Meeting at Speaker's Corner 18 Oct, 6-7 pm

[Ah Hai]

16 comments:

Anonymous said...

this is very well explained in layman terms!

Ting SL
9:45 AM
LSK said...

and still I can not understand. I have a degree in engineering.
9:59 AM
Anonymous said...

It is too late for the existing investors but will benefit the future generation.
10:13 AM
Anonymous said...

By the way, someone should send a copy to MAS too for their information in understanding the investors plight.
10:15 AM
kilroy said...

I don't think the chappies at MAS who "vetted" this product truly understood the mechanics of the con investment structure...yes send them this!
10:30 AM
zhummmeng said...

Thanks to LLK for painstakingly deciphering the mystery of the structured products. Although in layman terms I still have difficulty understanding the working mechanism of these products. I am sure the prospectus didn't give in these terms or had them in the prospectus.
The question is, did the RMs know about this and if they didn't know it was irresponsible of them to give advice. Even they knew in details how did they advise the Ak Peks and Ah Sohs and the educated layman in 20 minutes? It isn't easy. The answer is there was no intention to explain clearly and to help the investors but it was to make a sale, that was all about it. You notice that majority of the cases was 'product advice' and the KYCs were filled as an after sale activity and the investors were not given a copy.
These products should not have been sold. They are scams.
10:44 AM
Anonymous said...

Mr/ Ms LLK,
Thank you for this well-written piece. It is detail, yet understandable to a layman like me.
Hope the authorities would enforce this as a benchmark for disclosure in any future financial products.

Meanwhile I guess investors would have to be more cynical or exercise (the often touted panacea)due diligence.

Calvin
10:46 AM
Anonymous said...

For future generation, the financial engineers will come out with another type of minibomb... different techniques, different names, but just as toxic.
10:47 AM
Concerned said...

Mr LLK

Please send a copy of your write up to MAS, chairman and MD of MAS, CEO of all FIs who created or distributed the products, the 3 independent experts appointed by MAS to oversee the complaints and maybe the Straits Times, etc
11:06 AM
Concerned said...

RMs who are employed by FIs are usually very young, normally graduates with a few years of working experience, many with no degrees in finance or banking. So how to expect them to understand the structure of such complicated products if they are not thoroughly
drilled by their so called experts in their organisation. Further they are pressured by their superiors to produce certain quotas per quarters or so. The result is 10,000 investors being lead to purchase the structured products. Therefore, the whole responsibility lies with the arranger and distributor of these products





by the FIs to sell structured products, unit trusts, etc, etc
11:21 AM
Anonymous said...

Yes, looking at the length of the post, the explanation is detailed. But I still don't understand much.

Jasmin
11:21 AM
Anonymous said...

Mr/MS LLK,
Thanks for the explanation for the minibond. How about the High Notes 2 and High Notes 5 from DBS ?It sound similay, 8 reference Entities, secondary basket of 100 or 150 company, and a company called constellation?? Please comment.

HS
11:35 AM
Anonymous said...

Hi LLK ,

Thanks for the explanations.

I have 2 questions :

1. Through the Credit Risk Swap, ‘Investors of minibond’ sell insurance to Lehman Brothers with regards to the reference entities. So Lehman Brothers insure its risks from these “ minibond investors “, instead of from insurance companies like AIG?

2. The money, collected via the local FIs that the ‘minibond victims’ paid, was given to Minibond Ltd to invest in a basket of CDOs issued by 150 companies . What is the number of these (150) companies failed before the whole minibonds are liquidated ?

rgds

Chee
11:36 AM
Richard Woo said...

LLK, a very commendable article and a great contribution to Minibond investors.

Obviously, some people were caught napping, which has led to this fiasco.
11:36 AM
Anonymous said...

Could there be a case of dereliction of fiduciary duty with

1) the use of very high risk "underlying securities" while promoting "solid foundations...low risks" ?

2) why are these "underlying securities" never publicly displayed for all to see, especially the customers when they signed up, and even now ?

3) the replacement of the list of "underlying securities" with even higher risk ones, without consent of the customers who are owners of the mini-bonds?

Will the authorities examine these issues promptly ?
11:37 AM
Anonymous said...

Do the authorities really expect the public to believe that only the "vulnerable" are shocked to find that they were actually buying "insurance" and "swapping" around with sophisticated "investment" bankers ?

If the banks (except DBS, of course) and FIs were fooled by "investment" bankers too, we can all understand. But, please help us by giving our money back.

Will the mainstream media do the right thing by highlighting the scam, instead of humiliating the victims ?
11:52 AM

 

[Ah Hai]

Friday, November 07, 2008
Seminars on financial risks associated with financial instruments
Dear Mr. Tan Kin Lian,

There are opportunities for affected structured products investors to learn more about the financial risks associated with financial instruments sold by banks and securities institutions.

The Risk Management Institute of NUS is hosting a series of public seminars on "Enhancing Financial Risk Management Knowledge". These lectures are free of charge and are open to the general public.

These seminars are held in English and Mandarin between 10 to 22 Dec 2008. For more details, please click on the direct links below.

English Seminars:
http://www.rmi.nus.edu.sg/events/public lectures/efrmk/PL - English.pdf

Mandarin Seminars:
http://www.rmi.nus.edu.sg/events/public lectures/efrmk/PL - Chinese.pdf

The events are held here:
http://www.rmi.nus.edu.sg/events/public lectures/index.html

Maybe, the investors can learn about what have not been told to us by the relationship managers, sales associates and securities brokers from consumer banks, independent advisory and securities institutions.

Alfred Tan
Posted by Tan Kin Lian at 9:14 AM

 

[Ah Hai]

9 comments:

Anonymous said...

Even after attending the seminar and understanding it correctly or even convinced that it may be good, I will still not buy any such products from FIs. Tell me, who would?
9:30 AM
ym said...

i suggest to avoid these theory seminars -

pretty sure they talk abt "Value-at-Risk", "normal distribution" etc and they will probably say "this is a 1 in xxx year event that aig,leh broke"...

remember RMI NUS churn out plenty of financial engineers over the past few years...

btw,.. soon singapore will be bailing out las vegas sands..
http://www.bloomberg.com/apps/news?pid=20601087&sid=aFUbHOT6KdeI&refer=home

the stupidiest projects are always pursued in the bubbliest times..
9:38 AM
Anonymous said...

There is no need to attend as I am sure that none of the investors will buy anymore products in their lifetime.
10:04 AM
Anonymous said...

U can "educate" and "educate" and "educate" and "educate" till pigs fly.
But sadly, the majority of average Singaporeans are just not matured/sophisticated enough to understand or would even bother to try to understand.
All these people want to know is;
1. can make money or not?
2. is it safe or not?

In another 10-20 years time, all this "structured deposit" crisis would have been forgotten. And there would be another type of "investment" scheme, follow by another crisis, follow by another round of howling.

td
10:26 AM
zhummmeng said...

After attending these seminars DON"T think that you already know these products. At the best you know the financial terms to allow you to engage in some smart conversation so that you don't look idiotic.You still need help when investing but you are able to ask some questions but NOT MAKING INFORMED DECISION.You still need the adviser to tell you whether the product is suitable for you or not.This is the advice the advisers, RMs or insurance agents must bear responsibility and NOT caveat emptor. This is the advisory process the advisers have to conduct.
The organiser should have a caveat on this.
I can't stand MAS deputy chairman who said that public education, MONEYSENSE, on finance can turn a layman into an investor who can make informed decision. He is terribly wrong and misrepresented the public awareness education.Is he trying to shift responsibility or risk to the investors? Investors mustn't be lulled into a false sense that the little knowledge is already enough to let them DIY.
Remember your right to responsible and competent advice from your advisers.
10:28 AM
Anonymous said...

zhummmeng
The crux of the matter is;
Is the advice given by the adviser more skewed towards his own commission goals or towards the benefit of the layman?

td
10:41 AM
Anonymous said...

I think the RM's is the one needs to be trained to present pros and cons, target the right group of customers, be customer oriented and most importantly have a kind and just hearts.

HS
11:27 AM
Anonymous said...

It's the people giving the RMs the monthly target. Unfortunately, it's all about $$$$$$ in this world.
12:42 PM
zhummmeng said...

td,
it depends. If you have an adviser who doesn't have your interest at heart and doesn't conduct your need analysis then the process might be skewed to the adviser's interest.
Secondly, the fact find form can tell whether the advsier has done a proper job according to steps as prescribed by the law.The law protects the consumers if the adviser is found to have recommended a product that is not of reasonable basis,ie not according to your needs and circumstances he or she is said to have breached section 27 of the FAA.
Choosing an adviser is important but alas like the product you don't know who is honest and competent...
Therefore it is MAS's
duty to ensure that the RMs, consultants and insurance agents don't push product but use a need based approach to your needs.MAS must ban product selling and make need based compulsory. MAS must also actively enforce this law and the law that regulates products.I am not saying this will eradicate msi-selling and misrepresntation but certainly will reduce. With stringent enforcement and punishment this will deter FIs and their reps from willfully commiting the misconduct.
12:48 PM

 

[Ah Hai]

Friday, November 07, 2008
A favourable impression of Tunis
Tunis is the capital of Tunisia, a country in North Africa, next to Libya. It has a temperate, Mediterranean climate. It is cool and pleasant during my visit in November.

Tunis has a population of 2 million people. There is a large lake (actually part of the sea) that gives a shoreline to many parts of this charming city. Most of the houses or villas near the lake are low, less than four stories. The architecturial style is Mediterranean.

Tunisia was a French protectorate for 70 over years prior to independence in mid 1950s. The people speak Arabic and French.

I visited a beautiful town outside of Tunis called Sidi Bou Said. It is unusual, charming, picturesque and wonderful. Here are some pictures:

http://images.google.com/images?q=s...&sa=X&oi=image_result_group&resnum=4&ct=title

More about Tunisia
http://www.africa-business.com/features/tunisia.html
Posted by Tan Kin Lian at 10:34 AM

 

[Ah Hai]

Friday, November 07, 2008
Saving the Financial Industry?
Contributed by RW

After destroying the savings of valued customers, we have to wonder if the financial industry, in its present form, is worth saving.

The carnage has now extended to our Town Councils.

The same pattern is seen elsewhere.

Tens of thousands of individuals in Hong Kong and Taiwan. In United States, UBS customers of products marketed in a remarkably similar manner are shocked to receive statements showing their investments are almost wiped out and are suing the bank.

Some United States Municipalities, School Districts, etc are on the verge of bankruptcy. Using derivatives, JPMorgan pitched a host of deals whose names alone are indecipherable. For Philadelphia International Airport, the bank sold something called a ``path-dependent knock-out swaption.''

Individual customers were unfairly tricked and trapped into products with long lists of secretive "underlying securities", purposely hidden from view. Perhaps, the key to the scam?

But if Town Councils, Municipalities, etc did not escape, what chance do individual customers have?

The banks and FIs should act promptly with humility and humanity, and not with tiny gestures. Your bold acts can still save the local industry and earn the enormous goodwill and gratitude of the victims and your other customers.

The costs of sustaining a futile public relations campaign, expensive legal advice, loss of management and staff focus on the real battles, fallout costs, opportunity costs, etc must easily exceed the amounts you need to return. In the United States, banks have returned customers their money in dubious products.

If this impasse continues, what future is there? Working-class individuals will never look "relationship" managers and "personal" bankers in the eye ever again. Rich individuals, burnt by collapse of hedge funds and wealth management investments, will avoid "private" bankers like the plague.

It is very sad when the mainstream media continues to come up with articles from its own employees or from commentators, without researching the trail of destruction, without regard for the feelings of the victims but instead to deride their intelligence, and focus on a tiny few who could afford to "move on". The distress, worries, fatigue and permanent psychological damage extends to not only the 10,000 victims, but their immediate families, relatives, friends and colleagues. The tipping point must surely be near.

In the United States, justice has been done and continues to be done. Banks are forced to pay back all customers in full and are heavily fined. Banks and FIs in Singapore can show the world that they do not need the prodding of the authorities to "do the right thing".

RW

 

[Ah Hai]

Fortnightly Meetings at Speaker's Corner on Structured Products
There will be NO meeting at Speaker's Corner on Saturday 8 November. We will take a rest this Saturday.

We will resume the meeting every alternative Saturday from 15 November.

The schedule of meetings will be:

Saturday 15 November, 5 to 7 p.m.
Saturday 29 November, 5 to 7 p.m.
Saturday 13 December, 5 to 7 p.m.
Saturday 27 December, 5 to 7 p.m.

Apart from the structured products, there will be other speakers talking on other issues relating to life in Singapore.

Watch for further announcements.

 

[Ah Hai]

Saturday, November 08, 2008
Has MAS responded to the 3 petitions?
Someone asked if MAS has responded to me on the three petitions. I will give an update at the next meeting in Hong Lim Park on 8 November 2008.

 

[Ah Hai]

Sunday, November 09, 2008
Is this fair?
Contributed by R Williams

Inflation keeps rising … 5 to 6%
Savings rate depressed … 1 to 2%.

Your fixed deposit has just matured, or you have some hard-earned life savings to put to work.

Like any prudent saver, you look for reasonable return, reasonable risk. You were not prepared to gamble with these savings.

You were attracted by promotional literature and bank employees touting " 5% Return ! , … Solid Foundations !, … Low Risks !, … Defensive !, …".

You signed the dotted line, "comforted" by employees from trusted institutions.

SURPRISE ! SURPRISE ! : you have just lost/risked your entire savings, buying insurance you did not know about, and placing bets against the failure of any one of 6 company names prominently marketed to you, but not explained to you that the actual probability of failure is, in fact, multiplied 6-fold, and not decreased 1/6th , or that the risks were compounded to include the failure of 10 of 150 other companies/securities you were never told or heard of. Did you suddenly change your mind and decide to gamble away your entire savings ?

Did the advertisements or anyone from the banks and FIs tell you before you signed on the dotted line that you have actually :

1) bought insurance from, and
2) swapped bets with, Lehman/Merrill Lynch/Morgan Stanley/DBS, and
3) underwrote extremely high risks with 150 companies/securities that were never revealed to you, as an owner of these products, even till today ?

Did you know that when you stepped into the bank or FI, you actually wandered into a CASINO and you unwittingly placed BETS with Lehman/Merrill Lynch/Morgan Stanley or DBS ?

Did you realize that you were not told of the REAL ODDS, unlike in a REAL CASINO ?

Did you know that you were actually buying INSURANCE protecting Lehman and the other banks manufacturing these poisonous products ?

Did you know that you were actually TRADING RISKS with Lehman and these banks ?

Were you blissfully thinking that you were just putting your hard-earned savings to work for a paltry 5% return over 5 long years ?

Were you were expected to be conversant with, let alone learn, esoteric terms like : "counter-party risks", "first-to-default", "credit-default swaps" , "collaterised debt obligations" etc , financial concepts which require deep understanding of complex mathematical models ? You had to be a mathematician, a financial engineer and an actuary ( with a real interest in probability, statistics, risks analysis ) to appreciate even a bit of what was offered, and run through complicated mathematical models to discover the full risks, not just the vigorously promoted false pretense of the "low" risk of 1 of 6 known companies collapsing. Does this not amount to deception ?

If this is the case, and the products were sold through advertisements not highlighting the actual risks of the products, and sales employees not qualified with the above skills, how can loyal and trusting customers be now ridiculed with taunts of "buyers beware" and be told that you are "not vulnerable" ?

If these products require so much specialized knowledge and skills to even begin to understand them properly, how can they be sold like a "commodity" ?

Whose responsibility is it if the mass market is sold "commodity" products which turn out to be cleverly disguised and harmful to consumers ? Should we expect the consumers to suffer the pain and anguish and "move on" ?

"Banks not out to cheat" ?

The housing bubble started to burst in 2006, yet the products were engineered and sold in 2006. In other words, when the products were first sold, they were already "destined to fail right from the start". Furthermore, by selling the products in different Series ( to give the appearance of overwhelming "success", and thereby, sucking in more and more and more victims ) and, to even continue selling in 2007 and late into 2008, with full knowledge of the rotting "underlying securities" ( "liar loans" in US mortgages which made up the CDOs are loans with no chance of repayment as they were given without any proof of income nor collateral ), does this not show intent to defraud ?

Yet, no visible action is being taken to punish wrong-doers, especially the discredited "investment" banks, whereas in the United States, State Regulators and the Courts have been UNIMPRESSED with, and REJECTED the banks' defence of "buyers beware" and " caveat emptor" . Instead, banks there have been fined heavily and forced to completely return billions to individual customers, Municipalities ( Town Councils ), School Districts, etc.

Perversely, over here, lower-level bank employees are now becoming the second wave of victims.

The original victims and their loved ones are the people ridiculed and labelled "greedy" ( for 5% return on savings locked in for 5 long years ? ), "not vulnerable" ( for being under 62 and educated ? ), "they deserve it for trusting people" ( for believing in the banks and FIs ? ), "hard luck" ( for not keeping tape-recorded evidence of conversations, for not disputing what was hurriedly written about them, for not doing due diligence on 85-page prospectuses, for not knowing they were in a betting game of trading risks with counter-parties, etc).

For being simple-minded human beings, the 10,000 victims are the ones punished, trying to be prudent savers. Now, we have a second wave of victims.

Is this fair ?

R Williams

 

[Ah Hai]

Monday, November 10, 2008
Loss in the Singapore reserves
Dear Mr. Tan Kin Lian

I am getting worried about the financial crisis that Singapore is facing. MM said that Singapore has strong reserves. I am not sure if the reserves are still there.

How much has Singapore invested in the banks like UBS, Merrill Lynch, Citigroup and other banks? How much is Singapore guaranteeing in the IR project by Sands? Why should Singapore invest in the global banks when they are in deep trouble? Are we trying to bail them out?

REPLY

I do not know how much has been invested in these global banks and also the terms of the investments. Perhaps, someone can do some research and share the information here.

I recall that, in some cases, the investments were made in bonds, so the actual loss may not be that large - although the share price may have dropped a lot. In the case of Merrill Lynch, there was an arrangement for a compensation in case the share price dropped during a certain period. This helped to reduce the loss. In fact, it turned out to be profitable for us.

At the time of the investment, I personally thought that it was a good opportunity to invest in these banks at the knocked down price. I was not aware about the extent of the leverage and risks carried in their books. With the benefit of hindsight, we should not have have made these investments, but these facts were not known at that time - at least to the general public.

I do not recall any mention about guaranteeing the loan by Sands. But, I think that something should be done to keep the project from being a white elephant. The global financial crisis was unexpected when the project was approved two years ago. How the world has changed in a short time!
Posted by Tan Kin Lian at 8:15 AM

 

[Ah Hai]

Monday, November 10, 2008
HK: Probe into minibonds bankers wins support
Bonnie ChenandAdele Wong
Monday, November 10, 2008

The chances of bankers being summoned to explain the Lehman Brothers minibond fiasco grew stronger yesterday after the largest party in the Legislative Council indicated support for such a motion.

The move comes despite a warning by Secretary for Financial Services and the Treasury Ceajer Chan Ka-keung that the concern raised by foreign banks over a legislative inquiry may have an adverse effect on the business environment.
Chan said he believes the banks involved would probably buy back the minibonds next month.

The motion to summon bankers can only be passed if it gets majority support from lawmakers representing both the geographical and functional constituencies.

Thirteen of the functional constituency lawmakers are expected to support the motion but they will still need at least three votes from the Democratic Alliance for the Betterment and Progress of Hong Kong.

DAB chairman Tam Yiu-chung said the party will decide tomorrow whether a Legco investigation will affect the time of compensation and Hong Kong's status as an international financial center.

But another DAB member, Wong Tin-kwong representing the import and export sector, said he was inclined to support the motion.

"If the issue is to be investigated, it has to be tackled in the right direction," he said.

Only three former Liberal Party members and David Li Kwok-po of the finance sector have said they will vote against the motion. However, the pan-democrats said Li should not vote since he is chairman of the Bank of East Asia.

Civic party chairwoman Audrey Eu Yuet-mee said an open investigation by Legco would be fair to all sides. A source said the government is trying to get the DAB and some functional constituency independent legislators to vote against the motion.
Posted by Tan Kin Lian at 9:53 AM
3 comments:

A Tan said...

Honk for the Honkies.

Hongkies lead the way.

Let's hope their parly interviews the bankers.

If the HK parly finds that banks did things wrong there, the same practices areis likely to occur here.

Giving weight to the petitions here to investigate the practices of the distributors here.

As I said, "Honk for the Hongkies". They raising the bar for a responsible global financial centre.

Holding banks to account.
10:23 AM
Anonymous said...

The (planned) HK move may have an adverse effect on the business environment.

That is ‘good news’ for MAS!

Singapore will be elected ‘World No1 business friendly country‘ !
10:24 AM
Anonymous said...

HK is really showing how to do "the right thing". It is better to be HK investors than SGP investors.
11:15 AM

 

[Ah Hai]

Monday, November 10, 2008
Investors should be aware about the risk: MM
Hi Mr. Tan,
I am quite discouraged by the lack of action by MAS. Even MM said that the investor should be aware that they are taking risk by going for 5%, instead of 1%.

Many investors could have received 2% as they are investing a large sum of money. We thought that the higher interest rate of 5% is due to locking up our money for 5 years, which we are prepared to accept. I was not aware that the product is so highly risky. Why should I risk my total principal just to get 3% more? Does MM know the facts?

What is the best course of action now?

REPLY

I think MM should know the facts as they are contained in several petitions submitted to MAS. They are also well covered in the newspapers.

Although the lack of progress is discouraging for the investors, my suggestions are:

1. Spend $120 to make a statutory declaration to state honestly how you were misled into making this investment.
2. Submit your claim again to the financial institution with the statutory declaration
3. If it is rejected by the financial institution (or rejected again, if you have been rejected earlier), you can submit your claim to FiDREC.
4. If many cases were by other investors were rejected by FiDREC, you can take a collective legal action.

The investors can still hope that the government in Hong Kong or USA can take legal action against on the financial institution. If the financial institution are found to be acted wrongfully, then our government may have to take similar action.
Posted by Tan Kin Lian at 10:20 AM

 

[Ah Hai]

Monday, November 10, 2008
Investors should be aware about the risk: MM
Hi Mr. Tan,
I am quite discouraged by the lack of action by MAS. Even MM said that the investor should be aware that they are taking risk by going for 5%, instead of 1%.

Many investors could have received 2% as they are investing a large sum of money. We thought that the higher interest rate of 5% is due to locking up our money for 5 years, which we are prepared to accept. I was not aware that the product is so highly risky. Why should I risk my total principal just to get 3% more? Does MM know the facts?

What is the best course of action now?

REPLY

I think MM should know the facts as they are contained in several petitions submitted to MAS. They are also well covered in the newspapers.

Although the lack of progress is discouraging for the investors, my suggestions are:

1. Spend $120 to make a statutory declaration to state honestly how you were misled into making this investment.
2. Submit your claim again to the financial institution with the statutory declaration
3. If it is rejected by the financial institution (or rejected again, if you have been rejected earlier), you can submit your claim to FiDREC.
4. If many cases were by other investors were rejected by FiDREC, you can take a collective legal action.

The investors can still hope that the government in Hong Kong or USA can take legal action against on the financial institution. If the financial institution are found to be acted wrongfully, then our government may have to take similar action.
Posted by Tan Kin Lian at 10:20 AM

6 Comments
Anonymous Anonymous said...

Because our government is the biggest share holder of DBS, MM Lee has to protect DBS. Distrust DBS is just like distrust PAP government.

Zhong

10:32 AM
Anonymous Anonymous said...

Do not lose heart just because MM said this. He is well known for his logical mind. He is also known for making the best choice when it comes to the crunch. Obviously the need to pander to the interests of the financial institution is more important to the country than to your interests. The way his mind works is that he cannot possibly give up the work done all these years to woo foreign financial institutions here and then now scare them away. This will then be bad for business and will hinder Singapore's development into a major financial hub. So sorry, the needs of many outweighs your need.

11:01 AM
Anonymous Anonymous said...

MM should be aware about the politcal risks for not understanding the crimes: Investors

11:04 AM
Anonymous Anonymous said...

Again, MAS and Sg government will be behind the curve and will act only following HK. We can only rely HK to drive Sg and hope HK can do something for their citizens, then Sg will be forced to do something for us.

Frank Tan

11:10 AM
Anonymous Anonymous said...

The crux of the matter is not the additional yield for the increased risk.

It is:

1. Failure to disclose the nature of the risk by the financial institutions. It is also probable that the risk events had taken place or was about to take place even before or at the time these junk was sold.

1. Misrepresentation with culpable intent to hide material facts from investors.

3. Mis-selling by bastions of society, ie the financial institutions, in a manner no better than second hand car salesmen. At least,if you bought a rotten second hand car, you still can scrap it for the unused Parf and COe. Here, the only thing you have to show for what you paid your life's savings are a few pieces of documents with the name of Bank who sold it to you. Keep it for posterity and tell your grand children what a fool you have been and warn them that you will turn in your grave if ever any one of them buys another structured product.

11:36 AM
Anonymous Anonymous said...

Will tell my grand childern that I will rise from the grave and haunt DBS and MAS building.

11:53 AM

 

[Ah Hai]

Monday, November 10, 2008
Investigate the creators of the structured products?
Hi Mr. Tan
I see that the International Panel of MAS include the CEOs of Morgan Stanley and Merrill Lynch, who are responsible for creating the Pinnacle Notes and the Jubilee Notes. DBS, which is subsidary of Temasek, creates the High Notes.

Is this the reason why MAS is reluctant to go after these investment banks that created these toxic products?

REPLY
We still do not know if MAS is investing the investment banks that created these structured products. So far, we have not heard of any news from this angle.

The only news is that the distributors are encouraged by the MAS to compensate the "vulnerable" investors in full, and to seek a "fair settlement" with the other investors. It appears that the claims of the non-vulnerable investors are being rejected on the grounds that there were "no mis-selling".

 

[Ah Hai]

Monday, November 10, 2008
Leadership styles
Hi Mr. Tan KL
President elect Obama is a good speaker. But he has no experience at leading a country or even a state. Will be make an effective president? What are your views?

REPLY
I do not wish to comment about President elect Obama specifically.

I like to view my general about leadership. I shall describe them as the "democratic" style and the "authoritarian" style.

The democratic style has the following characteristics:
> the leader has a clear vision with strong values and principles
> is able to attract capable people
> listens to diverse views and make the best balanced decision
> is ready to monitor the implementation and adapt according to the circumstances

The authoritian stlye hs the following characteristics:
> a strong and capable leader
> makes most of the decisions
> attracts loyal followers and implementators
> able to make major decisions and moves fast

Each style of leadership has its strengths and shortcomings. I believe that both style can succeed.

 

[Ah Hai]

Monday, November 10, 2008
Quality of financial advice and fact find
Sunday Times 9 Nov 2008

Under the Financial Advisers Act (FAA), financial institutions and their representatives or financial advisers (FAs) are required to have a reasonable basis for recommending investment products to their customers.

The Act states that an FA must collect and document from the client information such as his financial objectives; risk tolerance; employment status; financial situation including assets, liabilities, cash flow and income; and current investment portfolio.

However, clients may choose not to provide the above information or choose to opt out from receiving advice. In such cases, the FA has to highlight to the client that it is the latter's responsibility to ensure that the product selected is suitable.

The FA may then proceed with his request for the transaction.

The Monetary Authority of Singapore (MAS) has encouraged the industry to improve the quality of advice and extent of fact-find.

It also expects FAs to have additional safeguards when dealing with clients with limited knowledge of investment products and who may find it difficult to understand the features of complex investment products.

Whether there is a breach of the FAA would depend on the facts and circumstances of a particular case.

Breaches of the FAA are punishable by a range of actions, including fines and imprisonment.

In particular, Section 27 of the Act provides that an FA is liable to pay damages to an investor who suffers loss or damage arising from advice that was not supported by a reasonable basis for recommending a certain product.

In addition, MAS may also take other regulatory actions such as issuing a prohibition order to bar the contravening person from providing financial advisory service for a fixed period.

 

[Ah Hai]

Monday, November 10, 2008
Joseph Stiglitz
Joseph Stiglitz shared the Nobel prize in Economics in 2001 for helping to develop a theory of assymetrical information which showed that only under exceptional circumstances are markets efficient.

Prof Stiglitz argued that inadequate regulation has caused the global financial crisis. He argued for stronger regulation relating to corporate governance, pay, lending practices, etc.

Here are some of his remarks in a debate organised by the Economist magazine.

> The current crisis is caused, in part, by inadequate regulation.

> Financial crisis has occurred quite regularly in recent decades. They have occured in developed and developed countries. The only countries that have been spared so far are thsoe with strong regulatory frameworks.

> In each case, the crisis has affected not just the lenders and borrowers, but also innocent bystanders. Workers have been thrown out of jobs. Governments had to intervene.

> Regulations are necessary to restore confidence.

 

[Ah Hai]

Monday, November 10, 2008
Sued for misleading investors
Nov 10, 2008
Suit against Lehman, UBS seeks an order certifying it as a class-action.

LEHMAN Brothers Holdings Inc's Chief Executive Officer Richard Fuld and UBS AG's US brokerage were accused in a lawsuit of misleading investors who bought Lehman's 'principal protected notes' before its September bankruptcy.

The complaint, filed on Nov 6 in federal court in Manhattan, claims Mr Fuld and 10 other past and current Lehman directors deceived investors about the risks of buying notes that are now almost worthless, Bloomberg news reported on Monday.

The suit seeks unspecified damages and an order certifying it as a class-action, or group lawsuit, on behalf of other investors.

Sales documents for the securities 'contained untrue statements of material fact and omitted other material facts', according to the complaint filed by Girard Gibbs LLP in San Francisco.

Lehman didn't disclose that repayment of the debt might be threatened by 'exposure to losses from its real estate and mortgage portfolio', and UBS Financial Services should have 'diligently' investigated the disclosures before helping sell the notes, the complaint said.

Mr George Sard, a spokesman for Mr Fuld, didn't respond to a message seeking comment.

 

[Ah Hai]

Tuesday, November 11, 2008
CBS Videos on derivatives, etc
Dear Mr. Tan,

Here are some links to CBS videos (10-15 mins) on derivatives, CDS, etc. They are eye openers to lay people. These derivatives are more like scams to defraud the investing public. We need to persist to get the authorities to get to the bottom of the matter. Hope you can help in this matter.

Video 1: Derivatives (July 1995)
http://www.cbsnews.com/video/watch/?id=4501762n

Video 2: Credit Default Swaps (Oct. 26, 2008)
http://www.cbsnews.com/video/watch/?id=4546583n

Video 3: Wall Street Shadow Markets (Oct. 5, 2008)
http://www.cbsnews.com/video/watch/?id=4502673n

Report 1: The Bet That Blew Up Wall Street http://www.cbsnews.com/stories/2008/10/26/60minutes/main4546199.shtml

Report 2: A Look At Wall Street's Shadow Market
http://www.cbsnews.com/stories/2008/10/05/60minutes/main4502454.shtml

 

[Ah Hai]

Tuesday, November 11, 2008
New Paper: Structured Products: "What banks don't say about buybacks"
By Larry Haverkamp
BANKS sold us billions of dollars of risky structured products called 'linked notes' for short. They came with big risks, which have led to big losses.

For example:
DBS High Notes 5 are now worthless. Loss: $103 million.
Merrill Lynch Jubilee 3 are worthless. Loss: $28 million.
DBS High Notes 2 sell for 22 cents on the dollar. Loss: $55 million.
Lehman Brothers Minibonds are in limbo. Loss: unknown.
There are more.

Sales have been in the billions over the past 10 years. Banks admit to mis-selling to the elderly and uneducated. But the problem is bigger. Mis-selling extended to everyone since the prospectus mis-stated costs and risks.

Costs
Issuing banks have never disclosed their charges for linked notes. Is this serious enough to require a full refund to all investors?

A precedent exists. In the US and Europe, global banks were required to repurchase $80 billion of auction-rate notes and pay $750 million in fines. Even now, the issuing banks refuse to disclose their charges. They say the law doesn't require them to.

DBS told me: 'Pls understand that certain (pieces of) information, especially re remuneration payouts or the detailed breakdown of how a product is being calculated, are proprietary information. Where required under regulatory or statutory guidelines, we will disclose the necessary.'

Risks
Two risks are not disclosed in the prospectus.

First, default of a 'reference entity' causes the structured product to become worthless. Prospectuses show that risk is less than 1per cent for each entity. Linked notes' first-to-default structure, however, makes the risks additive. For DBS High Notes 5, it adds up to 8 per cent. No one knew the risk was so high. The prospectus never mentioned it.

Second, many linked notes are invested in AA-rated collateralised debt obligations (CDOs), which the prospectus describes as safe.

It says: 'A borrower rated 'AA' has very strong capacity to meet its financial commitments. It differs from the highest rated borrowers only in a small degree.'

While this is true for regular bonds, it is not for CDOs. Ratings are not comparable because CDOs are much riskier.

For example, the default rate of regular bonds ranked Baa by Moody's is only 2.2 per cent. CDO bonds with the same Baa ranking have a default rate of 24 per cent. Only now are we seeing effects of the high risks. Many CDOs have been downgraded. Some are near default.

It explains why banks repurchase structured products at a discount. DBS pays only 22 cents on the dollar to buy back its High Notes 2.

Is this fair? It is hard to say since investors have very little information about the underlying bonds and CDOs.

Hong Kong investors have been more aggressive. In a protest outside DBS headquarters on Oct 20, a sign in Chinese read: 'Product has poison. Asking and reprimanding DBS.' DBS gave in. It distributed a list of the CDOs for each structured product AND had a bank officer explain it.

Singapore investors also have a right to this data. DBS confirmed this when it told me: '...The list of CDOs for the respective Notes are available to clients if they asked for them.' The problem is most investors don't know what to ask for or how to interpret the list. If banks truly wanted investors to know, they could explain on their websites how they arrived at the structured product's value.

Otherwise, there is no way to know if banks are taking advantage of their information monopoly to buy back these investments at too steep a discount. Take High Notes 2. DBS buys them from investors at 22 cents on the dollar. Assuming no defaults, it can simply wait until maturity in 2011 and then redeem at 100 cents on the dollar. For the bank, it is a 350 per cent profit.

 

[Ah Hai]

Tuesday, November 11, 2008
SCMP:Legco likely to pass bill on minibond investigation
http://www.pressdisplay.com.libprox...ab7277217713&pdaffid=8HM4kDzWViwfc7AqkYlqIQ==

11 Nov 2008
Ambrose Leung Fanny W. Y. Fung

Lawmakers look likely to pass a resolution tomorrow invoking their special powers to investigate the Lehman Brothers saga, as intense lobbying from small investors increased the pressure on them.

The marked softening of the Democratic Alliance for the Betterment and Progress of Hong Kong, whose support would ensure the resolution’s safe passage, seemed to increase the likelihood the step would be taken, with some officials privately admitting that the inquiry was a foregone conclusion.

But bankers – who would probably be summoned before a Legco subcommittee if lawmakers passed the resolution – made a last-ditch effort to prevent that step.

In a letter to his Legco colleagues, finance sector lawmaker David Li Kwok-po warned that banks’ efforts to buy back minibonds and other investment products from affected investors could be hindered if the Legco’s Powers and Privileges Ordinance were invoked.

“Bringing the wide powers of the ordinance to bear and subjecting the banks to what amounts to unlimited power to demand documents and the appearance of bank mangers before the subcommittee will only draw resources away,” Dr Li said.

Other bankers voiced similar concerns in a full-page advertisement posted in local newspapers yesterday.

Saying many minibond holders seeking compensation had actually “ entered into contracts with full knowledge of the risk involved”, Dr Li warned that Hong Kong’s status as an international financial centre could also be damaged if foreign banks’ confidential commercial information surfaced during a Legco inquiry.

But with a majority of directly elected lawmakers supporting the move, and the required margin of support from functional constituency legislators just one or two votes away, it appeared likely that bankers’ hopes would be dashed after what was expected to be a lengthy debate tomorrow.

At present, the pan-democrats and trade unionists, plus the three Liberal Party members and some independents support the resolution.

The decision by the DAB will be crucial.

DAB leaders conceded that most the investors wanted a special inquiry. That came after about 200 people who had bought Lehman Brothersrelated investment products protested at the party’s headquarters, urging the party to support the resolution.

They chanted slogans and displayed placards, with three women in the crowd kneeling in front of party vice- chairwoman Ann Chiang Lai-wan to beg for help.

After receiving 1,850 signatures from the investors, DAB chairman Tam Yiu-chung told them that the party had to handle the matter cautiously, taking into consideration the progress achieved in recent days and whether such an investigation would prolong the compensation process.

The party will decide how its nine lawmakers will vote tonight.

Some independent lawmakers who have yet to make up their minds have also shown signs of supporting the resolution.

“I am inclined to support the victims. They have lost all of their savings. What else can legislators do to help them?” said Heung Yee Kuk leader Lau Wong-fat, who declined to say how he would vote.

Meanwhile, a government source said “the battle has already been lost” and further lobbying would be pointless because the DAB was likely to back the resolution.

“It is not the end of the world. The government has nothing to hide.”

Civic Party leader Audrey Eu Yuet- mee, who launched a mass e-mail campaign for the investors to petition lawmakers in support of the resolution, dismissed bankers’ concerns that invoking Legco’s special investigative powers would slow down the compensation process.

Minibonds are not corporate bonds, but consist of high-risk creditlinked derivatives. They are sold as a proxy investment in well- known firms.