate like me who can't afford to pay the $3,000 bond faces a real dilemma.
Therefore, consumers should understand the immense pressure we are facing. Most of the time, we are trained to promote that particular product and try to think of ways it benefits consumers. Welcome to the real commercial world.
Geraldine Teng (Ms)
POSTED IN STRAITS TIMES ONLINE FORUM
I REFER to the current market situation of Lehman Brothers' bankruptcy which led to the DBS High Notes burst recently. I am a personal financial consultant in a local bank. There are some factors I feel must be revealed to protect consumers' rights.
First, banks usually state that there is seldom or no misrepresentation of products sold, and products are usually recommended based on consumers' needs. A financial needs analysis and fact find are usually done to ensure consumers have sufficient funds and a real need for the product. The fact is that we often face pressure to sell certain products so as to hit our sales target.
Take me, for instance. I am a fresh graduate from the National University of Singapore. I have a nine-month contract with a local bank, but I was told, if I did not pass probation in six months (hitting sales target), I would be asked to leave and pay the $3,000 bond.
So far, I have sold $500,000 in insurance based on consumers' needs, so why is my sales record so poor? This is due to product discrimination. We have to sell mainly investment-linked insurance products. To sell 10 of these is equivalent to 60 products I have sold. Thus a fresh graduate like me who can't afford to pay the $3,000 bond faces a real dilemma.
Therefore, consumers should understand the immense pressure we are facing. Most of the time, we are trained to promote that particular product and try to think of ways it benefits consumers. Welcome to the real commercial world.
Geraldine Teng (Ms)
Fixed deposit with Singapore banks
Hi Mr Tan
With the recent spats of numerous closures and bankrupts, how safe is it to put cash money in Fixed Deposits with local banks? I have retired 10 years ago, and most of my cash have been in fixed deposit.
REPLY
I think that it should be quite safe. You can break up with savings into several banks. There is an insurance scheme that guarantees deposits of up to $20,000 in each bank. It covers full licence banks in Singapore, whether local or foreign owned.
http://www.sdic.org.sg/faq.html#a5
With the recent spats of numerous closures and bankrupts, how safe is it to put cash money in Fixed Deposits with local banks? I have retired 10 years ago, and most of my cash have been in fixed deposit.
REPLY
I think that it should be quite safe. You can break up with savings into several banks. There is an insurance scheme that guarantees deposits of up to $20,000 in each bank. It covers full licence banks in Singapore, whether local or foreign owned.
http://www.sdic.org.sg/faq.html#a5
Saved by sound advice
Dear Mr. Tan,
My friends and I enjoy reading your blog. Just to say thank you for your sound opinions on Financial planning and products.
With your sound opinion in Pinnacle note, I put my money in FD instead of "mislead" by the RM of the bank last year. I save my retirement amount because of a kind hearted person like you.
Thank you.
Mr and Mrs Goh
My friends and I enjoy reading your blog. Just to say thank you for your sound opinions on Financial planning and products.
With your sound opinion in Pinnacle note, I put my money in FD instead of "mislead" by the RM of the bank last year. I save my retirement amount because of a kind hearted person like you.
Thank you.
Mr and Mrs Goh
Pinnacle Series 11
Hi Mr Tan,
Thank you for helping the uncles and aunties in the above matter.
I was so foolish to be attracted by Citibank's fixed deposit offer and went to their branch at Ang Mo Kio. The relationship manager X told me people who invested in Pinnacle made much more in interests and that's why it can run series after series. (He knew I had $70,000 for the FD.)
So he introduced me to Pinnacle Series 11. He showed me the colourful one sheet flyer. I did see the "Important Information" that you must read the prospectus. So I asked for it. The RM went out of his room to look for it and came back saying it has run out of stock. He promised to post to me. He kept repeating "Don't worry." I asked him how can I be sure that I will get back my money. He pointed to the Name of Note "4Y SGD Pinnacle Series 11 Principal Protected Equity Linked Notes" given on the subscription form. He said, here, it says so clearly "Principal Protected." I felt stupid. It was like a redundant question I asked.
Now X is not at Ang Mo Kio Branch anymore. The Branch won't even tell me whether he is still at Citibank. The value of the Note I paid for with $70,000 of family savings has dropped to $50K+ (last month). Another relationship manager at the Branch told me recently if I hold to maturity I will get back $70,000. But I could not understand how they come to the present value of $50K+. If I understand this second relationship manager's explanation correctly, it has to do with the share market.
Now the share market has gone even lower, I don't know whether there is still $50K+ now. What shall I do? This is all the family's saving. And my aged husband and I have to look after a severely ill adult son with this money. I know I was greedy for more interest when I agreed to take X's product. But for the last nine months, I didn't even get a single cent of interest.
I have resigned to accept the punishment for my greed. But I was encouraged when I was introduced to you blog. So I learn how to get to read it and have been updating myself with the info on your blog. I am grateful that your care.
Should I hold the Note to the maturity and hope to get back $70,000 or take out whatever amount of money that's left now. Should I accept that they can use my savings without interest to me for more than nine months and even lose some of it?
Thank you. Wishing you much blessings!
Aunty Esther
REPLY
I am not familiar with Pinnacle Series 11. If I can find some information, I shall tell you later. So sorry, I cannot advise you at this time.
Thank you for helping the uncles and aunties in the above matter.
I was so foolish to be attracted by Citibank's fixed deposit offer and went to their branch at Ang Mo Kio. The relationship manager X told me people who invested in Pinnacle made much more in interests and that's why it can run series after series. (He knew I had $70,000 for the FD.)
So he introduced me to Pinnacle Series 11. He showed me the colourful one sheet flyer. I did see the "Important Information" that you must read the prospectus. So I asked for it. The RM went out of his room to look for it and came back saying it has run out of stock. He promised to post to me. He kept repeating "Don't worry." I asked him how can I be sure that I will get back my money. He pointed to the Name of Note "4Y SGD Pinnacle Series 11 Principal Protected Equity Linked Notes" given on the subscription form. He said, here, it says so clearly "Principal Protected." I felt stupid. It was like a redundant question I asked.
Now X is not at Ang Mo Kio Branch anymore. The Branch won't even tell me whether he is still at Citibank. The value of the Note I paid for with $70,000 of family savings has dropped to $50K+ (last month). Another relationship manager at the Branch told me recently if I hold to maturity I will get back $70,000. But I could not understand how they come to the present value of $50K+. If I understand this second relationship manager's explanation correctly, it has to do with the share market.
Now the share market has gone even lower, I don't know whether there is still $50K+ now. What shall I do? This is all the family's saving. And my aged husband and I have to look after a severely ill adult son with this money. I know I was greedy for more interest when I agreed to take X's product. But for the last nine months, I didn't even get a single cent of interest.
I have resigned to accept the punishment for my greed. But I was encouraged when I was introduced to you blog. So I learn how to get to read it and have been updating myself with the info on your blog. I am grateful that your care.
Should I hold the Note to the maturity and hope to get back $70,000 or take out whatever amount of money that's left now. Should I accept that they can use my savings without interest to me for more than nine months and even lose some of it?
Thank you. Wishing you much blessings!
Aunty Esther
REPLY
I am not familiar with Pinnacle Series 11. If I can find some information, I shall tell you later. So sorry, I cannot advise you at this time.
Tribute to Mr. J B Jeyaretnam
Someone sent an e-mail to me, giving this tribute to Mr. J B Jeyaretnam. I only know Mr. Jeyaretnam briefly - but enough for me to admire what he has done for Singapore.
TRIBUTE
As a kid who hungrily devoured all that the flat media supplied at the time, and ignorant of their propagandistic nature, I thought JBJ had dishonourable intentions - a fool who was always exposed by his powerful nemesis. It took several years before I realised that I was the fool.
By then, I was rooting for his entry into parliament and it was with great joy that I read the headlines "JBJ takes Anson". It was a historic breakthrough not appropriately celebrated by the media. JBJ had achieved the unthinkable!
Once whilst walking down the stairs of the Subordinate Courts to the taxi stand, I noticed that the drivers in the waiting taxis had suddenly almost in synchrony gotten out of their vehicles, shouting and waving greetings towards my direction. I turned my head to see none other than JBJ waving back at them with a big warm smile pasted on his face.
I witnessed how when he reached the taxi stand, all the drivers rushed to shake his hand, many thanking him for his work. It was a genuine and uncontrived demonstration of true admiration and warm respect; quite unlike - in fact in contrast to - the kind shown by members of certain residents' committees towards their elected leaders. I knew then that I was in the presence of a true people's leader.
The first-time when I had the privilege of witnessing first-hand in open court the mesmerising tone of his voice and the fearless manner he fought, it left me in no doubt that standing before me was an extraordinary man of upright constitution. If you had also noticed his poorly-pressed suit and unpolished worn-out brown leather shoes, you would have fathomed the real depth of this man who must have found preening himself just to look good an utterly waste of bloody time!
JBJ was the man amongst men.
Nothing I have said and can say would do justice to the real quality of this man. Today is a very sad day for his family and friends. But, as a country, it was already a very sad day when we allowed him to be mistreated and tormented by his nemesis. We stood by and did nothing.
Knowing JBJ, he has forgiven us. But can we forgive ourselves?
acitizen7
TRIBUTE
As a kid who hungrily devoured all that the flat media supplied at the time, and ignorant of their propagandistic nature, I thought JBJ had dishonourable intentions - a fool who was always exposed by his powerful nemesis. It took several years before I realised that I was the fool.
By then, I was rooting for his entry into parliament and it was with great joy that I read the headlines "JBJ takes Anson". It was a historic breakthrough not appropriately celebrated by the media. JBJ had achieved the unthinkable!
Once whilst walking down the stairs of the Subordinate Courts to the taxi stand, I noticed that the drivers in the waiting taxis had suddenly almost in synchrony gotten out of their vehicles, shouting and waving greetings towards my direction. I turned my head to see none other than JBJ waving back at them with a big warm smile pasted on his face.
I witnessed how when he reached the taxi stand, all the drivers rushed to shake his hand, many thanking him for his work. It was a genuine and uncontrived demonstration of true admiration and warm respect; quite unlike - in fact in contrast to - the kind shown by members of certain residents' committees towards their elected leaders. I knew then that I was in the presence of a true people's leader.
The first-time when I had the privilege of witnessing first-hand in open court the mesmerising tone of his voice and the fearless manner he fought, it left me in no doubt that standing before me was an extraordinary man of upright constitution. If you had also noticed his poorly-pressed suit and unpolished worn-out brown leather shoes, you would have fathomed the real depth of this man who must have found preening himself just to look good an utterly waste of bloody time!
JBJ was the man amongst men.
Nothing I have said and can say would do justice to the real quality of this man. Today is a very sad day for his family and friends. But, as a country, it was already a very sad day when we allowed him to be mistreated and tormented by his nemesis. We stood by and did nothing.
Knowing JBJ, he has forgiven us. But can we forgive ourselves?
acitizen7
Minibond Series 5
PUBLISHED IN STRAITS TIMES ONLINE FORUM
Dear Sir/Madam,
My wife and I are joint account holders of Maybank Singapore. We purchased S$100K of Minibonds Series 5 from Maybank's investment banker around Aug'07. We were under the impression then that these were supposedly very safe bonds. Every few months, I'll even call up Maybank to inquire the well-being of our Minibonds and whether I should still hold on to them. Each time, I was informed that these bonds were still sound, and there wasn't any need to bail out.
Now that Lehman is bankrupt, and the public disclosure that our Minibonds has in fact, nothing at all to do with bonds, but are instead CDO-related derivatives, we are extremely disappointed, distressed and upset with Maybank's lack of professionalism and very poor-product knowledge. The investment advisers are more interested in closing the deal and going through the motion during the investors' risk-analysis.
We believe there are many more thousands of retail investors in Singapore whom are similarly short-changed by the high profile advertisements, aggressive marketing, and misleading sounding products such as "Minibonds", "High notes", etc, which gives a false impression of highly rated bonds or notes. This is compounded by the lack of explanation and product knowledge by the private-bankers/investment advisors. Obviously, no one of sound mind will be willing to accept a 5% return for taking on the risk of CDO-related derivatives!
We fully understand the concept of buyers beware. However in this situation, how is the layman supposed to beware of what they're being sold when the 60-odd pages of prospectus is filled with legalese and technical jargon that even the sellers themselves do not fully comprehend!
We seriously implore MAS and Maybank to investigate and not condone such unethical practices, lest Singapore's hope of becoming a leading fund-management and financial centre is tarnished.
Your faithfully,
Ngo Chee Keong (Mr)
Ng Wee Lay (Ms)
CC: Maybank, ST Forum, MAS, CASE, Mr. Tharman Shanmugaratnam - Minister for Finance, Mrs Lim Hwee Hua - Senior Minister of State for Finance
Dear Sir/Madam,
My wife and I are joint account holders of Maybank Singapore. We purchased S$100K of Minibonds Series 5 from Maybank's investment banker around Aug'07. We were under the impression then that these were supposedly very safe bonds. Every few months, I'll even call up Maybank to inquire the well-being of our Minibonds and whether I should still hold on to them. Each time, I was informed that these bonds were still sound, and there wasn't any need to bail out.
Now that Lehman is bankrupt, and the public disclosure that our Minibonds has in fact, nothing at all to do with bonds, but are instead CDO-related derivatives, we are extremely disappointed, distressed and upset with Maybank's lack of professionalism and very poor-product knowledge. The investment advisers are more interested in closing the deal and going through the motion during the investors' risk-analysis.
We believe there are many more thousands of retail investors in Singapore whom are similarly short-changed by the high profile advertisements, aggressive marketing, and misleading sounding products such as "Minibonds", "High notes", etc, which gives a false impression of highly rated bonds or notes. This is compounded by the lack of explanation and product knowledge by the private-bankers/investment advisors. Obviously, no one of sound mind will be willing to accept a 5% return for taking on the risk of CDO-related derivatives!
We fully understand the concept of buyers beware. However in this situation, how is the layman supposed to beware of what they're being sold when the 60-odd pages of prospectus is filled with legalese and technical jargon that even the sellers themselves do not fully comprehend!
We seriously implore MAS and Maybank to investigate and not condone such unethical practices, lest Singapore's hope of becoming a leading fund-management and financial centre is tarnished.
Your faithfully,
Ngo Chee Keong (Mr)
Ng Wee Lay (Ms)
CC: Maybank, ST Forum, MAS, CASE, Mr. Tharman Shanmugaratnam - Minister for Finance, Mrs Lim Hwee Hua - Senior Minister of State for Finance
Bank staff do not understand financial products
Hi Mr Tan,
I used to be an institutional dealer(equities,bonds & futures) for two local banks but quit many years back because I was very disillusioned with what I was seeing everyday.
Personally, I feel that the local banks (can't comment on the foreign ones) are not out to misrepresent and/or mis-sell their credit link products to retail investors. I think the bank sales people simply do not have the training & background/experience to understand their derivatives themselves.
Perhaps, some incidental encounters of mine would be illuminating.
I am a very conservative investor.
I've only invested in Singapore government bonds (SGS), local bank preference shares & a small portion of my portfolio in REITs.
I regularly purchase SGS through 2 local banks but every time I make a purchase, I have to "teach" the bank's sale staff how to calculate accrued interest (ie. buyer must compensate the seller daily interest earned), help them identify which is the correct SGS series and other matters related to filling up the purchase/sales forms!
It really makes me wonder, if they cannot handle something as simple & direct as Singapore government bonds, then what of more complex derivatives ?
I used to be an institutional dealer(equities,bonds & futures) for two local banks but quit many years back because I was very disillusioned with what I was seeing everyday.
Personally, I feel that the local banks (can't comment on the foreign ones) are not out to misrepresent and/or mis-sell their credit link products to retail investors. I think the bank sales people simply do not have the training & background/experience to understand their derivatives themselves.
Perhaps, some incidental encounters of mine would be illuminating.
I am a very conservative investor.
I've only invested in Singapore government bonds (SGS), local bank preference shares & a small portion of my portfolio in REITs.
I regularly purchase SGS through 2 local banks but every time I make a purchase, I have to "teach" the bank's sale staff how to calculate accrued interest (ie. buyer must compensate the seller daily interest earned), help them identify which is the correct SGS series and other matters related to filling up the purchase/sales forms!
It really makes me wonder, if they cannot handle something as simple & direct as Singapore government bonds, then what of more complex derivatives ?
HSBC Trustee
HSBC Trustee is the trust company for the Minibonds. I am looking for a senior person in this company that handles the bonds. If you know the name and contact person, I wish to talk to this person. Someone has an idea to minimise the losses. Please e-mail to me at kinlian@gmail.com.
High Notes 2
Hi Mr. Tan,
DBS has just sent to HN2 investors a list of names under the so called AA-rated basket of securities held by Constellation, the company owned by DBS and is the counter-party with DBS for various swap contracts.
There are 100 names in the list and I am very surprised that only 25 names are rated AA or better. There are 22 rated BBB+ or below. AA- to A- accounted for the balance 53. How can such a basket of securities rated as AA?
This is akin to call a basket containing a mix of some copper coins, alluminium coins and gold coins a basket of gold cans! This is grossly misleading!
All the while, the bank has been very secretive about this list of names. I think because it does not want to let investors know that the rating of AA for the basket of securities is actually not justifiable. The fact there are some low grade bonds in the basket may cause much discomfort to the investors. The bank as warned that this list is confidential and may not be copied or distributed. What a big secret is it!
The worst thing is after the defaults of 3 names in the basket of securities, the bank informed investors that a further 2 defaults would trigger a credit event. This is very unfair because nowhere in the pricing statement can we find any provision dictating that 5 defaults out of 100 names in the basket will constitute a credit event. The bank has no right to impose such a new default clause now!
On 23.9.08, the basket of securities was re-rated as BBB+. I am not surprised, as it should not have been rated AA in the first place, and the rating agencies have been under a lot of criticism after the subprime problems started because a lot of CDOs in the market were given ridiculously good ratings by such rating agencies.
Mr. Tan, I hope you could post this email in your blog and I would like to call on all interested parties to protest to the bank for being not transparant about the contents in the basket of securities when they launched High Notes 2. We must also object to the bank imposing the new default clause that is not provided for in the pricing statement.
One more thing, the bank proudly stated in the pricing statement that the notes are designed for "defensive investors seeking enhanced yield by providing exposure to a basket of highly rated regional and international banks (the reference banks...." What a misleading statement!
WT
DBS has just sent to HN2 investors a list of names under the so called AA-rated basket of securities held by Constellation, the company owned by DBS and is the counter-party with DBS for various swap contracts.
There are 100 names in the list and I am very surprised that only 25 names are rated AA or better. There are 22 rated BBB+ or below. AA- to A- accounted for the balance 53. How can such a basket of securities rated as AA?
This is akin to call a basket containing a mix of some copper coins, alluminium coins and gold coins a basket of gold cans! This is grossly misleading!
All the while, the bank has been very secretive about this list of names. I think because it does not want to let investors know that the rating of AA for the basket of securities is actually not justifiable. The fact there are some low grade bonds in the basket may cause much discomfort to the investors. The bank as warned that this list is confidential and may not be copied or distributed. What a big secret is it!
The worst thing is after the defaults of 3 names in the basket of securities, the bank informed investors that a further 2 defaults would trigger a credit event. This is very unfair because nowhere in the pricing statement can we find any provision dictating that 5 defaults out of 100 names in the basket will constitute a credit event. The bank has no right to impose such a new default clause now!
On 23.9.08, the basket of securities was re-rated as BBB+. I am not surprised, as it should not have been rated AA in the first place, and the rating agencies have been under a lot of criticism after the subprime problems started because a lot of CDOs in the market were given ridiculously good ratings by such rating agencies.
Mr. Tan, I hope you could post this email in your blog and I would like to call on all interested parties to protest to the bank for being not transparant about the contents in the basket of securities when they launched High Notes 2. We must also object to the bank imposing the new default clause that is not provided for in the pricing statement.
One more thing, the bank proudly stated in the pricing statement that the notes are designed for "defensive investors seeking enhanced yield by providing exposure to a basket of highly rated regional and international banks (the reference banks...." What a misleading statement!
WT
Comments in my blog
If you put up an anonymous comment in my blog, can you sign off with your actual name. This will identify you and give greater weight to your comment. Have courage. Use your real name.
False Signatures at the Petition
Some of the signatures in the Petition were put up by mischeivous people. They enter the particulars of other people who were not involved in the Petition.
I will ask my team to call the Petitioners by telephone to verify that they have signed the Petition. They will also collect your NRIC and other particulars. They will give you a telephone number to call back, so that you have a record of the people that called you.
I will ask my team to call the Petitioners by telephone to verify that they have signed the Petition. They will also collect your NRIC and other particulars. They will give you a telephone number to call back, so that you have a record of the people that called you.
Mr. J B Jeyaretnam
I convey my deepest condolences to the family of the late Mr. J B Jeyaretanam. He had strong beliefs and stood up for what is good for the ordinary people of Singapore. We shall miss him dearly.
Watch a video of the wake of Mr. J B Jeyaretnam. Also, the condolence letter sent by Lee Hsien Loong and Goh Chok Tong:
http://theonlinecitizen.com/2008/10/vivian-balakrishnan-attends-jbjs-wake/
Watch a video of the wake of Mr. J B Jeyaretnam. Also, the condolence letter sent by Lee Hsien Loong and Goh Chok Tong:
http://theonlinecitizen.com/2008/10/vivian-balakrishnan-attends-jbjs-wake/
Complaint of mis-selling by bank
Re: Lehman's MiniBond Series 1 and 2.
1. I am note holder of Lehman's MiniBonds. I purchased these from your Bank through your Bank's Relationship Manager. Y. The details are as follows:
I was referred to Y when my time deposit at your bank matured. I have not heard of Lehman's MiniBond prior to that. Y explained that the MiniBond was a low risk investment giving a little higher yield than fixed deposits and arranged by Lehman Brothers, one of the most respected and AAA rated Investment Bank and that my investment would be invested into the 6 reference entities. These entities are well respected and rated AA and above. Only during the holding period of 5 ½ years to maturity, if anyone of these corporations goes into bankruptcy, then the notes will be terminated and sold. The risks are against such defaults and as we have to hold the notes to maturity, we will be compensated with a return higher than our normal practice of placing savings in time deposits of 2.5 to 3% for 6 months, at that time in early 2006.
There were no mention that our investments will be used to buy underlying portfolio of CDOs and Credit Default Swaps.
What we were told about MiniBonds, how it works and risks associated at time of purchase for Series 1 and 2 , were indeed very different than in reality.
2. For Series 1, I was not shown or given any prospectus. I was given a copy of the prospectus for Series 2 after signing up and payments made. The contents were too technical for any retail investor to understand. After Lehman's bankruptcy, and with explanation from your consultant Z some 2 weeks ago, I then finally realized the complexity and the risks.
3. I bought the MiniBonds based on the creditability of your Bank and that such Bonds were approved and registered through Monetary Authority of Singapore and that SRS accounts, an Government savings scheme designed to enhance savings to be used during retirement, could be used to purchase such notes. Your bank through your relationship manager, Y assured me that the MiniBonds was a low risk, secured investment giving a higher returns than interest for time deposit and that if I have no immediate need for such cash, MiniBond investment will be more suitable.
4. Now that with Lehman Brothers declaring bankrupt, it has created a credit event and with the numerous media coverage, and a face to face discussion held 2 weeks ago with your Relationship Manager and Investment Consultant, I finally realized that the operations of such notes and risks associated were very different from what was told to me previously.
5. It was absolute misrepresentation on the nature of these MiniBonds, its operations and risks which investors have to assume. Had I known that the moneys were not invested in the 6 referenced entities but instead in a portfolio of hundreds of underlying CDOs with high risks of failure, I would never sink in a dollar. Just look at my risks profile. I hardly invest in equities in Singapore Stock Exchange, even for blue chip stocks. I did not participate in any hedge fund or use private bankers to invest my extra cash. I put my surplus cash in time deposit with Singapore Banks and subscribe to SRS and annuities to provide for my retirement.
6. With the crash of financial system and liquidation of MiniBonds Series 1 and 2, I expect to incur substantial losses, being the difference paid for the notes and the net realizable value on redemption. I would like to know how your Bank proposes to compensate me with such substantial losses. Misrepresentation of information about the nature, process and risks of such investment from your organization will cause me potentially huge financial losses. I am not a risk taker nor have greed for higher returns with risky investment. Additionally, your Bank has not exercised proper diligence in your fiduciary responsibility to look after the interest of your customers who have trusted you to handle their hard earned savings for retirement.
7. I look forward to favorable response.
1. I am note holder of Lehman's MiniBonds. I purchased these from your Bank through your Bank's Relationship Manager. Y. The details are as follows:
I was referred to Y when my time deposit at your bank matured. I have not heard of Lehman's MiniBond prior to that. Y explained that the MiniBond was a low risk investment giving a little higher yield than fixed deposits and arranged by Lehman Brothers, one of the most respected and AAA rated Investment Bank and that my investment would be invested into the 6 reference entities. These entities are well respected and rated AA and above. Only during the holding period of 5 ½ years to maturity, if anyone of these corporations goes into bankruptcy, then the notes will be terminated and sold. The risks are against such defaults and as we have to hold the notes to maturity, we will be compensated with a return higher than our normal practice of placing savings in time deposits of 2.5 to 3% for 6 months, at that time in early 2006.
There were no mention that our investments will be used to buy underlying portfolio of CDOs and Credit Default Swaps.
What we were told about MiniBonds, how it works and risks associated at time of purchase for Series 1 and 2 , were indeed very different than in reality.
2. For Series 1, I was not shown or given any prospectus. I was given a copy of the prospectus for Series 2 after signing up and payments made. The contents were too technical for any retail investor to understand. After Lehman's bankruptcy, and with explanation from your consultant Z some 2 weeks ago, I then finally realized the complexity and the risks.
3. I bought the MiniBonds based on the creditability of your Bank and that such Bonds were approved and registered through Monetary Authority of Singapore and that SRS accounts, an Government savings scheme designed to enhance savings to be used during retirement, could be used to purchase such notes. Your bank through your relationship manager, Y assured me that the MiniBonds was a low risk, secured investment giving a higher returns than interest for time deposit and that if I have no immediate need for such cash, MiniBond investment will be more suitable.
4. Now that with Lehman Brothers declaring bankrupt, it has created a credit event and with the numerous media coverage, and a face to face discussion held 2 weeks ago with your Relationship Manager and Investment Consultant, I finally realized that the operations of such notes and risks associated were very different from what was told to me previously.
5. It was absolute misrepresentation on the nature of these MiniBonds, its operations and risks which investors have to assume. Had I known that the moneys were not invested in the 6 referenced entities but instead in a portfolio of hundreds of underlying CDOs with high risks of failure, I would never sink in a dollar. Just look at my risks profile. I hardly invest in equities in Singapore Stock Exchange, even for blue chip stocks. I did not participate in any hedge fund or use private bankers to invest my extra cash. I put my surplus cash in time deposit with Singapore Banks and subscribe to SRS and annuities to provide for my retirement.
6. With the crash of financial system and liquidation of MiniBonds Series 1 and 2, I expect to incur substantial losses, being the difference paid for the notes and the net realizable value on redemption. I would like to know how your Bank proposes to compensate me with such substantial losses. Misrepresentation of information about the nature, process and risks of such investment from your organization will cause me potentially huge financial losses. I am not a risk taker nor have greed for higher returns with risky investment. Additionally, your Bank has not exercised proper diligence in your fiduciary responsibility to look after the interest of your customers who have trusted you to handle their hard earned savings for retirement.
7. I look forward to favorable response.
FAQ on Minibonds
Lehman Brothers Asia Ltd, as arranger of minibonds, posted this two weeks ago in HK
http://www.sfc.hk/sfc/doc/EN/general/general/lehman/faq_pacific_20080917.pdf
Note sfc is the HK Securities and Futures Commission.
http://www.sfc.hk/sfc/doc/EN/general/general/lehman/faq_pacific_20080917.pdf
Note sfc is the HK Securities and Futures Commission.
Monday, September 29, 2008
Good and bad insurance products
www.theonlinecitizen.com
http://theonlinecitizen.com/2008/09/protecting-the-small-investors/#comment-22959
65)--> question on September 30th, 2008 12.57 am
there is one thing i am very curious about mr tan kin lian. you are the ceo of insurance company for many years and yet now you warn people about bad insurance. it really something special or different. will those people in insurance hate you very much. because it is something like last time you are on same boat with them now you are against them. something like betrayal.\\\\\
REPLY
There are good insurance products and bad insurance products.
A good insurance product offers protection at a fair premium. There is a fair margin to pay the sales person, cover the expenses of the insurance company and give a fair profit margin.
There are bad insurance products that over-charge the customer and pay excessive commission to the sales person and make excessive profit for the insurance company.
I want to encourage insurance companies to sell good products that are fair to customers.
I also want to encourage the banks to sell good financial products. The structured products are bad products because they give poor value to the customers in relation to the risk. The product creators and sales people take away too much in charges, and leave the investors to take big risks (like the minibonds, high notes, etc). These products are like high cost insurance policies, but many times worse.
I hope that more people will come forward and speak about business ethics. Business should not cheat customers to make profits. They should give fair value to customers.
More people should also tell the regulator and the Government - look after the interest of ordinary people, the retirees, uncles and aunties and also the young people. Do not allow these ordinary people to be cheated out of their hard earned savings.
http://theonlinecitizen.com/2008/09/protecting-the-small-investors/#comment-22959
65)--> question on September 30th, 2008 12.57 am
there is one thing i am very curious about mr tan kin lian. you are the ceo of insurance company for many years and yet now you warn people about bad insurance. it really something special or different. will those people in insurance hate you very much. because it is something like last time you are on same boat with them now you are against them. something like betrayal.\\\\\
REPLY
There are good insurance products and bad insurance products.
A good insurance product offers protection at a fair premium. There is a fair margin to pay the sales person, cover the expenses of the insurance company and give a fair profit margin.
There are bad insurance products that over-charge the customer and pay excessive commission to the sales person and make excessive profit for the insurance company.
I want to encourage insurance companies to sell good products that are fair to customers.
I also want to encourage the banks to sell good financial products. The structured products are bad products because they give poor value to the customers in relation to the risk. The product creators and sales people take away too much in charges, and leave the investors to take big risks (like the minibonds, high notes, etc). These products are like high cost insurance policies, but many times worse.
I hope that more people will come forward and speak about business ethics. Business should not cheat customers to make profits. They should give fair value to customers.
More people should also tell the regulator and the Government - look after the interest of ordinary people, the retirees, uncles and aunties and also the young people. Do not allow these ordinary people to be cheated out of their hard earned savings.
File a Police report
If you feel that you have been cheated into investing in a structured product (e.g. the distributor is aware that the product is bad and still push it to you), you can file a Police report against the distributor.
Read this instruction:
http://thinkhappiness.blogspot.com/2008/09/report-investment-cheats-to-police.html
Read this instruction:
http://thinkhappiness.blogspot.com/2008/09/report-investment-cheats-to-police.html
Prospectus is too complicated
Dear Mr Tan
I think one of the key contentious point in this whole saga is that we should have read the prospectus for the issue ourselves to assess whether the product is suitable for us or not.
But the problem is the way the prospectus had been written. There's simply too much technical jargon for us to understand all the contents written in it. Although we have a responsibility to read it, is it actually reasonable for laymen like us to understand it? Because of this complexity, we have to depend on the integrity and expertise of the RMs or the bank officers selling the product to advise us properly on the risks. There must be a fundamental change in the way these prospectus are written so that the general public can understand them.
I believe the MAS has a duty to oversee this especially if the issue is to be offered to the general public for subscription. I am not an expert on how this can be done but surely they can tell if a prospectus has been written for a targeted audience or general public? If former, then the issue should not be allowed to be sold to the general public. If latter, then the prospectus must be written in a way that the general public can understand it. After all, the general public are not financial gurus.
I think the MAS has the duty to prevent such products from flooding the retail market by "testing" the suitability of the prospectus for digestion by the general public.
Thanks, KK
REPLY
I hope that the Government will investigate the following:
2.1 Was there any fraudulent intent in the creation of these products? Were the products created with the aim of defrauding the investing public? Were the drafting of the prospectus, advertisements and other documents carried out with the intent of hiding the true facts from the investing public? Were the lawyers and other professionals involved in this activity?
I think one of the key contentious point in this whole saga is that we should have read the prospectus for the issue ourselves to assess whether the product is suitable for us or not.
But the problem is the way the prospectus had been written. There's simply too much technical jargon for us to understand all the contents written in it. Although we have a responsibility to read it, is it actually reasonable for laymen like us to understand it? Because of this complexity, we have to depend on the integrity and expertise of the RMs or the bank officers selling the product to advise us properly on the risks. There must be a fundamental change in the way these prospectus are written so that the general public can understand them.
I believe the MAS has a duty to oversee this especially if the issue is to be offered to the general public for subscription. I am not an expert on how this can be done but surely they can tell if a prospectus has been written for a targeted audience or general public? If former, then the issue should not be allowed to be sold to the general public. If latter, then the prospectus must be written in a way that the general public can understand it. After all, the general public are not financial gurus.
I think the MAS has the duty to prevent such products from flooding the retail market by "testing" the suitability of the prospectus for digestion by the general public.
Thanks, KK
REPLY
I hope that the Government will investigate the following:
2.1 Was there any fraudulent intent in the creation of these products? Were the products created with the aim of defrauding the investing public? Were the drafting of the prospectus, advertisements and other documents carried out with the intent of hiding the true facts from the investing public? Were the lawyers and other professionals involved in this activity?
Why did the banks continue to sell these products?
Dear Mr Tan,
Firstly, thanks for your blog very much!
I‘d like to highlight one point on your appeal for minibond holders. I am Pinnacle Note 1 investor. The issuer is Morgan Stanley. It is exactly same product as minibond. So, I have same worry as minibond holders’.
I bought Pinnacle Note 1 in 2006 because the newspaper advertisement keep saying it is some kind of bond. As an experienced bond investor, I took it as another alternative. For example, LTA 4.17% bond, we were paid every half year and I can cash out anytime as the price hardly change. The Pinnacle Note 1 is linked to 4 countries which are China, Malaysia, Thailand, and Korea. My understanding is unless these 4 counties have credit issue then I will have trouble. It is some kind of government bond.
However, I realized I made a big mistake one month later. I found the price of this product keep dropping at a very fast speed. It didn’t perform as my other government bonds at all. It is too late to read your opinion from your blog one year later.
My point is, if we are the first batch people cheated by this kind of product, so are the dealers if they do not know this kind of product before, I can accept their excuse. However, how could they continues market these kinds of product and promote it as safe bond to other investors when they have already known it is not safe at all from the experience of the first note?
The dealers also can not answer why the price dropped so much but only explained it should be penalty for early redemption. They do not fully understand their product also.
I am not sure Pinnacle Note’s future. The dealer told me I can get back my principle if I hold it until mature, but I do not know how true it is?
DD
REPLY
I hope that the Government will investigate the following:
2.2 Were the financial institutions that marketed the product aware about the real risks of the products? Did they train their front line advisers to hide the true facts? Were they negligent in not understanding the true risk? Did they monitor the conduct of their front line advisers to ensure that the products are sold to the right people, based on their risk profile and preference?
Firstly, thanks for your blog very much!
I‘d like to highlight one point on your appeal for minibond holders. I am Pinnacle Note 1 investor. The issuer is Morgan Stanley. It is exactly same product as minibond. So, I have same worry as minibond holders’.
I bought Pinnacle Note 1 in 2006 because the newspaper advertisement keep saying it is some kind of bond. As an experienced bond investor, I took it as another alternative. For example, LTA 4.17% bond, we were paid every half year and I can cash out anytime as the price hardly change. The Pinnacle Note 1 is linked to 4 countries which are China, Malaysia, Thailand, and Korea. My understanding is unless these 4 counties have credit issue then I will have trouble. It is some kind of government bond.
However, I realized I made a big mistake one month later. I found the price of this product keep dropping at a very fast speed. It didn’t perform as my other government bonds at all. It is too late to read your opinion from your blog one year later.
My point is, if we are the first batch people cheated by this kind of product, so are the dealers if they do not know this kind of product before, I can accept their excuse. However, how could they continues market these kinds of product and promote it as safe bond to other investors when they have already known it is not safe at all from the experience of the first note?
The dealers also can not answer why the price dropped so much but only explained it should be penalty for early redemption. They do not fully understand their product also.
I am not sure Pinnacle Note’s future. The dealer told me I can get back my principle if I hold it until mature, but I do not know how true it is?
DD
REPLY
I hope that the Government will investigate the following:
2.2 Were the financial institutions that marketed the product aware about the real risks of the products? Did they train their front line advisers to hide the true facts? Were they negligent in not understanding the true risk? Did they monitor the conduct of their front line advisers to ensure that the products are sold to the right people, based on their risk profile and preference?
Loss of life savings
If you have lost most of your life savings in the credit linked product, please send your story to me at kinlian@gmail.com. Your story should state the following:
1. Your name, contact number and age
2. How much did you invest, name of product, bank and branch
3. Circumstances in which you invested in the product
4. Details of any misleading statements or assurances given to you
5. Was your risk profile given to the seller?
6. Does your investment represent a substantial part of your lifetime savings
7. Will this loss cause great financial hardship to you?
8. Any additional information
I will compile your reports and pass them to Mr. Goh Chok Tong.
1. Your name, contact number and age
2. How much did you invest, name of product, bank and branch
3. Circumstances in which you invested in the product
4. Details of any misleading statements or assurances given to you
5. Was your risk profile given to the seller?
6. Does your investment represent a substantial part of your lifetime savings
7. Will this loss cause great financial hardship to you?
8. Any additional information
I will compile your reports and pass them to Mr. Goh Chok Tong.
Goh Chok Tong's comments on minibonds, high notes
Some investors have expressed disappointments at the comments made by Mr. Goh Chok Tong on minibonds and high notes.
I believe that Mr. Goh made the comments while in China. He may not be aware that many investors are retirees with low risk profile and were misled into investing in these high risk products by the advisers.
I suggest that investors should prepare the Petition letter to your Member of Parliament. You should see your MP to tell the MP about how you were misled into the investment. If the MPs hear the story from many of their constituents, they may be moved into taking this matter up in Parliament.
You can also sign the Petition letter to the Singapore Government. I will include my report on the possible wrong doings for the Government to investigate.
I believe that Mr. Goh made the comments while in China. He may not be aware that many investors are retirees with low risk profile and were misled into investing in these high risk products by the advisers.
I suggest that investors should prepare the Petition letter to your Member of Parliament. You should see your MP to tell the MP about how you were misled into the investment. If the MPs hear the story from many of their constituents, they may be moved into taking this matter up in Parliament.
You can also sign the Petition letter to the Singapore Government. I will include my report on the possible wrong doings for the Government to investigate.
Sunday, September 28, 2008
Credit Linked Securities - Wrong doings?
Draft. Please identify additional areas that can be covered in this letter to the Government. Are there points that can strengthen this letter?
1. Introduction
Many people invested a large sum of money, or their life savings, in the credit linked securities, in the mistaken belief that these securities have low risk and are safe. These securities include the Lehman Minibonds, DBS High Notes, Morgan Stanley Pinnacle Notes and Merill Lynch Jubilee Notes.
These investors lost a large part or all of their investments due to the financial crisis. They were shocked that these structured products had high risk, which they were not properly informed.
The Petition to the Singapore Government ask the Government to see if there were any wrong-doing on the part of the financial institutions that created or marketed these structured products.
These wrong doings could be in the form of negligence, dishonesty or fraud.
2. Wrong-doings
I suggest that the Government should appoint competent people to look into the following areas:
2.1 Was there any fraudulent intent in the creation of these products? Were the products created with the aim of defrauding the investing public? Were the drafting of the prospectus, advertisements and other documents carried out with the intent of hiding the true facts from the investing public? Were the lawyers and other professionals involved in this activity?
2.2 Were the financial institutions that marketed the product aware about the real risks of the products? Did they train their front line advisers to hide the true facts? Were they negligent in not understanding the true risk? Did they monitor the conduct of their front line advisers to ensure that the products are sold to the right people, based on their risk profile and preference?
2.3 What were the actual charges taken out of the structured products to pay the distributor and the product creator? Were these charges disclosed in the prospectus? Were the charges at a reasonable level, in comparison with the work that has to be done and the risk taken by the parties?
2.4 Were there conflicts of interest involved in the transactions between the various parties? Were the conflicts of interest adequately disclosed? Were the decisions on the pricing of the products made fairly in the interest of the investors? Was there any arrangement to ensure that the pricing is made based on fair market values?
2.5 Does this arrangement fall under certain laws, such as the Trust Act or more specific laws? Were there any breach of any of the provisions of these laws?
I hope that the Government look into these areas, to see if there were any wrong doing that led to such large losses among the investing public.
If there were wrong doing, the Government can take the appropriate action to bring the offenders to Court and to seek suitable compensation for the losses suffered by the investors.
Tan Kin Lian
1. Introduction
Many people invested a large sum of money, or their life savings, in the credit linked securities, in the mistaken belief that these securities have low risk and are safe. These securities include the Lehman Minibonds, DBS High Notes, Morgan Stanley Pinnacle Notes and Merill Lynch Jubilee Notes.
These investors lost a large part or all of their investments due to the financial crisis. They were shocked that these structured products had high risk, which they were not properly informed.
The Petition to the Singapore Government ask the Government to see if there were any wrong-doing on the part of the financial institutions that created or marketed these structured products.
These wrong doings could be in the form of negligence, dishonesty or fraud.
2. Wrong-doings
I suggest that the Government should appoint competent people to look into the following areas:
2.1 Was there any fraudulent intent in the creation of these products? Were the products created with the aim of defrauding the investing public? Were the drafting of the prospectus, advertisements and other documents carried out with the intent of hiding the true facts from the investing public? Were the lawyers and other professionals involved in this activity?
2.2 Were the financial institutions that marketed the product aware about the real risks of the products? Did they train their front line advisers to hide the true facts? Were they negligent in not understanding the true risk? Did they monitor the conduct of their front line advisers to ensure that the products are sold to the right people, based on their risk profile and preference?
2.3 What were the actual charges taken out of the structured products to pay the distributor and the product creator? Were these charges disclosed in the prospectus? Were the charges at a reasonable level, in comparison with the work that has to be done and the risk taken by the parties?
2.4 Were there conflicts of interest involved in the transactions between the various parties? Were the conflicts of interest adequately disclosed? Were the decisions on the pricing of the products made fairly in the interest of the investors? Was there any arrangement to ensure that the pricing is made based on fair market values?
2.5 Does this arrangement fall under certain laws, such as the Trust Act or more specific laws? Were there any breach of any of the provisions of these laws?
2.6 Does the fund manager break any law, if it takes out money from the fund that are not authorised by the trust deed?
3. Call for actionI hope that the Government look into these areas, to see if there were any wrong doing that led to such large losses among the investing public.
If there were wrong doing, the Government can take the appropriate action to bring the offenders to Court and to seek suitable compensation for the losses suffered by the investors.
Tan Kin Lian
Taiwan senator requests bank to buy back Minibond
Link: http://news.chinatimes.com/2007Cti/2007Cti-News/2007Cti-News-Content/0,4521,130502+132008092400983,00.htmlOriginal
Source: www.chinatimes.com
Country: Taiwan
Date: 24 Sept 2008
Summary:
1. A Senator reported the French Bank is willing to buy back the Minibond from investor
after the senator appear.
2. Reason: Taiwan is not a mature financial market suitable for sale of mature product such as mini-bond.
3. Many retirees thought Minibond is a bond and invest whole of life saving.
4. Senator call for Taiwan Monetary Authority to urge all local Taiwan banks to buy back minibond from retail investors.
5. Taiwan Monetary Authority will revise its regulation to protect retail investor.
6. Total Number of Investors: 51,000
7. Total Amount Invested with Lehman: NT 40 billion (SGD 1.8 billion)
If you find any mistake in the translation, please send a message to me at kinlian@gmail.com
Source: www.chinatimes.com
Country: Taiwan
Date: 24 Sept 2008
Summary:
1. A Senator reported the French Bank is willing to buy back the Minibond from investor
after the senator appear.
2. Reason: Taiwan is not a mature financial market suitable for sale of mature product such as mini-bond.
3. Many retirees thought Minibond is a bond and invest whole of life saving.
4. Senator call for Taiwan Monetary Authority to urge all local Taiwan banks to buy back minibond from retail investors.
5. Taiwan Monetary Authority will revise its regulation to protect retail investor.
6. Total Number of Investors: 51,000
7. Total Amount Invested with Lehman: NT 40 billion (SGD 1.8 billion)
If you find any mistake in the translation, please send a message to me at kinlian@gmail.com
Article: Corruption in financial sector is the killer
Here is an article in Xinhua newspaper:
http://news.xinhuanet.com/theory/2008-09/26/content_10113134.htm
A friend made a summary of the paper as follows:
Topic: Corruption in Financial Sector is the Killer
Author: Professor Chang Qing
Director of Commodity & Derivative Research Center
University of Agriculture, PRC
Summary:
1. Derivative and CDO are NOT new products.
2. They are designed by elite (i.e. the financial experts?)
3. Their ultimate objective is make money for the banker and salesman
4. The product has only one feature - that is cheat investor's money, resign and enjoy life within a short time.
5. "New financial product" is a smoke. Corrupt practice is the reality.
6.1 Company structure must not allow the CEO has absolute power to control money.
6.2 A company structure must be able to stop CEO from profit and resign within a short period.
6.3 Public scrutinization is of utmost important to check CDO with complicated mathematical
fomula. Media and economist must have a say.
I hope that this translation is accurate and that the statement is not defamatory. If there are any mistakes, please email to me at kinlian@gmail.com.
http://news.xinhuanet.com/theory/2008-09/26/content_10113134.htm
A friend made a summary of the paper as follows:
Topic: Corruption in Financial Sector is the Killer
Author: Professor Chang Qing
Director of Commodity & Derivative Research Center
University of Agriculture, PRC
Summary:
1. Derivative and CDO are NOT new products.
2. They are designed by elite (i.e. the financial experts?)
3. Their ultimate objective is make money for the banker and salesman
4. The product has only one feature - that is cheat investor's money, resign and enjoy life within a short time.
5. "New financial product" is a smoke. Corrupt practice is the reality.
6.1 Company structure must not allow the CEO has absolute power to control money.
6.2 A company structure must be able to stop CEO from profit and resign within a short period.
6.3 Public scrutinization is of utmost important to check CDO with complicated mathematical
fomula. Media and economist must have a say.
I hope that this translation is accurate and that the statement is not defamatory. If there are any mistakes, please email to me at kinlian@gmail.com.
Experience of investor (3)
Dear all
I would like to share with you all what I have done so far on this issue:
I have written an email to ABN AMRO (now known as RBS) last Thursday to file my complaint, attaching the email from my RM to back up my claims for misrepresentation. There were quite a few misleading facts in his email. I also cc the email I wrote to ABN to FIDReC (Financial Industry Dispute Resolution Centre), email: info@Fidrec.com.sg.
Almost immediately, RBS replied that they will take some time to reply me while the officer at FIDReC also replied to my email, advising me to hear from the bank first before filing my case with FIDReC. Since my amount is $100,000 (more than the $50,000 limit that FIDReC is allowed to adjudicate), they will refer my dispute to Adjudication only where the Financial Institute has agreed to submit to adjudication for the higher claim amount and/or if I agree to limit my claim to the sums stated.
Please note that I did not state any monetary claims in my email to RBS. I want to hear the response from the bank on their proposed actions first, if any, before deciding what to do next.
You may want to file a complaint in writing to your bank quickly and cc info@Fidrec.com.sg since MAS had given instructions for banks and FIDReC to attend to complaints quickly and effectively. If there is any documentary evidence (like emails from your RM on the selling points of the product), these should be attached to your email too. Otherwise, just state the facts communicated to you by the RM. Even though FIDReC advised to write to bank first, it is still good to cc FIDReC in your email to the bank so that FIDReC has a feel on the number of complaints on the issue.
The following question pertains to minibond holders only: If the issuer (Minibond Limited) is able to find another swap counterparty to replace Lehmen Brothers Special Financing (LBSF) to take over all the swap agreements or if LBSF continue its obligations (possible since it is taken over by Barclays) so that minibonds do not default, are you still willing to hold the bonds till maturity or do you want out?
With Warm Regards
KK
I would like to share with you all what I have done so far on this issue:
I have written an email to ABN AMRO (now known as RBS) last Thursday to file my complaint, attaching the email from my RM to back up my claims for misrepresentation. There were quite a few misleading facts in his email. I also cc the email I wrote to ABN to FIDReC (Financial Industry Dispute Resolution Centre), email: info@Fidrec.com.sg.
Almost immediately, RBS replied that they will take some time to reply me while the officer at FIDReC also replied to my email, advising me to hear from the bank first before filing my case with FIDReC. Since my amount is $100,000 (more than the $50,000 limit that FIDReC is allowed to adjudicate), they will refer my dispute to Adjudication only where the Financial Institute has agreed to submit to adjudication for the higher claim amount and/or if I agree to limit my claim to the sums stated.
Please note that I did not state any monetary claims in my email to RBS. I want to hear the response from the bank on their proposed actions first, if any, before deciding what to do next.
You may want to file a complaint in writing to your bank quickly and cc info@Fidrec.com.sg since MAS had given instructions for banks and FIDReC to attend to complaints quickly and effectively. If there is any documentary evidence (like emails from your RM on the selling points of the product), these should be attached to your email too. Otherwise, just state the facts communicated to you by the RM. Even though FIDReC advised to write to bank first, it is still good to cc FIDReC in your email to the bank so that FIDReC has a feel on the number of complaints on the issue.
The following question pertains to minibond holders only: If the issuer (Minibond Limited) is able to find another swap counterparty to replace Lehmen Brothers Special Financing (LBSF) to take over all the swap agreements or if LBSF continue its obligations (possible since it is taken over by Barclays) so that minibonds do not default, are you still willing to hold the bonds till maturity or do you want out?
With Warm Regards
KK
Template: Letter to Member of Parliament
I suggest that each investor should send this letter to your Member of Parliament. If you know of a few other investors living in the same constituency, you can get together and see your Member of Parliament in the weekly "Meet the People" session. If you see the MP personally, you can convey how you were misled into investing in the structured product and the extent of your financial loss.
To:, Member of Parliament,
1. I write to petition that you, as my Member of Parliament, lobby the Government, particularly the Commercial Affairs Department (Singapore Police Force) and/or the Monetary Authority of Singapore, to conduct a full and independent inquiry in relation to structured products sold by various financial institutions in Singapore. These structured products include the Lehman Minibonds, DBS High Notes, Morgan Stanley Pinnacle Notes and Merrill Lynch Jubilee Notes.
2. I lost my hard-earned savings by investing in one such financial product. The product clearly did not suit my risk profile. I was not made aware of the high risks involved in the financial product when buying the product. I became an innocent victim of misrepresentation by the financial institution that sold me the structured product.
3. I now wish to be assured that I have not been a victim of negligent and/or dishonest conduct and/or fraud by this financial institution. If the inquiry reveals I have, I hope the Attorney-General of Singapore will take action against the financial institution and its management.
4. I also seek your assistance in helping to secure suitable legal representation so that I can get fair and adequate compensation for the injustice I have suffered. The financial institutions are able to afford large and powerful law firms, which I cannot. I hope you can persuade the Government to assist me in seeking legal redress from the Court.
5. Please help me.
Name:
Address:
Contact number:
Name of product bought:
Name of financial institution involved:
To:
1. I write to petition that you, as my Member of Parliament, lobby the Government, particularly the Commercial Affairs Department (Singapore Police Force) and/or the Monetary Authority of Singapore, to conduct a full and independent inquiry in relation to structured products sold by various financial institutions in Singapore. These structured products include the Lehman Minibonds, DBS High Notes, Morgan Stanley Pinnacle Notes and Merrill Lynch Jubilee Notes.
2. I lost my hard-earned savings by investing in one such financial product. The product clearly did not suit my risk profile. I was not made aware of the high risks involved in the financial product when buying the product. I became an innocent victim of misrepresentation by the financial institution that sold me the structured product.
3. I now wish to be assured that I have not been a victim of negligent and/or dishonest conduct and/or fraud by this financial institution. If the inquiry reveals I have, I hope the Attorney-General of Singapore will take action against the financial institution and its management.
4. I also seek your assistance in helping to secure suitable legal representation so that I can get fair and adequate compensation for the injustice I have suffered. The financial institutions are able to afford large and powerful law firms, which I cannot. I hope you can persuade the Government to assist me in seeking legal redress from the Court.
5. Please help me.
Name:
Address:
Contact number:
Name of product bought:
Name of financial institution involved:
Investor contemplate legal action
Dear all,
After seeing these facts, it is clear that in many cases there was some level of "misrepresentation" and agressive selling to clients with a very low risk profile.
I guess we will await what happens with MAS (and maybe HSBC as the trustee for Minibonds) but it may be a good idea to be prepared on taking the "legal route" in addition to the petition which was an excellent move.
Mr. Tan Kin Lian,
With your tremendous experience coupled with the spirit to help, we will very much appreciate your advice and recommendations. Speaking for myself, I am prepared to pool in my time and resources .
Thanking you in anticipation, Regards
REPLY
I hope that MAS will help the investors in this matter.
If MAS does not help, the investors will have to take collective legal action. I will try to look for a lawyer who is willing to act for the investors. Most of the large legal firms have existing connections with banks and are not able to act for the investors. This is a sad state of affairs.
After seeing these facts, it is clear that in many cases there was some level of "misrepresentation" and agressive selling to clients with a very low risk profile.
I guess we will await what happens with MAS (and maybe HSBC as the trustee for Minibonds) but it may be a good idea to be prepared on taking the "legal route" in addition to the petition which was an excellent move.
Mr. Tan Kin Lian,
With your tremendous experience coupled with the spirit to help, we will very much appreciate your advice and recommendations. Speaking for myself, I am prepared to pool in my time and resources .
Thanking you in anticipation, Regards
REPLY
I hope that MAS will help the investors in this matter.
If MAS does not help, the investors will have to take collective legal action. I will try to look for a lawyer who is willing to act for the investors. Most of the large legal firms have existing connections with banks and are not able to act for the investors. This is a sad state of affairs.
Sent to 940 Investors in Credit Linked Securities
Please read my blog for the latest information about the actions that are being planned and also to read the experiences of other investors.http://www.tankinlian.blogspot.com/
There is a formal Petition to the Singaporve Government. If you agree with the Petition, you can sign it.http://www.petitiononline.com/PSGCLS01/petition.html
Due to the large numbers of investors, I am not able to reply to each of your questions individually, especially if they are specific to your personal situation. If you send questions to me of a general nature, I will reply to them and put into my blog. Please read my blog to see if the question has already been answered previously.
There is a formal Petition to the Singaporve Government. If you agree with the Petition, you can sign it.http://www.petitiononline.com/PSGCLS01/petition.html
Due to the large numbers of investors, I am not able to reply to each of your questions individually, especially if they are specific to your personal situation. If you send questions to me of a general nature, I will reply to them and put into my blog. Please read my blog to see if the question has already been answered previously.
Will MAS help the investors?
Hi Peter and Mr. Tan,
I appreciate your efforts to put all these in place so that we can start our discussion from hereon!
One important question is always on my mind, how far can we go to seek help from the relevant authorities? And what can they do or willing to do??
Firstly, I have contacted the FI (Hong Leong finance), basically they just say that actions have been taken and need to await the reply HSBC (the trustee). As HSBC has informed of the notice of occurrence of potential event of default. And given 15 days, should no payment been received from Minibonds Limited, the trustee will obtain valuations of the securities and determine the appropriate course of action.
I have also contacted MAS, thus they too asked me to file a complain to FI and should it not reach any resolution, then escalate to FIDREC. However, FIDREC has their own limitation too, that their jurisdiction in adjudicating disputes between banks/ finance companies and consumers is only up to $50,000! And the whole process would propably take more than 1~2 mths!
Basically, the FI also told me that these bonds-like products have been approved by MAS.
Which I told them that investors have been probably misled into purchasing these products. They are trying to tell me that it seems nothing can be done, as these products were already structured to protect the banks' interest from day 1!
So what can we do? I am not too sure what firm actions MAS are willing to take to help us, but so far, it seems in the media that they are only trying to speak to all FIs to expedite all investors queries properly and telling them not to mislead the investors thru' the marketing & advertising tools.
It seems that all these are going round & round in circles but not resulting in any firm course of action!
We, investors can speak up, but to what degree do we need to make our voices heard so that the authorities can decide what to do ?
REPLY
The investors can sign the Petition that has been put up in my blog. The Petition call on the Signapore Government to investigate if there has been any wrong-doing by the financial institutions and to assist the investors in getting compensation.
Some investors have suggested a collective legal action. I shall try to organise it at a later stage, if it becomes necessary. At that time, the investors have to decide if they are willing to bear the cost of the legal action.
I appreciate your efforts to put all these in place so that we can start our discussion from hereon!
One important question is always on my mind, how far can we go to seek help from the relevant authorities? And what can they do or willing to do??
Firstly, I have contacted the FI (Hong Leong finance), basically they just say that actions have been taken and need to await the reply HSBC (the trustee). As HSBC has informed of the notice of occurrence of potential event of default. And given 15 days, should no payment been received from Minibonds Limited, the trustee will obtain valuations of the securities and determine the appropriate course of action.
I have also contacted MAS, thus they too asked me to file a complain to FI and should it not reach any resolution, then escalate to FIDREC. However, FIDREC has their own limitation too, that their jurisdiction in adjudicating disputes between banks/ finance companies and consumers is only up to $50,000! And the whole process would propably take more than 1~2 mths!
Basically, the FI also told me that these bonds-like products have been approved by MAS.
Which I told them that investors have been probably misled into purchasing these products. They are trying to tell me that it seems nothing can be done, as these products were already structured to protect the banks' interest from day 1!
So what can we do? I am not too sure what firm actions MAS are willing to take to help us, but so far, it seems in the media that they are only trying to speak to all FIs to expedite all investors queries properly and telling them not to mislead the investors thru' the marketing & advertising tools.
It seems that all these are going round & round in circles but not resulting in any firm course of action!
We, investors can speak up, but to what degree do we need to make our voices heard so that the authorities can decide what to do ?
REPLY
The investors can sign the Petition that has been put up in my blog. The Petition call on the Signapore Government to investigate if there has been any wrong-doing by the financial institutions and to assist the investors in getting compensation.
Some investors have suggested a collective legal action. I shall try to organise it at a later stage, if it becomes necessary. At that time, the investors have to decide if they are willing to bear the cost of the legal action.
Hope for investors in Lehman Minibonds ?
An investor sent this link to me. I wish to share it with you:
http://finance.thestandard.com.hk/en/business_news_view.asp?aid=72231
http://finance.thestandard.com.hk/en/business_news_view.asp?aid=72231
Unfair exchange rate
A bank customer converted currency from GBP to NZD. He was charged a spread of more than 2% for the conversion, or more than $1,000 for the transaction. He asked the bank for their method of calculation, but the bank refused to disclose it. The customer asked my advice on how to deal with this matter.
My advice is:
1. I suggest that you bring this lodge a complaint to the CEO of OCBC Bank on your transaction. Your complaint should address the unfair conversion rate that you have been given.
2. If this matter is not resolved, you can lodge a complaint with Financial Industry Dispute Resolution Center, FiDREC (fidrec.com.sg).
3. You can also consider to get the assistance of the Consumer Assocation, CASE:
My advice is:
1. I suggest that you bring this lodge a complaint to the CEO of OCBC Bank on your transaction. Your complaint should address the unfair conversion rate that you have been given.
2. If this matter is not resolved, you can lodge a complaint with Financial Industry Dispute Resolution Center, FiDREC (fidrec.com.sg).
3. You can also consider to get the assistance of the Consumer Assocation, CASE:
Experience of investor (2)
Hello Mr Tan:
Please find the attachments that bank X sent to me when they sold me the Minibonds Series 2 and 3. I note the following:
1. These investments are For defensive investors seeking exposure to high grade assets that provide steady & enhanced yields
2. Product Summary - 100% money back at maturity
3. Benefits of MiniBonds - Low risk and easy to understand
4. Benefits of MiniBonds - High quality and low risk entities have been selected
5. Risk to Investor - Investors are at risk where one of the selected entities experiences a Credit Event. No mention was made on risk of the issuer Lehman Brothers. I was also not told Lehman Brothers swap the fund with another counterparty to exchange the risk of the underlying stocks, and that if Lehman are bankrupt, they can default on the swap payment.
Clearly the above is misrepresentation by the bank! Based on these supporting documents, can I go after the bank for my money? After all, they promised 100% money back!! Your advice will be appreciated, thank you!
REPLY
You can lodge a complaint with the CEO of the Bank and take it later to FiDREC (www.fidrec.com.sg).
Please find the attachments that bank X sent to me when they sold me the Minibonds Series 2 and 3. I note the following:
1. These investments are For defensive investors seeking exposure to high grade assets that provide steady & enhanced yields
2. Product Summary - 100% money back at maturity
3. Benefits of MiniBonds - Low risk and easy to understand
4. Benefits of MiniBonds - High quality and low risk entities have been selected
5. Risk to Investor - Investors are at risk where one of the selected entities experiences a Credit Event. No mention was made on risk of the issuer Lehman Brothers. I was also not told Lehman Brothers swap the fund with another counterparty to exchange the risk of the underlying stocks, and that if Lehman are bankrupt, they can default on the swap payment.
Clearly the above is misrepresentation by the bank! Based on these supporting documents, can I go after the bank for my money? After all, they promised 100% money back!! Your advice will be appreciated, thank you!
REPLY
You can lodge a complaint with the CEO of the Bank and take it later to FiDREC (www.fidrec.com.sg).
Focus list of investors
I will be sending out a separate focus list investors who bought the same product from the same distributor (financial institution). This list will contain the name, telephone number and postal code. It will be taken from the signatories of the Petition to the Singapore Government. This list is expected to be ready later this week.
I hope that the new list will be helpful to get the investors to get together to discuss how to approach the distributor, and even to approach the Member of Parliament.
I hope that the new list will be helpful to get the investors to get together to discuss how to approach the distributor, and even to approach the Member of Parliament.
Opinion of an investor
Dear All,
http://biz.yahoo.com/ap/080928/as_hong_kong_lehman_protest.html
Please read about Hong Kong Investors' protest. I reckon that if we are not united and serious about getting our money back, the banks will just 'try their best' to recover whatever they can for us.
Believe all of us didn't know nor understand the complexity of the credit swap derivatives and we thought we have invested in bond-like products. In the money market, risk matches return. Frankly, for a 5% /yr return, why should we be subjected to such high risk? Equity market is said to be most risky, but even if we anyhow invest in the stock market, our money will not be zeroised, right?
I have met up with DBS' product team and expressed my disappointment in their callousness in handling our trust and money. The products were structured to protect the bank's interest. We were made to sign forms we didn't read carefully because we were too trusting. However, if all investors went into the products have the same understanding and experience that we were not well informed, then the intention to deceive is there since day one.
I am not sure about the rest, but DBS' RMs did not take initiatives to call, I called mine. Until Jun or July, we received a letter of assurance that so long as we hold on to the product till maturity, our capital will be in tact. At that point, the DBS HN5 was still valued at 43%.
See, we are no expert in investment, but surely senior management in the banks would have the expertise to read the market situation and forewarn us of the possibility of a credit event. We could have done something.
Understand that in Hongkong, the lawmaker may take the lead to sue the banks. Our equivalent law maker here is MAS. They do have some responsible as to why Credit Swap Derivatives are allowed. Actually Credit Swap Derivatives are complex instruments to allow banks like Lehman Bros to hedge their risk. What does it mean? We investors become the insurers involuntarily. When banks accept premiums on our behalf, they expose us naked to the risk of any downfall of the institutions listed in the reference list.
We will need strong leaders to pull us together really.
Best regards,
KT
http://biz.yahoo.com/ap/080928/as_hong_kong_lehman_protest.html
Please read about Hong Kong Investors' protest. I reckon that if we are not united and serious about getting our money back, the banks will just 'try their best' to recover whatever they can for us.
Believe all of us didn't know nor understand the complexity of the credit swap derivatives and we thought we have invested in bond-like products. In the money market, risk matches return. Frankly, for a 5% /yr return, why should we be subjected to such high risk? Equity market is said to be most risky, but even if we anyhow invest in the stock market, our money will not be zeroised, right?
I have met up with DBS' product team and expressed my disappointment in their callousness in handling our trust and money. The products were structured to protect the bank's interest. We were made to sign forms we didn't read carefully because we were too trusting. However, if all investors went into the products have the same understanding and experience that we were not well informed, then the intention to deceive is there since day one.
I am not sure about the rest, but DBS' RMs did not take initiatives to call, I called mine. Until Jun or July, we received a letter of assurance that so long as we hold on to the product till maturity, our capital will be in tact. At that point, the DBS HN5 was still valued at 43%.
See, we are no expert in investment, but surely senior management in the banks would have the expertise to read the market situation and forewarn us of the possibility of a credit event. We could have done something.
Understand that in Hongkong, the lawmaker may take the lead to sue the banks. Our equivalent law maker here is MAS. They do have some responsible as to why Credit Swap Derivatives are allowed. Actually Credit Swap Derivatives are complex instruments to allow banks like Lehman Bros to hedge their risk. What does it mean? We investors become the insurers involuntarily. When banks accept premiums on our behalf, they expose us naked to the risk of any downfall of the institutions listed in the reference list.
We will need strong leaders to pull us together really.
Best regards,
KT
Purpose of Petition
A journalist asked,
"Mr. Tan, MAS is already setting up a mechanism to handle the complaints of the investors. They can approach an independent body appointed by the financial institution. Why is it still necessary to organise the Petition? How is the Petition different?"
My reply is:
I encourage the investors to file their complaint of mis-selling to the financial institution. I have given them a template on the key points to be contained in their complaint. Most of them have not been properly advised and have been recommended a product that is not suitable for their risk profile.
It is important for the investors to pursue this step, as recommended by MAS.
The purpose of the Petition is to ask the Government to make an independent investigation to examine if there were negligent or dishonest acts by the financial institutions or if there were any wrong-doing. This is necessary as several thousand people are affected by this situation and have lost their life savings.
If there were wrong doing, it is better for some guidelines to be agreed on how the compensation is to be determined.
I believe that the Petition is a separate step and is still necessary, in the light of the circumstances. We need to approach this matter on two prongs.
"Mr. Tan, MAS is already setting up a mechanism to handle the complaints of the investors. They can approach an independent body appointed by the financial institution. Why is it still necessary to organise the Petition? How is the Petition different?"
My reply is:
I encourage the investors to file their complaint of mis-selling to the financial institution. I have given them a template on the key points to be contained in their complaint. Most of them have not been properly advised and have been recommended a product that is not suitable for their risk profile.
It is important for the investors to pursue this step, as recommended by MAS.
The purpose of the Petition is to ask the Government to make an independent investigation to examine if there were negligent or dishonest acts by the financial institutions or if there were any wrong-doing. This is necessary as several thousand people are affected by this situation and have lost their life savings.
If there were wrong doing, it is better for some guidelines to be agreed on how the compensation is to be determined.
I believe that the Petition is a separate step and is still necessary, in the light of the circumstances. We need to approach this matter on two prongs.
What is a fair compensation for mis-selling?
I asked a question, "If the distributor offer to compensate 50% of your loss, will you accept it?"
About 20 investors replied to my email account and to this blog. Most expect compensation of 80% to 100% compensation. A few replied that 50% is fair.
I hope that the investors will take the following points into account:
1. The advertisement did highlight that under a credit event, the investor can lose up to 100% of the principal.
2. The investor did sign a lot of documents (and they may be unaware of what they signed) which will cover the distributor against liability.
We can argue that the distributor has a sense of duty to make sure that the recommended product is suitable for the investor. But the investor has to bear some responsibility as well. This point is highlighted in a e-mail sent to me by MS. A few investors commented that the chance of getting compensation is small.
I hope that the expectation of the investors can be moderated.
About 20 investors replied to my email account and to this blog. Most expect compensation of 80% to 100% compensation. A few replied that 50% is fair.
I hope that the investors will take the following points into account:
1. The advertisement did highlight that under a credit event, the investor can lose up to 100% of the principal.
2. The investor did sign a lot of documents (and they may be unaware of what they signed) which will cover the distributor against liability.
We can argue that the distributor has a sense of duty to make sure that the recommended product is suitable for the investor. But the investor has to bear some responsibility as well. This point is highlighted in a e-mail sent to me by MS. A few investors commented that the chance of getting compensation is small.
I hope that the expectation of the investors can be moderated.
Template: Letter to financial institution (distributor)
To CEO of (financial institution)
Name of product bought:
1. The above structured product was sold to me by your financial representative, (name), to me on (date). I invested (amount) in the product based on the recommendation of your financial representative.
2. The circumstances in which the above product was sold to me are described below:
(give details)
3. I have been a conservative, risk adverse investor. I have notified your financial representative on my situation, as described below:
(give details).
4. My investment was made on the assurance given by your financial representative that the above product was low risk, safe and suitable for me. I understand that your representative is required under Section 27 of the Financial Advisers Act to ensure that investment products are appropriate for the people that they are recommended to.
5. I lost my hard-earned savings by investing in the recommended financial product. The product clearly did not suit my risk profile. I was not made aware of the high risks involved in the financial product and was misled by your financial representative.
6. I seek fair and adequate compensaton from you for my losses.
Name:
Address:
Contact number:
7. I hope to receive your decision on my request soon.
cc. FIDREC
Name of product bought:
1. The above structured product was sold to me by your financial representative, (name), to me on (date). I invested (amount) in the product based on the recommendation of your financial representative.
2. The circumstances in which the above product was sold to me are described below:
(give details)
3. I have been a conservative, risk adverse investor. I have notified your financial representative on my situation, as described below:
(give details).
4. My investment was made on the assurance given by your financial representative that the above product was low risk, safe and suitable for me. I understand that your representative is required under Section 27 of the Financial Advisers Act to ensure that investment products are appropriate for the people that they are recommended to.
5. I lost my hard-earned savings by investing in the recommended financial product. The product clearly did not suit my risk profile. I was not made aware of the high risks involved in the financial product and was misled by your financial representative.
6. I seek fair and adequate compensaton from you for my losses.
Name:
Address:
Contact number:
7. I hope to receive your decision on my request soon.
cc. FIDREC
Saturday, September 27, 2008
My blog will hit 500,000 visitors by 5 Oct 2008
Earlier, I projected that the 500,000 mark will be reached on 11-11-2008. With the crisis caused by the credit-linked securities, the visitors to my blog trebled in recent days. The target of 500,000 is likely to be reached by 5 October, 1 month ahead of schedule.
Action to be taken on CLS
My team met this morning and decided on the following:
1. To submit a petition to the Singapore Government by 12 October
2. To hold a meeting of investors at the Speakers Corner on 11 October
3. To encourage investors to contact other investors in their list of 50 names
4. To identify investors who are willing to volunteer in this effort
5. To collect evidence of negligent or dishonest acts by the financial institutions
6. To identify lawyers who are willing to act on behalf of the investors for a fee.
If you have any suggestions, please send them to me at kinlian@gmail.com or post in this blog.
1. To submit a petition to the Singapore Government by 12 October
2. To hold a meeting of investors at the Speakers Corner on 11 October
3. To encourage investors to contact other investors in their list of 50 names
4. To identify investors who are willing to volunteer in this effort
5. To collect evidence of negligent or dishonest acts by the financial institutions
6. To identify lawyers who are willing to act on behalf of the investors for a fee.
If you have any suggestions, please send them to me at kinlian@gmail.com or post in this blog.
Negligent or dishonest acts
I need to find some examples of negligent or dishonest acts of the financial institutions that create or sell the financial products. Here are some of my views:
1. The adviser fail to inform the investor about the risk of the product
2. The adviser recommend the product (with high risk) to investors who are not aware or do not understand the risk
3. The adviser did not understand the risk of the product that they were selling
4. The adviser failed to give the prospectus and other pricing information
5. The adviser get the investor to sign documents, without explaining what the documents were
6. The adviser failed to advise the investor to diversify the risk, and recommend a large sum to be invested in a single product.
7. The product creator failed to disclose the charges that are taken away from the investors
8. The product creator has conflict of interest as they are also the counter party for some of the swap and other transactions
9. The trustee or product creator failed in their duty to take care of the interest of the investor
10. The product has high risk as they need to earn sufficient income to pay the high charges, and this is not disclosed to the investor.
11. The adviser or the managers of the financial institution did not buy the product that they are selling to the investors (consumers)
Any more angles?
Please give supporting evidence to back up the above allegations of negligent or dishonest conduct of the advisers or the product creators.
1. The adviser fail to inform the investor about the risk of the product
2. The adviser recommend the product (with high risk) to investors who are not aware or do not understand the risk
3. The adviser did not understand the risk of the product that they were selling
4. The adviser failed to give the prospectus and other pricing information
5. The adviser get the investor to sign documents, without explaining what the documents were
6. The adviser failed to advise the investor to diversify the risk, and recommend a large sum to be invested in a single product.
7. The product creator failed to disclose the charges that are taken away from the investors
8. The product creator has conflict of interest as they are also the counter party for some of the swap and other transactions
9. The trustee or product creator failed in their duty to take care of the interest of the investor
10. The product has high risk as they need to earn sufficient income to pay the high charges, and this is not disclosed to the investor.
11. The adviser or the managers of the financial institution did not buy the product that they are selling to the investors (consumers)
Any more angles?
Please give supporting evidence to back up the above allegations of negligent or dishonest conduct of the advisers or the product creators.
Unable to give individual advice
Some investors send their personal situation and ask me to give advice.
I am not able to handle this type of request. It requires time, and I am not able to find the time. Many of the questions asked cannot be answered anyway. I like to ask investors to avoid giving me this additional burden.
Here are what you can do:
1. Read this blog for general information that may be helpful to you.
2. Contact your fellow investors and get their views (at least, the work is spread out).
I am not able to handle this type of request. It requires time, and I am not able to find the time. Many of the questions asked cannot be answered anyway. I like to ask investors to avoid giving me this additional burden.
Here are what you can do:
1. Read this blog for general information that may be helpful to you.
2. Contact your fellow investors and get their views (at least, the work is spread out).
Call for volunteers - action on credit link securities
I wish to call for volunteers who are willing to help me in contacting investors of the credit linked securities. The duties of the volunteers are:
1. You are to contact the other investors in your list
2. Get their views
3. Carry out research among these investors
4. Pass useful information to me or my team.
If you are willing to help, please send an e-mail to kinlian@gmail.com.
1. You are to contact the other investors in your list
2. Get their views
3. Carry out research among these investors
4. Pass useful information to me or my team.
If you are willing to help, please send an e-mail to kinlian@gmail.com.
Fixed deposits are safe
Hi Mr. Tan
I have placed some fixed deposits in Hong Leong Finance and UOB bank. If MAS were to sue these advisers for neglience, will my FDs go bust like what my Minibonds did?
Do you think I should withdraw the amounts before maturity as I understand that FDs are not capital guaranteed if the bank or finance company goes bust?
REPLY
The fixed deposits should be safe. Read para 2 of this webpage
http://www.mas.gov.sg/news_room/letters_to_editors/2008/Response_to_do_more_to_protect_policy_holders.html
I have placed some fixed deposits in Hong Leong Finance and UOB bank. If MAS were to sue these advisers for neglience, will my FDs go bust like what my Minibonds did?
Do you think I should withdraw the amounts before maturity as I understand that FDs are not capital guaranteed if the bank or finance company goes bust?
REPLY
The fixed deposits should be safe. Read para 2 of this webpage
http://www.mas.gov.sg/news_room/letters_to_editors/2008/Response_to_do_more_to_protect_policy_holders.html
Experience of investor (1)
Dear Mr Tan
Thank you for compiling this list of affected parties and the advice that you have rendered thus far. I like to take this opportunity to share my experience with others and hopefully more will be prompted to share about how they have dealt with this matter and the results obtained.
Over the last few days, I have written to my distributor and also to MAS regarding this matter. My letter is attached so you may have a better idea of how this fiasco has affected me.
Since sending out the letter on Thursday, I have received 2 seperate calls from MAS regarding the matter. I have been invited to attend an informal meeting with the authorities this coming Monday for them to better understand my situation.
Although they have stressed that the meeting should not be construed as MAS having started an investigation, they have assured me that they are closely monitoring the situation and that they would be getting in touch with the Bank head for her response and action.
I have also spoken to staff of the distributors about this matter and during those conversation, I was still provided with mis-information regarding my investment. I have documented the miscommunications and have written to the distributor again to highlight the present lack of knowledge by their staff and how they are continuing to twist and bend the truth about the investment with total disregard to the accuracy of information that is being dispensed to customers. The note to the distributor is also attached for your reference in understanding this issue better.
This being the case with my distributor, I am wondering whether other affected parties have also been subjected to such misinformation. If so, please share your experience so we can learn from each other.
I read in the papers that the respective distributors are supposed to set up seperate and independent bodies to investigate this matter. It was thus disturbing that I received a call from the branch manager informing me that they have received my letter and were looking into the matter. If the branch itself is involved in the such an investigation, I have serious doubts on how consumer interest can be protected. I will be following up with another letter to the distributor on this matter and seek their clarification.
Mr Tan, if you do have any other suggestion or advice on what can be done further, do let me know. Once again, I am deeply grateful for your assistance in this matter.
REPLY
Let me think over this matter. I think that it is better for MAS to appoint an independent party to receive the complaints, rather than let it be handled by the distributor.
Thank you for compiling this list of affected parties and the advice that you have rendered thus far. I like to take this opportunity to share my experience with others and hopefully more will be prompted to share about how they have dealt with this matter and the results obtained.
Over the last few days, I have written to my distributor and also to MAS regarding this matter. My letter is attached so you may have a better idea of how this fiasco has affected me.
Since sending out the letter on Thursday, I have received 2 seperate calls from MAS regarding the matter. I have been invited to attend an informal meeting with the authorities this coming Monday for them to better understand my situation.
Although they have stressed that the meeting should not be construed as MAS having started an investigation, they have assured me that they are closely monitoring the situation and that they would be getting in touch with the Bank head for her response and action.
I have also spoken to staff of the distributors about this matter and during those conversation, I was still provided with mis-information regarding my investment. I have documented the miscommunications and have written to the distributor again to highlight the present lack of knowledge by their staff and how they are continuing to twist and bend the truth about the investment with total disregard to the accuracy of information that is being dispensed to customers. The note to the distributor is also attached for your reference in understanding this issue better.
This being the case with my distributor, I am wondering whether other affected parties have also been subjected to such misinformation. If so, please share your experience so we can learn from each other.
I read in the papers that the respective distributors are supposed to set up seperate and independent bodies to investigate this matter. It was thus disturbing that I received a call from the branch manager informing me that they have received my letter and were looking into the matter. If the branch itself is involved in the such an investigation, I have serious doubts on how consumer interest can be protected. I will be following up with another letter to the distributor on this matter and seek their clarification.
Mr Tan, if you do have any other suggestion or advice on what can be done further, do let me know. Once again, I am deeply grateful for your assistance in this matter.
REPLY
Let me think over this matter. I think that it is better for MAS to appoint an independent party to receive the complaints, rather than let it be handled by the distributor.
Sales Materials and Prospectus
I urge all investors of the credit linked securities to identify the sales materials, prospectus and other documents that you were given at the point of sale. You can also identify the documents that you were NOT GIVEN, such as the prospectus and other essential information.
This document will be helpful when you have to lodge a formal complaint or take legal action.
Please don't ask me what you have to do, if you do not have the document - because the answer is, "Do what you can".
This document will be helpful when you have to lodge a formal complaint or take legal action.
Please don't ask me what you have to do, if you do not have the document - because the answer is, "Do what you can".
Prospectus for the Credit Linked Securities
When you invested in the credit linked securities (i.e. mini bond, high notes, pinnacle notes), did the distributor give you the prospectus and pricing statement?
Please share your experience in this blog.
Please share your experience in this blog.
Regulation by the Dubai International Financial Center
I met my Singapore friend who now works in Dubai. He wanted to create a new product and get the approval of the Dubai International Financial Center (DIFC) to market the product to retail investors.
The DIFC asked many questions. They are hesitant about allowing the product to be sold to the retail investors, as the investors may not understand the risk. My friend decided to withdraw the application.
I believe that the DIFC approach is correct. It is difficult for retail investors to understand complex products that are designed by "financial enginners" with the aim to make profit for the financial institutions. The retail investors are likely to be "taken for a ride" by these "financial engineers".
This is a different approach from that taken by the Monetary Authority of Singapore.
The DIFC asked many questions. They are hesitant about allowing the product to be sold to the retail investors, as the investors may not understand the risk. My friend decided to withdraw the application.
I believe that the DIFC approach is correct. It is difficult for retail investors to understand complex products that are designed by "financial enginners" with the aim to make profit for the financial institutions. The retail investors are likely to be "taken for a ride" by these "financial engineers".
This is a different approach from that taken by the Monetary Authority of Singapore.
A view: Investors should bear bigger responsibility
Dear Kin Lian,
How's the going? I just heard you are leading the charge on the minibond issue. Its a good issue to take up.
However, there is a catch in this whole issue which I may draw your attention to. Although the instruments' name such as High Note or minibond are pretty misleading (well, even for an financial economics trained person like me got the wrong idea at the first look), but investors who are invited to invest in such instruments should be sophisticated enough to look beyond the high return without questioning the risks involved. Thus in my view, the investors should bear bigger responsibility for their investment decisions. I mean, when they are making money, they would not share with others right? They would not even bother about how complicated the instruments are. But when the instruments go bust, on what basis could they demand compensation?
Misselling? Hmm... there would be a big debate here. I believe the financial institutions that sold these instruments should have their backsides all covered by disclaimers and such.
The only direction to go is investor education as well as taking MAS to task. MAS as a regulator, should know the risks involved. It should, as a regulator, makes specific demand on the financial instituition to highlight the all risks and implications involved in all the marketing tools and documented agreements, in BOLD and not in fine prints.
Maybe it would be good for you to raise these few points along with your present direction of fighting for the investors' interests at hand.
Regards
MS
How's the going? I just heard you are leading the charge on the minibond issue. Its a good issue to take up.
However, there is a catch in this whole issue which I may draw your attention to. Although the instruments' name such as High Note or minibond are pretty misleading (well, even for an financial economics trained person like me got the wrong idea at the first look), but investors who are invited to invest in such instruments should be sophisticated enough to look beyond the high return without questioning the risks involved. Thus in my view, the investors should bear bigger responsibility for their investment decisions. I mean, when they are making money, they would not share with others right? They would not even bother about how complicated the instruments are. But when the instruments go bust, on what basis could they demand compensation?
Misselling? Hmm... there would be a big debate here. I believe the financial institutions that sold these instruments should have their backsides all covered by disclaimers and such.
The only direction to go is investor education as well as taking MAS to task. MAS as a regulator, should know the risks involved. It should, as a regulator, makes specific demand on the financial instituition to highlight the all risks and implications involved in all the marketing tools and documented agreements, in BOLD and not in fine prints.
Maybe it would be good for you to raise these few points along with your present direction of fighting for the investors' interests at hand.
Regards
MS
Friday, September 26, 2008
Avoid incurring a large debt
Hi Sir
I'm a student currently studying in college. I am keen on going overseas to the UK to read law after my A levels but I have qualms about the cost.
I understand that the fees would cost about S$100 000. But with the cost of living considered, the amount would probably triple to S$300 000. I was hoping you could shed some light on bank loans or other possible avenues that would allow me to realize this ambition. Hope to hear from you soon.
REPLY
I usually advise people not to incur big debts, even for education. I did not go to university and can still do well in my career. If not, I am happy to have a more modest career.
I'm a student currently studying in college. I am keen on going overseas to the UK to read law after my A levels but I have qualms about the cost.
I understand that the fees would cost about S$100 000. But with the cost of living considered, the amount would probably triple to S$300 000. I was hoping you could shed some light on bank loans or other possible avenues that would allow me to realize this ambition. Hope to hear from you soon.
REPLY
I usually advise people not to incur big debts, even for education. I did not go to university and can still do well in my career. If not, I am happy to have a more modest career.
Difficulty in Travel Insurance Claim
Dear Mr Tan,
Recently my parents bought travel insurance from a big local firm to cover themselves for a tour to China. Unfortunately, during the tour, my father contracted food poisoning and had to be warded in the hospital there. The doctor told him that he is not fit to continue with the tour and my mum to accompany him home immediately to seek treatment.
The tour agent there told him that his air tickets from his tour package are 'fixed' dates and hence cannot be change and were told to buy new air tickets for his flight home. He called long distance to the insurance company helpline and was told to ask the tour agent to pay first.
Coming back home, he was able to claim the balance of his tour package but his claim for his air ticket was rejected. The insurance company exercised a clause that state that the ticket bought after the insurance policy is in effect cannot be claimed.
My point here is that we bought travel insurance for such contingencies. Secondly, does that mean that travel insurance only cover when the situation is really dire such as in a SOS case and not in cases whereby the claimant is not fit to continue to travel and told to come home on his own?
REPLY
I believe that you are entitled to claim for the cost of the airfare, as it is caused by the medical emergency. It comes under the cost of evacuation, which I supposed is covered under the policy.
I suggest that you ask for the claimto be rejected in writing. You can lodge a complaint with FiDREC (www.fidrec.org.sg).
I find the practice of this insurance company to be deplorable. They like to find reason to reqject a legitimate claim, instead of treating the policyholder fairly.
Recently my parents bought travel insurance from a big local firm to cover themselves for a tour to China. Unfortunately, during the tour, my father contracted food poisoning and had to be warded in the hospital there. The doctor told him that he is not fit to continue with the tour and my mum to accompany him home immediately to seek treatment.
The tour agent there told him that his air tickets from his tour package are 'fixed' dates and hence cannot be change and were told to buy new air tickets for his flight home. He called long distance to the insurance company helpline and was told to ask the tour agent to pay first.
Coming back home, he was able to claim the balance of his tour package but his claim for his air ticket was rejected. The insurance company exercised a clause that state that the ticket bought after the insurance policy is in effect cannot be claimed.
My point here is that we bought travel insurance for such contingencies. Secondly, does that mean that travel insurance only cover when the situation is really dire such as in a SOS case and not in cases whereby the claimant is not fit to continue to travel and told to come home on his own?
REPLY
I believe that you are entitled to claim for the cost of the airfare, as it is caused by the medical emergency. It comes under the cost of evacuation, which I supposed is covered under the policy.
I suggest that you ask for the claimto be rejected in writing. You can lodge a complaint with FiDREC (www.fidrec.org.sg).
I find the practice of this insurance company to be deplorable. They like to find reason to reqject a legitimate claim, instead of treating the policyholder fairly.
Mis-representation in High Notes 2
Hi Mr. Tan,
Much has been discussed among distraught investors about how to seek redress from the FIs which sold them the structured notes that are now in troubled water. Among other things, I think it is important for us to provide evidence of misrepresentation of the FIs when we lodge our complaints.
Going through the pricing statement of High Notes 2, the following points may be deemed misrepresentation and I would like to share my views here with those who are interested:
1. The ghost credit default clause - I call it “ghost” because this clause is not visible anywhere in the pricing statement and it suddenly jumps up from nowhere when the RMs called to informed us that another 2 defaults in the basket of securities would constitute a credit event.
According to the pricing statement, risk factors highlighted therein are:
Liquidity risk, market risk, FX risk and credit risks which includes the 8 reference entities (with a first-to-default clause), the arranger/issuer and Constellation which is described as a special-purpose vehicle collateralized with a basket of AA- rated bonds and securities. Constellation is the counterparty which entered into various derivative contracts with the arranger under the structure of High Notes 2. This description of Constellation gives investors the impression that High Notes 2 is secured with a basket of good rated securities through Constellation.
Nowhere in the pricing statement can one find anything that says the default of 5 entities in the basket will trigger a credit event. All the while many investors were given the impression that High Notes 2 is adequately secured by a basket of diversified AA rated bonds, believing that even a few defaults in the basket of securities would not seriously impact on the value of the investment.
It is only after the occurrence of 3 defaults in the security basket are the investors informed by their RMs that it takes only another 2 defaults to have the value of their investment totally wiped out, despite that the other 90 over names in the basket remain intact. This default clause which is not defined in the pricing statement suddenly makes High Notes 2 a highly risky investment. This clause was never explained to investors before by the bank and nobody knows how and where default clause comes from and how the default of 5 parties out of about 100 names can wipe out the entire value of the securities basket? Is this non-disclosure of a critical default clause in the pricing statement tantamount to misrepresentation?
Further, I feel that the bank has not acted to protect the interest of High Notes 2 investors. Knowing that the value of the Notes can be significantly affected by a small number of defaults in the security basket, the bank should have provided the investors with the names in the basket of securities when the sub-prime mortgage problems started last years, and investors should be warned of the danger of possible defaults. This is very important because investors can then monitor the market closely and if necessary cut loss by cashing out from the Notes. But nothing was done, not even when some big names in US and Europe were hit by the toxic sub-prime debts. This is rather disappointing. It was too late when the RMs called us after the occurrence of 3 defaults.
2. “Spread your risk with a basket of bank credits, each rated A- or better by Standard & Poor’s.” - This is a misleading statement given in the bank's marketing material. This marketing material is also printed with glossy paper on the lst page of the pricing statement.
This statement gives investors the impression that the credit risk of High Notes 2 is well diversified among the 8 reference banks. But in actual fact, investors are facing a higher probability of default risk. Because, with the first-to-default clause (which was omitted in this marketing material, probably intentionally) the default of any one reference bank will trigger a credit event. This is different from buying a unit trust where the funds are invested in many companies and if one of them goes bust, the value of the units will not be substantially affected. So the spread of risk as claimed by the bank is not true. I would rather have 1 or 2 reference entities than 8, because with 8 my chances of getting hit are higher. The omission of the first-to-default clause with reference to the 8 reference banks in the marketing material looks very tricky. So is this tantamount to misrepresentation?
3. High Notes 2 only suitable for experienced investors - On page 5 of the pricing statement under the sub-heading "Suitability of the Notes", it is stated that "Structured products such as the Notes issued under the Programme are not suitable for inexperienced investors."
What we know from various sources is that many of such structured products have been sold to old uncles, aunties and retirees who parted with their retirement money believing High Notes 2 to be safe investments that could enhance their nest eggs.
We all know that at the point of sales, a financial profile analysis of the investors will be carried out by the sales staff of the bank. With such precautionary exercise, I wonder how these gullible old folks can still be classified as experienced investors and considered suitable for investing into risky High Notes as some of them can't even read or speak English. I am not saying people who cannot speak or read English must be bad investors, but can they read the details given in the pricing statement and understand the risks? Surely they parted with their money after listening to the sweet talk of the sales staff. Something must be wrong in the sales process. Is there a moral issue here? The relevant authority should look into some bad sales practice in our financial market and take necessary action.
Mr. Tan, I would appreciate it if you could place this message on your blog so that I could share my views with anyone who is interested in this matter. It would be better if some one could provide legal opinion on the abovementioned issues. With more interaction, maybe we can explore some other areas of misrepresentations by the bank.
Best regards,
Wilson Tan
Much has been discussed among distraught investors about how to seek redress from the FIs which sold them the structured notes that are now in troubled water. Among other things, I think it is important for us to provide evidence of misrepresentation of the FIs when we lodge our complaints.
Going through the pricing statement of High Notes 2, the following points may be deemed misrepresentation and I would like to share my views here with those who are interested:
1. The ghost credit default clause - I call it “ghost” because this clause is not visible anywhere in the pricing statement and it suddenly jumps up from nowhere when the RMs called to informed us that another 2 defaults in the basket of securities would constitute a credit event.
According to the pricing statement, risk factors highlighted therein are:
Liquidity risk, market risk, FX risk and credit risks which includes the 8 reference entities (with a first-to-default clause), the arranger/issuer and Constellation which is described as a special-purpose vehicle collateralized with a basket of AA- rated bonds and securities. Constellation is the counterparty which entered into various derivative contracts with the arranger under the structure of High Notes 2. This description of Constellation gives investors the impression that High Notes 2 is secured with a basket of good rated securities through Constellation.
Nowhere in the pricing statement can one find anything that says the default of 5 entities in the basket will trigger a credit event. All the while many investors were given the impression that High Notes 2 is adequately secured by a basket of diversified AA rated bonds, believing that even a few defaults in the basket of securities would not seriously impact on the value of the investment.
It is only after the occurrence of 3 defaults in the security basket are the investors informed by their RMs that it takes only another 2 defaults to have the value of their investment totally wiped out, despite that the other 90 over names in the basket remain intact. This default clause which is not defined in the pricing statement suddenly makes High Notes 2 a highly risky investment. This clause was never explained to investors before by the bank and nobody knows how and where default clause comes from and how the default of 5 parties out of about 100 names can wipe out the entire value of the securities basket? Is this non-disclosure of a critical default clause in the pricing statement tantamount to misrepresentation?
Further, I feel that the bank has not acted to protect the interest of High Notes 2 investors. Knowing that the value of the Notes can be significantly affected by a small number of defaults in the security basket, the bank should have provided the investors with the names in the basket of securities when the sub-prime mortgage problems started last years, and investors should be warned of the danger of possible defaults. This is very important because investors can then monitor the market closely and if necessary cut loss by cashing out from the Notes. But nothing was done, not even when some big names in US and Europe were hit by the toxic sub-prime debts. This is rather disappointing. It was too late when the RMs called us after the occurrence of 3 defaults.
2. “Spread your risk with a basket of bank credits, each rated A- or better by Standard & Poor’s.” - This is a misleading statement given in the bank's marketing material. This marketing material is also printed with glossy paper on the lst page of the pricing statement.
This statement gives investors the impression that the credit risk of High Notes 2 is well diversified among the 8 reference banks. But in actual fact, investors are facing a higher probability of default risk. Because, with the first-to-default clause (which was omitted in this marketing material, probably intentionally) the default of any one reference bank will trigger a credit event. This is different from buying a unit trust where the funds are invested in many companies and if one of them goes bust, the value of the units will not be substantially affected. So the spread of risk as claimed by the bank is not true. I would rather have 1 or 2 reference entities than 8, because with 8 my chances of getting hit are higher. The omission of the first-to-default clause with reference to the 8 reference banks in the marketing material looks very tricky. So is this tantamount to misrepresentation?
3. High Notes 2 only suitable for experienced investors - On page 5 of the pricing statement under the sub-heading "Suitability of the Notes", it is stated that "Structured products such as the Notes issued under the Programme are not suitable for inexperienced investors."
What we know from various sources is that many of such structured products have been sold to old uncles, aunties and retirees who parted with their retirement money believing High Notes 2 to be safe investments that could enhance their nest eggs.
We all know that at the point of sales, a financial profile analysis of the investors will be carried out by the sales staff of the bank. With such precautionary exercise, I wonder how these gullible old folks can still be classified as experienced investors and considered suitable for investing into risky High Notes as some of them can't even read or speak English. I am not saying people who cannot speak or read English must be bad investors, but can they read the details given in the pricing statement and understand the risks? Surely they parted with their money after listening to the sweet talk of the sales staff. Something must be wrong in the sales process. Is there a moral issue here? The relevant authority should look into some bad sales practice in our financial market and take necessary action.
Mr. Tan, I would appreciate it if you could place this message on your blog so that I could share my views with anyone who is interested in this matter. It would be better if some one could provide legal opinion on the abovementioned issues. With more interaction, maybe we can explore some other areas of misrepresentations by the bank.
Best regards,
Wilson Tan
Fair Compensation
Dear Mr. Tan,
What is a fair amount of compensation that the distributing financial institution can offer to the investor? Can we expect them to compensate us fully for our loss of hard earned savings?
REPLY
If this matter goes to Court, either on an action taken by the Government or by the investors, the decision will be made by the judge.
However, the parties may agree to make a settlement on their own, without asking the judge to decide. In that case, each investor should decide on the amount that they are willing to compromise.
If you are offered compensation at 50% of your loss, will you accept? I am sure that the investor will like to have the loss fully compensated, but it is unlikely that the distributing financial institution will agree.
Can you send an email to me at tkl@tankinlian.com. State your name, telephone number, amount invested and the amount that you will accept as a fair compensation (i.e. that you will be willing to fight in court, if you are not offered. Remember, legal expenses can be quite costly).
Do not send email on any other matter to tkl@tankinlian.com as I shall NOT be replying to emails from this account.
What is a fair amount of compensation that the distributing financial institution can offer to the investor? Can we expect them to compensate us fully for our loss of hard earned savings?
REPLY
If this matter goes to Court, either on an action taken by the Government or by the investors, the decision will be made by the judge.
However, the parties may agree to make a settlement on their own, without asking the judge to decide. In that case, each investor should decide on the amount that they are willing to compromise.
If you are offered compensation at 50% of your loss, will you accept? I am sure that the investor will like to have the loss fully compensated, but it is unlikely that the distributing financial institution will agree.
Can you send an email to me at tkl@tankinlian.com. State your name, telephone number, amount invested and the amount that you will accept as a fair compensation (i.e. that you will be willing to fight in court, if you are not offered. Remember, legal expenses can be quite costly).
Do not send email on any other matter to tkl@tankinlian.com as I shall NOT be replying to emails from this account.
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