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

[Ah Hai]

Tuesday, November 04, 2008
Presence of disclaimers in prospectus
Presence of disclaimers on Lehman-linked structured products prospectuses are a poor excuse at absolving financial institutions from blame
Written by Ng E-Jay
03 November 2008

Some discussion has been going around that the disclaimers on the prospectuses of the Lehman-linked structured products legally protect the financial institutions from blame, since those disclaimers clearly state that there is a chance that investors might lose some or all of their money in the event that certain unfortunate circumstances materialize.

For example, a statement on first page of the DBS High Notes 5 pricing statement reads: "If a Credit Event or a Constellation Event occurs before the Maturity Date, investors may lose their entire investment and may not receive any principal amount on the Notes." This statement was printed in bold.

A similar warning was printed on the cover of the pricing statement of Lehman Minibond Series 3: "There will be no guarantee from any entity to you that you will recover any amount payable under the Notes and you could lose all or a substantial part of your investment in the Notes."

And on page three of the same document, it said: "… the Notes are not principal protected nor capital guaranteed".

Is it true that such statements legally protect the financial institutions from blame? Perhaps so. If a collective lawsuit by investors materialize, this point may be challenged in court, and who knows, the ruling might be made in favour of investors.

My contention is that those statements and disclaimers do not morally protect them from blame, even if they do so legally. In other words, the financial institutions have committed a breach of ethics even if they have not committed a breach of law. The presence of disclaimers on Lehman-linked structured products prospectuses are a poor excuse at absolving financial institutions from blame, especially moral blame.

First and foremost, how many investors took these disclaimers seriously, even if they had read them on the first few pages of the prospectuses and they were printed in bold? Most would assume that the financial institutions were merely stating worst case scenarios for the mere sake of legally protecting themselves should the unthinkable happen. It is likely that most investors thought that such extreme scenarios had negligible probability. Did the sales representatives take special effort to mention that such extreme scenarios were not in fact impossible, but could actually occur, and in fact did occur many times throughout financial markets history?

How many sales representatives took the effort to emphasize the potential risks and pitfalls of these products to investors? How many of them made sure that investors knew there was a chance that all their money could be lost, that in financial markets history many banks had indeed failed when a crisis hit? I suspect not many. Most of them were probably too caught up in trying to make the sale that they downplayed the potential risks. Some investors say that the risk of the worst case scenario happening was played down by relationship managers who genuinely believed at the point of sale that the possibility of a credit event was close to zero.
Many retirees were offered the Lehman products even although the products were clearly not suitable for their investment horizon and risk profile. Even if a disclaimer was present in the prospectus that the investor could lose all his/her money, that fact that the product was even offered in the first place to an inappropriate investor itself constitutes mis-selling. This is a violation of the Financial Adviser's Act. This mis-selling is further compounded by the fact that some investors put all their life savings into a single product, in stark contravention of the principle of diversification, which the sales representative should have clearly advised.

However, even if we were to ignore the Financial Adviser's Act, the fact remains that bank sales personnel and financial advisers' representatives are to a large extent held in esteem by retirees and people who are not very well educated, because they are often assumed to be conversant in and knowledgeable about financial products. Some investors have said that they trusted their relationships managers so much that they simply went with whatever was recommended and did not bother to read the documentation.

To offer such a high risk product to these groups of investors and at the same time pay inadequate attention to the potential risks therein constitutes a breach of faith and trust on the part of sales representatives. Worse still, it has been shown that many of the sales representatives themselves do not know the mechanics about how these products actually work, when people actually assume them to posses adequate knowledge and training.

Finally, the strongest reason I submit why the sales of these Lehman products constitute a breach of ethics and morality is because these products are manifestly not suitable for retail investors to begin with, regardless of the risk tolerance of the individual investor. Only institutions and hedge funds should dabble in such volatile instruments like Credit Default Swaps, or invest in such potentially toxic products like Collateralized Debt Obligations with investors' money using large amounts of leverage.

The Financial Adviser's Act does not really address the issue of when an investment product is unsuitable for a particular investor, or for all individual investors. It only covers aspects like proper documentation of a client's financial status and what constitutes due diligence. I call on MAS to expand the scope of the Financial Adviser's Act to address such issues concerning complex financial instruments and structured products, and to enforce much more stringent audits and checks on financial institutions to ensure that due diligence and fair selling occurs at all times.

 

[Ah Hai]

Monday, November 03, 2008
Spain Lets Jobless Postpone Half of Mortgage Payments
Nov. 3 (Bloomberg) -- Spain will allow unemployed workers to put off paying half their monthly mortgage payments for two years, Prime Minister Jose Luis Rodriguez Zapatero said today, part of a series of measures aimed at softening the impact of a shrinking economy.

The postponed payments, up to a maximum of 500 euros ($640) a month, will be repaid from January 2011 in installments, Zapatero told a news conference in Madrid today. The measure, which applies to mortgages under 170,000 euros ($218,000), could be used by more than 500,000 people, he said.

While the government will guarantee the payments due from 2011, the banks will bear the cost of the two-year postponement, said a spokeswoman at the Finance Ministry, who declined to be identified in line with policy.

 

[Ah Hai]

Tuesday, November 04, 2008
Indicate price of Pinnacle Notes as at 20-10-08
Prices as of 20 OCT 08 - quoted by OCBC Securities


USD SGD
Pinnacle Series 1 5.60% 5.61%
Pinnacle Series 2 5.42% 5.95%
Pinnacle Series 3 16.24% 16.13%
Pinnacle Series 5 8.82% 8.86%
Pinnacle Series 6 5.90% 5.43%
Pinnacle Series 7 5.65% 5.59%



The prices are very low. Most of the notes (except series 3) have lost more than 90% of their value
Posted by Tan Kin Lian at 1:57 AM

 

[Ah Hai]

Tuesday, November 04, 2008
Flaws in financial planning industry
Lehman-linked structured products tragedy exposes persistent flaws in our financial planning industry

http://www.sgpolitics.net/?p=1004

 

[Ah Hai]

Tuesday, November 04, 2008
Market Discipline and Caveat Emptor
Read the message
http://www.mas.gov.sg/news_room/sta...M_at_MAS_Staff_Seminar_2002__29_Oct_2002.html

Address by Deputy Prime Minister Lee Hsien Loong,
Chairman, MAS
At MAS Staff Seminar
29 October 2002
Market Discipline and Caveat Emptor

22. Our efforts to promote market discipline and a caveat emptor regime have focussed on enhancing the amount, quality and timeliness of information disclosed by institutions. We have shifted from a merit-based supervisory approach to a disclosure-based approach that emphasises market discipline to incentivise financial institutions to conduct their business in a sound, efficient, and professional manner. The local banks in particular have significantly improved their disclosure practices.

23. We must continue to update our disclosure standards in line with industry developments and international best practice. Furthermore, the mindset change is not yet complete. The public still expects to be protected from downside risks, for example when playing the stock market, but more so when depositing their money in banks. Hence one major motivation for introducing deposit insurance is to change this mindset, and get people to understand that only a limited first tranche of their deposits with a bank is protected should the bank run into trouble.

24. But disclosure by itself is not enough. It must be accompanied by investor education. Investors have to understand and use the information provided to them. They must learn to make sense of this information and use it to look after their own interests. We also need a pool of knowledgeable analysts and journalists who will shine the spotlight on any obscure fine print that the lay investor fails to notice. A more informed and sophisticated investor base will reinforce market discipline and form the basis for a more vibrant and mature financial sector. In all these respects, we have a long way to go.

25. Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”
Posted by Tan Kin Lian at 7:41 AM

 

[Ah Hai]

Tuesday, November 04, 2008
Should financial markets be more strongly regulated?
This debate is conducted by the Economist magazine. 59% of readers are in of stronger regulation. Read the arguments:

http://www.economist.com/debate/days/view/225/print

Prof Joseph Stiglitz of Columbia University (who obtained 59% support) said,

Part of a new regualtory system must be a financial products safety commission, to make sure that no products bought or sold by commercial banks or pension funds are "unsafe for human consumption". Ideally, such a commission would try to encourage the kind of innovation that would protect homeowners and make our economy more efficient.

Prof Stiglitz was referring to subprime mortgages. His remarks can also apply to mini-bonds and credit linked notes.

 

[Ah Hai]

Tuesday, November 04, 2008
Open Forum with OCBC Bank/Securities
MESSAGE

We would like to invite all investors who have invested in the Lehman Brothers Minibonds, Merrill Lynch Jubilee and Morgan Stanley Pinnacle Notes through OCBC Bank/Securities, to participate in an open forum with OCBC.

This invitation is open to investors regardless of whether you have or have not attended an interview with OCBC. We are going to request for Mr Hwang Soo Jin, the independent party appointed by the Monetary Authority of Singapore to oversee OCBC complaints process, to be present at the forum, as we are keen to share our concerns with him.

We have set an agenda for the forum and are extending this invitation to gather as many investors as possible. We believe that with more investors attending this forum, OCBC cannot ignore our request and will consider more seriously the appeal of all affected investors.

Please submit your name (with some proof that you have invested in one of the above-mentioned notes through OCBC Bank/Securities), your email address and contact number to Miss WM , [email protected] by 7 November 2008.

The date for this forum is not yet confirmed, as we have to arrange this with OCBC. You will be advised when this arrangement is finalised.

Melvin
On behalf of the
OCBC Bank/Securities Investors' Group

 

[Ah Hai]

Tuesday, November 04, 2008
Market Discipline and Caveat Emptor
Read the message
http://www.mas.gov.sg/news_room/sta...M_at_MAS_Staff_Seminar_2002__29_Oct_2002.html

Address by Deputy Prime Minister Lee Hsien Loong,
Chairman, MAS
At MAS Staff Seminar
29 October 2002
Market Discipline and Caveat Emptor

22. Our efforts to promote market discipline and a caveat emptor regime have focussed on enhancing the amount, quality and timeliness of information disclosed by institutions. We have shifted from a merit-based supervisory approach to a disclosure-based approach that emphasises market discipline to incentivise financial institutions to conduct their business in a sound, efficient, and professional manner. The local banks in particular have significantly improved their disclosure practices.

23. We must continue to update our disclosure standards in line with industry developments and international best practice. Furthermore, the mindset change is not yet complete. The public still expects to be protected from downside risks, for example when playing the stock market, but more so when depositing their money in banks. Hence one major motivation for introducing deposit insurance is to change this mindset, and get people to understand that only a limited first tranche of their deposits with a bank is protected should the bank run into trouble.

24. But disclosure by itself is not enough. It must be accompanied by investor education. Investors have to understand and use the information provided to them. They must learn to make sense of this information and use it to look after their own interests. We also need a pool of knowledgeable analysts and journalists who will shine the spotlight on any obscure fine print that the lay investor fails to notice. A more informed and sophisticated investor base will reinforce market discipline and form the basis for a more vibrant and mature financial sector. In all these respects, we have a long way to go.

25. Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”
Posted by Tan Kin Lian at 7:41 AM

Tuesday, November 04, 2008
MAS has the power to investigate and bring a court action
Posting #68 in
http://theonlinecitizen.com/2008/11/1017-hav-signed-fourth-petition-to-mas/#comment-29561

Statement by Mr. Lee Hsien Loong in 2006

25. Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”


In the first Petition signed by 983 investors, there was a call for MAS or CAD to investigate into any wrong doing by the financial institutions that created or marketed the product. So far, there is no news on this matter.

I hope that they will "investigate and bring a court action for market misconduct".
Posted by Tan Kin Lian at 5:40 AM

 

[Ah Hai]

Tuesday, November 04, 2008
10,000 SACRIFICIAL LAMBS
Sent to me by RW

Is it worth sacrificing 10,000 loyal and trusting customers in order to remain in the good books of greedy Wall Street "investment" banks ?

Instead of fighting for the rights of 10,000 individuals with limited resources, why are we still defending the "mighty" investment banks shamefully bailed out with Billions, actually, Trillions of taxpayer funds all over the world, and yet, some commentators are saying these 10,000 victims should receive nothing ( except for a few "wayang" vulnerable cases ) ?

Is trying to compete to be THE financial hub, when the financial industry is in ruins, causing untold pain on individuals and pension funds, perpetrated by these discredited "investment" banks, holding back the authorities from acting, when in the US, law enforcement agencies have compelled these "investment" banks to COMPLETELY return all money to victims ?

Would moral hazard be NOT an issue anymore as no one in the right mind will touch any financial product ever again ?

Recipe for a toxic financial product ?

Buy cheap sub-prime mortagages. Chop them up. Toss in junk bonds. Blend together for 10 minutes. Chop the mess into smaller, digestable lots. Mix with some respectable names. Ask the Ratings Agencies to dress them up with AAA+ grade. Give them "high" sounding names, like mini-"Bonds" ( Lehman ), "Pinnacles" ( Morgan Stanley ), "High" Notes ( DBS ), "Jubilee" ( Merill Lynch ), etc from "trusted" institutions.

Why have US Law Enforcement Agencies ( FBI, SEC, US Attorneys for Manhattan, Brooklyn and New York State Attorney General , etc ) successfully prosecuted and are presently prosecuting Wall Street investment banks and their ex-top executives, and compel the COMPLETE return of all victims' money ?

RW

http://www.nytimes.com/2008/02/02/b...scp=1&sq=Massachusetts + Merrill Lynch&st=cse
By ERIC DASHPublished: August 21, 2008

Three major investment banks — Merrill Lynch, Goldman Sachs and Deutsche Bank — will soon buy back at least $12.5 billion in auction-rate securities and pay $162.5 million in fines as part of separate settlements reached Thursday with state regulators.

In earlier settlements, Citigroup, JPMorgan Chase, Morgan Stanley, UBS and Wachovia agreed to buy back $35 billion of the securities and pay more than $360 million in fines. Several other firms, including Bank of America, are negotiating deals.

 

[Ah Hai]

Tuesday, November 04, 2008
SCMP: Regulators have let down investors badly
http://www.pressdisplay.com/pressdi...d00ea406b4cd&pdaffid=8HM4kDzWViwfc7AqkYlqIQ==

4 Nov 2008
Frank Ching is a Hong Kong-based writer and commentator. [email protected]
Chief Executive Donald Tsang Yamkuen talked in his policy address of Hong Kong’s position as an international financial centre and spoke of “ optimising the supervisory framework” as though it were already very good. Alas, one can tell from the protests outside banks in recent weeks by investors complaining about being lured into unsound investments that the supervisory framework is far from satisfactory. In this connection, Premier Wen Jiabao
was much closer to the mark when he called on the Hong Kong government to “seriously learn the lessons” from the financial crisis and “analyse the problems with the structure of Hong Kong’s economy and regulation of its financial system”.

More than 43,000 people have lost money from investing in Lehman minibonds. Mr Tsang said that the Monetary Authority and the Securities and Futures Commission “will examine how to further strengthen the regulatory regime and enhance investor protection”. That is shutting the stable door after the horse has bolted. If banks had been under much tighter supervision, these tragedies could have been avoided.

The SFC, like its counterparts elsewhere, has a code of conduct for banks and other licensed or registered institutions. Its first general principle states that institutions should “act honestly, fairly, and in the best interests of its clients”. Can Hong Kong’s banks say, hand on heart, that they have acted in the best interests of their customers when persuading them to buy a risky product that investors did not understand?

One of the commonest complaints is that investors did not know what they were getting into because banks did not make adequate disclosure. This is in direct violation of General Principle Five, which says an institution “should make adequate disclosure of relevant material information in its dealings with its clients”.

Paragraph 5.3 is specifically about derivative products. This says that whoever provides “services to a client in derivative products” should make sure that “the client understands the nature and risks of the products and has sufficient net worth to be able to assume the risks and bear the potential losses of trading in the products”. Would Hong Kong be in this mess if the banks had abided by this provision?

General Principle Six warns against conflicts of interest. But in a system where banks pay their relationship officers bonuses for making a sale, these employees have a clear conflict between their own interests and those of their clients. What should be done?

According to General Principle Nine, “the senior management” should “bear primary responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper procedures”.

The minibonds issue shows that banks sell risky products to retail customers not meant for them. Under the code, sophisticated financial instruments should only be sold to “professional investors”, a term that is carefully defined. This is a problem the SFC doesn’t seem to be sufficiently aware of. Its chief executive, Martin Wheatley, has been quoted as saying that investors should have ensured they knew what they were buying. If the responsibility is on the investor, what is the point of having a regulatory body?

Under the SFC’s code, a bank needs first to satisfy itself as to whether a client’s financial situation, investment experience and investment objectives make it appropriate to recommend a particular product. Such requirements are waived in the case of a “professional investor”.
Mr Wheatley seems to assume that all bank clients are professional investors. That is not the case. It is why the SFC’s code says banks cannot treat anyone as a professional investor unless he or she agrees in writing to be treated that way, and the client can withdraw from that status at any time. It seems that no one is regulating our regulators.

 

[Ah Hai]

Tuesday, November 04, 2008
Dr Lan Luh Luh – your further clarification is required.
Posted at request of Richard Woo

Firstly, it is heartening to note that Dr Lan is cognizant, from her own experience [she “talked to some of them on many previous occasions”], that “quite a number” of the financial managers [RMs?] had no understanding of the products they were selling. A good start for you, Dr Lan.

But we do not know how many RMs she had spoken to, on those “many previous occasions”, and whether they were the same persons or different persons. “Some” here can mean two or three only and if Dr Lan had spoken to only two or three people, it would not be accurate to say “quite a number of them did not even understand…” Furthermore, an extrapolation from the past may not be an accurate reflection of the present; the ones she spoke to may not be the ones who are doing the selling today; the latter may be more knowledgeable or better educated.

Secondly, Dr Lan commented: “Although I understand that many of these financial managers are required to go through related financial courses and tests (and that these tests are not necessary easy to clear), the fact that there can be so many alleged mis-selling incidents may indicate that some of these people themselves might not have been adequately trained.” There is no question that mis-selling has occurred, with regard to the so-called structured products linked to Lehman Brothers. Would Dr Lan agree with this statement, taking into account that several distributors have begun making restitution for having mis-sold?

Would Dr Lan also agree that when these products were being flogged to the public, the distributors made no distinction as to whom the products should be sold? In other words they were selling to every Tan, Lim and Chua, male or female, elderly or young, educated or illiterate? Would she agree that some of the sales measures, including promotion advertising material, adopted by some, if not all, distributors were clearly out of sync with the inherent risks of the products? Would she agree that these products were high-risk investments?

I refer now to the last paragraph of Dr Lan’s clarification: “Under these circumstances, the normal investors who are supposed to be savvy and understood the products they bought cannot complain subsequently when the products turn bad. In Lehman's case, actually many might know about the risk (i.e. they may stand to lose all if the banks collapse), but who would have heard of 6 months ago that any American bank, esp. one as strong as 158-year old Lehman, would go into liquidation? This is generally the worst risk -- almost like an unthinkable apocalypse -- and in this case, it materialized. So barring all the talks about misselling etc., people who knew the risk but just thought that it would never materialized cannot complain.”

The last sentence seems to be the lynchpin of the entire paragraph. So, am I right in saying that Dr Lan is not excluding the right of “normal investors” to seek restitution for mis-selling, provided they can prove that they had been mis-sold, through misleading adverts and other misrepresentations made by the RM? Would Dr Lan discount the possibility that any distributor having mis-sold to A could also have mis-sold to B, or X or Y?

Finally, Dr Lan, [1] how do you define “normal investors”? and [2] whether there is anything in law that distinguishes “normal investors” from other investors?

BTW, to all those who have mistakenly assumed Dr Lan as a male, Dr Lan is a “she”.

Richard Woo

 

[Ah Hai]

Tuesday, November 04, 2008
Keep sadness and hatred to themselves
Dear Mr. Tan,

I refer to the plight of a small group of investors who uses their CPF funds, namely the SRS retirement fund, to purchase Lehman Brothers minibonds.

I am sure many of these investors were literate in stocks but not sophisticated
enough to understand the instruments used in a complex structure like minibonds especially back in early 2006. In those days when subprime and CDO problems have not surfaced, only Lehman Brothers and maybe the distributors knew how good a product Minibonds are.

And i know several of these investors keeping the sadness and hatred to themselves. Maybe they were literate and they believed in the brochure and had not read further. Some i heard are government servants and they dont want to voice their feelings. I wonder why citizens in First World countries should hide their feelings.

Back in the early launch of the minibonds I and II, retirement funds were allowed to be invested. Shortly thereafter all later series of minibonds were not
allowed to be invested with retirement funds.

Most of these investors receive mailers (like that attached) from the distributors in their letter box. Some of them receive it month after month . Looking at the brochure itself you can tell the strong powerful entities are in bold. The small prints if there is, will refer you to refer somewhere else (you got to get) from the distributors where they will elaborate on the "junk" CDO. The brochure also shows the investor sitting safely on the shoulder of a strong gaint. Isnt all these misleading.

One investor told me, after looking at the quality of the reference entities of the brochure and since he has not invested in bonds before(when most of his investments are in risker stocks), he decided to use his long term old age retirement funds (SRS) to buy some safe bonds. Yes altho he did this all on his own accord but knowing SRS is allowed for minibonds , he was more confident of the product and immediately sign up to purchase the bonds. His intention and objective of using retirement funds are definitely safe and security and long term.

This is definetely not appropriate to allow retirement SRS funds to be invested in something unsafe that can have $0 value. Something totally not right to call quality bonds when they are not bonds at all . A brochure that shows you sitting on the shoulder of a safe strong gaint. That is all totally misleading.

I think a caring government ought to debate on whether this group of investors who are educated but prefered something safe with retirement funds but was misled by the brochure and have kept quiet because they are afraid the government is not happy if they were to voice their opinion. I think we should ask why retirement funds was allowed for bonds I and II and why they were removed for subsequent minibonds and who should bear this responsibility.

Miss W

 

[Ah Hai]

Tuesday, November 04, 2008
Keep sadness and hatred to themselves
Dear Mr. Tan,

I refer to the plight of a small group of investors who uses their CPF funds, namely the SRS retirement fund, to purchase Lehman Brothers minibonds.

I am sure many of these investors were literate in stocks but not sophisticated
enough to understand the instruments used in a complex structure like minibonds especially back in early 2006. In those days when subprime and CDO problems have not surfaced, only Lehman Brothers and maybe the distributors knew how good a product Minibonds are.

And i know several of these investors keeping the sadness and hatred to themselves. Maybe they were literate and they believed in the brochure and had not read further. Some i heard are government servants and they dont want to voice their feelings. I wonder why citizens in First World countries should hide their feelings.

Back in the early launch of the minibonds I and II, retirement funds were allowed to be invested. Shortly thereafter all later series of minibonds were not
allowed to be invested with retirement funds.

Most of these investors receive mailers (like that attached) from the distributors in their letter box. Some of them receive it month after month . Looking at the brochure itself you can tell the strong powerful entities are in bold. The small prints if there is, will refer you to refer somewhere else (you got to get) from the distributors where they will elaborate on the "junk" CDO. The brochure also shows the investor sitting safely on the shoulder of a strong gaint. Isnt all these misleading.

One investor told me, after looking at the quality of the reference entities of the brochure and since he has not invested in bonds before(when most of his investments are in risker stocks), he decided to use his long term old age retirement funds (SRS) to buy some safe bonds. Yes altho he did this all on his own accord but knowing SRS is allowed for minibonds , he was more confident of the product and immediately sign up to purchase the bonds. His intention and objective of using retirement funds are definitely safe and security and long term.

This is definetely not appropriate to allow retirement SRS funds to be invested in something unsafe that can have $0 value. Something totally not right to call quality bonds when they are not bonds at all . A brochure that shows you sitting on the shoulder of a safe strong gaint. That is all totally misleading.

I think a caring government ought to debate on whether this group of investors who are educated but prefered something safe with retirement funds but was misled by the brochure and have kept quiet because they are afraid the government is not happy if they were to voice their opinion. I think we should ask why retirement funds was allowed for bonds I and II and why they were removed for subsequent minibonds and who should bear this responsibility.

Miss W

5 Comments

Blogger hn said...

One investors told me that for those that invested 5 or 10k, they gave up.

10:26 PM
Blogger Tiang said...

That is true. The fight is long and hard. The FIs have unlimited resources. The documentation had been worded to protect the FIs. It is so clear that many small investors have been deceived by attractive and misleading brochures. But our authorities keeping totally silent when securities firms told investors that they didn't sell them the products and are not obliged to comply with FAA. Now only those who have lost huge sums or very well-educated are still fighting.

Abandoned and betrayed

12:43 AM
Blogger bsd said...

MAS should stand up to take leadership over this fiasco.. before the general public loses more trust and confidence in our banks

3:36 AM
Blogger Ross said...

Miss W,
Very well said. Exactly the same reason why many did not show up in Hong Lim Park, why many did not sign the Petitions, why many did not send in the complaint, etc.

Why, because they are very, very sad.

Why, because they have already lost precious, hard-earned, life-savings.

Why, because, after losing their precious savings, they do not want to lose their jobs, if they are working in the government service, government-linked companies, stat boards, the military, even the banks and FIs !!!

Why, because unkind, uncaring commentators in mainstream media are deriding the victims, without disclosing their own vested interests.

Why, because victims feel betrayed and abandoned by authorities who are hell-bent on protecting the wrong-doers.

BUT, you can be sure that these victims are very, very angry and will NOT forget. They have not lost $10, $100, or even $1,000. They have lost TENS of THOUSANDS.

5:29 AM

 

[Ah Hai]

German banks next to be hit

FRANKFURT - SEVERAL l German savings banks which were considered safe from international financial turmoil could suffer from business done with state-owned regional bank WestLB, a press report said on Wednesday.

Between 2003-2006, Duesseldorf-based WestLB sold high risk securities to several savings banks in the northwestern state of North Rhine-Westphalia that now face 'high asset devaluations' according to the business daily Financial Times Deutschland.

The securities are so-called CDOs, or collateralised debt obligations, which are basically a portfolio of fixed-income assets that were sliced up and sold to investors.

CDOs were the category of investments most affected when the US market for high-risk, or subprime, mortgages collapsed in mid 2007.

Several savings banks have filed complaints against WestLB, charging they were poorly advised by the bank which they say sought to pass on the risky investments to others, the newspaper said.

The state-owned savings banks have not been seriously hurt so far by the financial crisis that emerged when the US subprime market collapsed, though they have participated in several major bailout plans for banks that were affected.

WestLB, in which local savings banks own a stake of 50.4 per cent, said on Monday that it would seek government assistance via a banking sector rescue package, but has not said how much help it needs.

Two other state-owned regional banks, BayernLB in the south and HSH Nordbank in the north have written down the value of their assets by large amounts, and have also decided to take advantage of the government bail-out plan.

It offers up to 80 billion euros (S$152.4 billion) in cash injections and up to 400 billion euros in guarantees for interbank loans. -- AFP

 

[Ah Hai]

Thursday, November 06, 2008
Business Times: Kudos to CIMB-GK and UOB-Kay Hian
By SIOW LI SEN
CIMB-GK and UOB-Kay Hian have broken ranks with the industry by offering to buy back in full the original Minibond investments from vulnerable investors, without deducting interest already earned.

By doing so, the two firms - one, Malaysian-owned, and the other, the broker arm of United Overseas Bank (UOB) - have done what just about every player in the financial services industry typically pays only lip service to and doesn't carry through: differentiating itself from the pack. CIMB-GK is owned by CIMB Group, Malaysia's second largest financial services group.

To recap, 10 distributors here sold failed Lehman Brothers-linked products worth a total of $639 million. They were ABN Amro Bank, DBS Bank, Maybank, Hong Leong Finance, CIMB-GK, DMG & Partners, Kim Eng, OCBC Securities, Phillip Securities and UOB-Kay Kian.

After some prodding from the regulator, DBS Bank, Maybank, Hong Leong Finance and four brokers said they would compensate vulnerable elderly investors (defined as those with not much education and little investment experience) the cost of their investments, minus the interest or coupons already paid. As for other investors, compensation would be decided on a case-by-case basis.

But CIMB-GK and UOB-Kay Hian said that, for vulnerable investors, they would buy back in full the original cost of their investment, irrespective of interest earned.
CIMB-GK chief executive Carol Fong explained the decision as 'appropriate, given the goodwill we have built among our customers'. A UOB-Kay Hian director told BT the company will also buy back the whole thing from the vulnerable group, with no deductions of interest already paid out.

Insiders said there had been quibbling among the distributors over the whole issue of compensation, such as who would qualify as vulnerable and the amount to be refunded.

The banks were said to have resisted going the full hog because they were the biggest parties in the whole affair.

But gouging back the interest paid seems rather petty, especially in view of the total amounts sold, and lost.

It is interesting that it is two brokers which are doing the right thing, rather than the big banks, which normally are seen as taking the lead.

Cynics will, of course, point to the fact that the amounts sold to vulnerable investors by these two brokers were small relative to the others. That could be because sales were done through their remisiers, who typically do have a more informed relationship with clients.

CIMB-GK disclosed that only less than 2 per cent of its total sales of $19 million of the Lehman-linked products or $380,000 were to vulnerable investors. UOB-KayHian said it sold less than $250,000 in value of these products to those considered vulnerable.

By contrast, DBS last month said that, based on the number of cases it reviewed, the bank estimates that total compensation in Singapore and Hong Kong is in the range of $70-80 million. This includes vulnerable customers and cases of mis-selling.
In all, DBS sold a total of $360 million of these failed products to 4,700 customers in Singapore and Hong Kong.

Matthew Wilson, a Morgan Stanley analyst, calculated that in basic financial terms, the amounts sold by DBS are immaterial to the bank's financials. Products sold amount to 13 per cent of its net profit for 2007, he said.

But the potential harm to the reputation of DBS is more serious and harder to calculate. As for Maybank and Hong Leong Finance - which are popular with locals here given that much of their branch networks are in the heartland areas - they too will have to work hard to rebuild trust.

On the other hand, CIMB-GK's gesture is not likely to be forgotten when its sister unit CIMB Islamic Bank launches Islamic banking in Singapore - targeting both the retail and business markets - over the next 12 months.

When the chips were down, and even though it may have been a small thing, CIMB-GK did it right. Ditto for UOB KayHian.

 

[Ah Hai]

Thursday, November 06, 2008
Is mis-selling a market misconduct?
In a speech made in 2002, Mr. Lee Hsien Loong, who was then chairman of Monetary Authority of Singapore said,

"Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”

Someone commented in my blog as follows:

"Alamak this market discipline referred to is not referring to mis-selling to auntie uncle and ah poh and ah kongs...is to prevent pple from insider trading leh...or market manipulation...but its a good step in the correct direction!! "

Is the mis-selling of mini-bonds and other credit linked notes considered a market misconduct? Was Mr Lee Hsien Loong referring only to market manipulation in 2002?

What do you think?
Posted by Tan Kin Lian at 1:18 PM

 

[Ah Hai]

Thursday, November 06, 2008
SCMP: Democrats drop legal bid after deal on Lehman products
http://www.pressdisplay.com/pressdi...a6caf8dc01f8&pdaffid=8HM4kDzWViwfc7AqkYlqIQ==

6 Nov 2008
Joyce Man

The Democratic Party has dropped plans to sue several banks over allegedly mis-sold derivative investments because the banks have settled with complainants.

Party chairman Albert Ho Chunyan had intended to file writs against the banks for six claimants, who had spent millions of dollars on investment products linked to collapsed investment bank Lehman Brothers. They reached settlements with the banks yesterday.

Standard Chartered said it had resolved “a few cases” since Tuesday, including at least one yesterday, and Bank of China (Hong Kong) resolved four new cases yesterday.

A 67-year-old woman with an 80year-old mother who needs money for surgery settled with Standard Chartered yesterday, Civic Party legislator Audrey Eu Yuet-mee said. The daughter had bought HK$500,000 in Lehman-related equity-linked notes.

A Standard Chartered spokeswoman said at least one case had been settled yesterday. She declined to disclose any details of the settlement or say whether the agreement was based on evidence of mis-selling, but said the bank was discussing settlements with elderly customers and those with little investment history.

Elsie Ho, a representative of the Standard Chartered complainants, said it was “ a positive step” and showed the bank was sincere. “Their senior management has always had a good attitude,” she said. “ They always responded to our requests, even if they sometimes were slow.”
Also yesterday, Bank of China (Hong Kong), which had earlier settled with two customers, reached settlements with four others. They were people in their 70s who had invested sums ranging from tens of thousands of dollars to more that HK$1 million in minibonds through the bank, a spokeswoman said.

Minibonds are not corporate bonds, but high-risk, credit-linked derivatives marketed as proxy investments in well-known companies.

DBS said payments to holders of two series of Constellation structured retail notes had been made on Friday.

The Hong Kong Monetary Authority said yesterday that banks should let customers who purchased Lehman investment products hear recordings of meetings with their agents. It said some banks had declined requests for the recordings from customers who purchased investment products from them.

“It is the view of the HKMA that as a matter of fair and responsible business practice, banks should allow customers to listen to the recordings of their telephone conversations with bank employees,” said the authority’s executive director of banking supervision, Nelson Man. He did not say, however, that customers had any right to the recordings.
The customers could be accompanied by a friend, relative or adviser or to take notes while listening to the recordings. Banks should provide investors and their advisers with information on the collateral underlying minibonds, he said.

The Securities and Futures Commission, which regulates brokerages, said investors had “no right to tape recordings unless through some compelled discovery process”, such as a lawsuit.
It said in a written reply to Ms Eu: “Usually firms that have tapes will play them for clients to resolve complaints, but this is a voluntary act and they do not always give the investors a copy of the relevant tape recording.”

 

[Ah Hai]

Thursday, November 06, 2008
SCMP:Investor cool-off pondered
http://www.pressdisplay.com/pressdi...8fd5ec04bb4d&pdaffid=8HM4kDzWViwfc7AqkYlqIQ==

6 Nov 2008
Joyce Man

The Securities and Futures Commission will consider imposing a cooling-off period for investment contracts in light of the minibond debacle.

The move comes after some investors in complicated financial products complained that agents only provided crucial documents – which would have changed their investment decisions – after they had signed investment agreements.

“The SFC will consider whether the relevant sales contracts should contain a ‘cooling-off period’, during which investors may unconditionally terminate the contracts,” Secretary for Financial Services and the Treasury Chan Ka-keung said yesterday.

It would investigate the feasibility, merits and shortcomings of implementing a cooling-off period for other investment products, he said, without elaborating.

He was responding to legislator Raymond Ho Chung-tai, chairman of a Legislative Council subcommittee on Lehman minibonds and structured financial products, who wanted to know how the commission was educating small investors.

Andrew Fung Wai-kwong, a district councillor who has been helping investors complain to banks and demand compensation, said a coolingoff period would help them in future. “There is nowhere to run,” he said of the current arrangement, “and this would provide them with a way out.”

The commission is also considering more provisions for educating investors during the 2008-09 financial year.

From October 2006 to September this year, the commission produced 12 television programme episodes, broadcast 108 radio segments, published 130 newspaper articles, and issued 69 videos for broadcast on 1,000 buses, all containing educational messages for investors. It also organised 127 seminars and several university courses.

It has issued leaflets and brochures on stocks, funds, bonds, structured instruments and other products, with advice on how to choose brokers and investment advisers.
Since 1997, it has also provided investment information on television and radio, and organised quizzes and competitions to inform investors.

 

[Ah Hai]

SINGAPORE: Singapore will have an expansionary budget next year to help its citizens cope with weaker economic growth.

Senior Minister Goh Chok Tong said this at the launch of Home Improvement Programme (HIP) for some flats in Marine Drive on Thursday evening.

He said Singaporeans should brace themselves for a more difficult time next year, but the government will try to generate growth and help Singaporeans face the tougher times.

Mr Goh added that although many are now concerned about costs, Singaporeans should not save excessively.

"If all of us go into a power save mode, then the economy will really go into a recession! This is what economists called the Paradox of Thrift. If you have sufficient savings and can afford to spend, you should continue to spend on life's little pleasures.

"Take your family to the movies, shop, dine out at restaurants and hawker centres, go for your regular foot massage, indulge yourself at a spa, take a taxi, donate to charity and so on.

"This way, we keep the economy going. In fact, I would say when times are a little slow, you could get the best bargain," the senior minister said.

Mr Goh, who is also the chairman of the Monetary Authority of Singapore (MAS), assured those who bought structured products linked to failed US investment bank Lehman Brothers that the country's central bank is looking after their interests.

He explained that the MAS cannot announce every action that it takes because of market sensitivity.

Mr Goh said: "MAS has to be measured in its actions and statements because what it does has long-term implications on the confidence of investors in Singapore.

"To be fair and transparent to everyone, MAS has to communicate to all investors at the same time through public press statements. Hence, MAS cannot reply to any particular group of individuals or individuals who write to MAS on what it intends to do."

The senior minister pointed out that the financial crisis has caused major stock markets to plunge in value.

He said: "Standard & Poor's reported that in the month of October alone, almost US$6 trillion had been wiped off 52 stock markets worldwide – that is 36 times the GDP of Singapore last year or three times Singapore's cumulative GDP since 1960!

"In the same month, the Singapore stock market lost S$120 billion (-24%). Because of the fear of global economic slowdown, the booming commodities sector has taken a hit.

"Since reaching a high of US$147 per barrel in July, the oil price has plunged by more than half to US$61. Few countries and few investors have been spared from this unexpected global financial tsunami."

Mr Goh said MAS will try to make sure that Singapore does not get swept away in this financial tsunami. Its responsibilities include ensuring Singapore's financial system remains stable and that affected investors of troubled structured products get a fair hearing from various financial institutions.


- CNA/so

 

[Ah Hai]

Friday, November 07, 2008
Minibond Saga in better explained form
Hi Mr. Tan,

The name "Minibonds" itself is a misleading word for investors. Whatever money you have invested in this "Minibonds" are not invested in bonds of the six reference banks or bonds issued by Lehman Brothers. This is how it works.

Lehman Brothers may or may not buy any bonds from the six reference banks but it is just using these banks as "reference entities", some sort as a "bet" with Minibonds holders. There are basically 5 entities involved in the Minibonds arrangement.

1) Lehman Brothers as the credit risk swap partner.
2) Lehman Brothers has created an empty shell company Minibond Ltd which will issue the Minibonds to investors.
3)The investors.
4) Forth, the money taken from investors will be invested in a basket of AA financial products from 150 companies which includes CDOs which is basically collateral debts obligations, some of them are related to SubPrime debts.
5) The reference entities which have nothing to do with investors' investment other than being a betting reference: i.e. if any one of them failed, it would be a credit event that make investors lose money to Lehman Brothers.

For simplicity to understand the whole arrangement, just take it that Lehman Brothers has bought some bonds from these six reference entities and it needs somebody to insure its risk of exposure to these banks. It did not insure its risks from insurance companies like AIG but instead, via this Minibonds arrangement, bought insurance from investors like you.

Through the Credit Risk Swap, you as an investor has agreed to sell insurance to Lehman Brothers with regards to the reference entities. In order to become an insurance agents of Lehman Brothers, you will need to come up with money as collateral. This money is collected from you via the financial institutions that you bought the Minibonds and given to Minibond Ltd to invest in a basket of CDOs issued by 150 companies.

Whatever returns from these CDOs issued by these 150 companies (variable returns) are given to Lehman Brothers. In return, Lehman Brothers will give Minibonds Ltd a FIXED premium (most probably higher than 5.1%) and Minibonds Ltd will give investors 5.1% returns for their investment. Now, the variable returns from the Collateral Assets may be higher or lower than 5.1% but investors will only get back 5.1%. It means that Lehman Brothers will take the risk of variable returns from these Collateral Assets in return for your risk taking on the reference entities. This complete the Credit Risks Swap, swapping your risks of variable returns for a fixed returns, while you in return, insured Lehman Brothers for their risk exposure to the Six reference entities.

The problem is that Minibonds Ltd, under the control of Lehman Brothers, may choose to invest in a higher risk instruments or CDOs because it would be very profitable if the returns from these investment is higher than 5.1% that Lehman Brothers promised you. Especially so, when they do not need to bear the risks of defaults these CDOs or any of the assets in the basket of Collateral Assets. The returns from these Collateral Assets, they take but you bear the risks of defaults from these assets. Under the contract, once a CREDIT EVENT happens, the whole arrangement will be liquidated. The Credit Event involves:

1) If any one of the reference banks failed, it is considered as a Credit Event and the investors will have to pay Lehman Brothers for the insurance it bought via the Credit Risks Swap. Meaning, investors will lose all money invested.

2) If more than 11 companies of the 150 companies listed in the Collateral Assets failed, or a certain percentage of the CDOs or credit-linked derivatives held as Collateral Assets go into default, the whole Minibonds will be liquidated and any loss from these defaults will be born by investors (not Lehman Brothers).

But the definition of Credit Event does not includes the failing of Lehman Brothers as the Credit Risks Swap partner. Thus, at this moment, investors do no face immediate liquidation of the Minibonds and suffer immediate losses. However, investors RISK losing a lot of money due to the fact that the value of the basket of CDOs and other credit-linked derivatives held as Collateral Assets has devalued tremendously due to the present financial crisis. The likelihood of a credit event triggered by the failing of a substantial number of companies within the list of 150 is very high at this moment.

Furthermore, as Lehman Brothers has gone into bankruptcy, it will no longer give you the 5.1% as it promised and in this financial crisis, the variable returns from the basket of CDOs and credit-linked derivatives would be nearly zero as most of them are linked to SubPrime products.
1) What was sold to the unsuspecting and gullible investors ? Is it a Credit Default Swap( CDS ). What is a CDS ?

Credit Default Swap, also commonly known as Credit Risk Swap, is a mechanism whereby two parties "exchange risk". In this case of Minibonds, it is totally an UNFAIR swapping. The "RISK" Minibonds Investors swapped with Lehman Brothers is the VARIABLE RETURNS from the basket of Collateral Assets they implicitly invested via Minibonds Ltd controlled by Lehman Brothers. However, the risk of the failing of the whole basket of Collateral Assets are not insured by Lehman Brothers. Thus, Lehman Brothers will not compensate investors if they lose money due to defaults of the CDOs and credit-linked assets held in the basket of collateral assets!

This is where the tricky part is. Lehman Brothers could use Minibonds Ltd to invest in many HIGH RISK financial derivatives to get very high variable returns and it will benefit from these returns while only giving back a fixed 5.1% to investors. But if these HIGH RISK derivatives failed, investors will have to bear the brunt. On the other hand, Lehman Brothers has used the Six Reference banks as a risk bet to Minibonds investors. It seems to me that using such reference entities of "Low Risk" nature as Credit Default Risk exchange is MISLEADING as it creates an impression of "LOW RISKS" while in fact, the amount of RISK investors born is very much higher as they are responsible for the risk of the Collateral Assets!

2) What is the purpose of REFERENCE ENTITIES ( REs ) ?

The REs are prominently displayed in the brochure and fooled us into thinking we are investing in their bonds. As explained, the Reference Entities are just a reference of "Risk" that Lehman Brothers is swapping with you. Your money invested did not invest in these banks but rather in a list of 150 companies' credit-linked derivatives which may be of HIGH RISKS nature. The main Risk that investors is taking lies in the basket of Collateral Assets.

3) The money collected from investors, what did they do with it.

The money collected from investors are invested in a basket of HIGH RISK derivatives issued by 150 companies. High risk derivatives may give high VARIABLE returns but the returns from these High Risk derivatives was swapped by the arrangement of CREDIT DEFAULT SWAP, to Lehman Brothers. That means that investors are bearing the HIGH RISKS of this basket of derivatives (not bonds, but CDOs and credit-linked derivatives) but Lehman Brothers has taken all the returns from these derivatives and in return, only promised to give you a FIXED return of 5.1%!

4) The REs have not defaulted,but the value of our investments have plumetted to almost zero. What is the rationale behind this incomprehensible senario?

Although the REs have not defaulted but the basket of HIGH RISK derivatives that your money actually invested in as a basket of Collateral Assets has actually diminished due to the financial crisis that we are facing. Although you as investors have not enjoyed the high returns from these high risk derivatives (which you have swap and given to Lehman Brothers for 5.1% return) but you bear the risks of defaults or devaluation from these financial derivative instruments.

5) Did the distributor misrepresented this product and/or concealed the material fact ?

a) From the many descriptions given by investors with regards to the information they received from sales representatives, it is a CLEAR MIS-INFORMATION and MIS-REPRESENTATION of this product. The RISK you faced is not LOW as the failure of any one of the six reference entities. You, as an investor, also face risk of defaults or devaluation of the basket of HIGH RISK financial derivatives issued by the 150 companies and yet, you did not enjoy FULLY the potential high returns from these instruments but taking the risk of these instruments!

Basically it means that, somebody used your money to invest in HIGH RISKS products and keep all the potential HIGH RETURNS from your investment but in return, they only give you back a FIXED 5.1% and you bear all the risks of defaults and devaluation of these products. I believe if this is represented properly to you, many investors would not be investing in this product. I mean, who wants to bear all the HIGH RISK while taking back only a FIXED 5.1%?

b) I am not in the position to say whether "they knew but did not tell you" or they conceal any material facts because I am not vested and would not know whether those front line sales representatives actually know what they are selling in the very first place. I believe not many people really understand this Lehman Brothers Minibonds when it was first sold. If those financial elites at MAS actually study the whole structure carefully, they would realize that this Minibonds is DETRIMENTAL to consumers' interests and it is a totally UNFAIR Credit Default Risk Swap as Lehman Brothers controlled the Swap Party Minibond Ltd.

I hope this explanation is clear enough for you to better understand and appreciate the whole Minibond Saga.....

LLK