Friday, September 19, 2008

DBS High Notes

Dear Mr Tan,
You were always very critical on structure products from Bank.
And you are right!
Thanks for the previous posts on such structure products.

Sep 18, 2008, The Straits Times
DBS High Notes investors at risk
Bank warns they may lose entire stake in Lehman-linked product
By Francis Chan

SOME local investors of a product linked to bankrupt investment giant Lehman Brothers have received late-night phone calls from DBS Bank warning them that their entire stake may be wiped out. The investors have their cash in a product called DBS High Notes 5 that the bank offered wealthier clients last year. It came with a promised annual return of about 5 per cent.

But Lehman's collapse on Monday means the product will be unwound and investors may only get a portion of their investment back - or none at all.


Thank you for sending this news article to me. I am now in Jakarta and was not aware about this event. It is so sad that many people have lost their money in this "credit event".

Perhaps the small investors who lost their savings should ask MAS to look into the structure of this product, and why should the "credit event" cause a lose of their entire savings? Where did the money go?

FAQ on Structured Investment Products


an said...

Perhaps we small investors in such DBS products can join forces and pressure DBS?

Falcon said...

Many rich people are rich bait for these bankers. Why would one take such a high risk for the potential of earning 5%? Such high risks of losing everything should give a potential return of more than 100%!
What is the use of calling them up late at night to warn them? This will only lead to a sleepless night. As usual, the banks are just covering themselves. I do not think that it will completely go down to zero but they are just using a psychological technique, as usual, to manage the expectations of their treasured customers. So when eventually 50% is returned, the rich, but not so clever, client, can then heave a sigh of relief and thank the relationship manager for all that he has done to help recover their money. Rich clients, you will do better by coming to this blog and learn a thing or two on investing, and do it yourself. If you have any questions on investing, you can post it here and I am more than willing to share some investing knowledge with you. All for free. No commissions, no fees, no late night calls. :)

kung said...



zhummmeng said...

High risk is not necessary high return but high return requires high risk.
I am sure you were told about all the credit entities being AAA rated and the chance of one credit event was far fetched, right? I am there are at least 2 credit events but Lehman alone is enough to wipe off your capital. You probably would get back
about 30%. Historically the recovery rate is about 45%.
Too bad.No one expected a AAA rated company to go belly up.
However if you have misrepresented or misled by RM or the recommendation was inappropriate in sofar as your needs and financial circumstances you have a case against the bank. You can take it up with FIDREC or CASE.

David said...

What about those linked to Merrill Lynch and offered by our banks? Will it be as bad although Merrill is sold and not collapsed like Lehman?
Is there great cause for worry for the likes of Morgan Stanley and Goldman Sachs as well?

zhummmeng said...

If there is no default there is no credit event. In other the buyer must honour Merril's liabilities.

Impartial said...

Mr Tan,

I agree with you that banks to charge a higher premium for services such as FX and they take a big spread on products that they structure. But I think you would agree with me that a bank is afterall a profit driven organisation and has to answer to shareholders. Mercedes cars are extremely expensive but people are willing to pay a premium and we don't see people griping against Cycle&Carriage.

With regards to the recent high notes and mini-bonds saga, I'm sure each investor was given the necessary documents and have signed off against it. Yes, no doubt there was probably a lot of legal jargon and financial terms that many may not understand. But if the investor chooses not to read or does not understand and does not exercise your rights during the cooling off period, who's to blame? If the investor did not understand, why did they sign off against the documents? Unless they can prove that they did not understand that signing represented a legal and binding contract in which they declare they understood the product.

If the investor chose not to take the effort to understand where your hard earned money is going into, I think they should bear the responsibility if the investment were to turn sour.

Some additional food for thought. Is it a fair justification for the investor to seek compensation base on the fact that they did not understand the product when times turn bad? If yes, then do you think its also fair that in good times the bank recalls the product and takes your profit if they can justify that the investor did not understand the product upon purchase as well. Afterall, no one forced the client to invest.

I'm not siding the banks in anyway but I felt that investors should also take responsibility in the investment making process. I personally felt that blaming the distributor for products is not right. Afterall the distributor probably did not expect such an outcome as well.

Mao said...

Before surgery, patient (if concious) should ask the successful rate. Whatever answer is given by the surgeon, patient dicision is final.

I am sure there is no 100% safe in any surgery. In case of complication, patient and family have to take it with a possiblity of "GOOD BYE".

Now, your financial institution or X financial product say "GOOD BYE" to you and your family/community are suffering. The possible cause is complication. Who to blame?

Invest in a new product, just like a Q into ICU of a hospital!


Everlearning said...

I remembered vividly that when Temasek Holdings pumped in billions to rescue Merrill Lynch this year, a financial product was promoted by Citibank and Standard Chartered (somewhere in June). My Citibank banker told me this was a rare opportunity and a good investment because many people were buying into it.
I wasn't persuaded because "Merrill Lynch" was told to me as the distributor. My banker assured me that a well-established investment bank like Merrill Lynch will not fold-up.
Of course, BofA took up ML to the relief of many investors.

mini-me said...

Hi everyone,

My parents used their retirement fund to purchase the High Note 5 when their relationship manager kept persuading them to take up this investment - saying that it was capital guaranteed and has low risk.

The potential loss that my parents face is a substantial amount which could possibly wipe out their entire savings.

Is there any possible recourse that we, high note 5 investors, can take? And how do we contact DBS directly to lodge a complaint regarding misrepresentation by the relationship manager - is there a specific email or phone number?

Note: the relationship manager did not even contact my parents with regards to the collapse of Lehman Brother. I had to call up DBS 1800 hotline to enquire if my parents were exposed to High Note 5 incident. Should a relationship manager be acting in such a manner and is DBS going to be accountable for this - they should have make proper analysis before structuring such product?

Anonymous said...

I am not sure about now, but I remember at the DBS branches, whenever I want to do simple transactions at the counter, I am always harassed by some banking officer to buy this and that investment package. The 5 min they promised becomes 20min.- I know that this comment might be out of point in the whole debate, but I want to say that I really hope that consumer interests can be protected while pursuing shareholder value.... maybe my next life la

Anonymous said...

It seems like the High 5 notes is 8(5) times more risky rather than having 8(5) times less risky. I think it is just like buying 5D, if you don't strike 1D, you loss all your money. I remember when I went to DBS, I will show a long face whenever the RM approach me to buy any products. I look stupid at that time.

tums said...

I am an investor in both DBS High Notes 2 and High Notes 5.
My complaint is,first,the bank did not warn the investors that one of the reference Entities (Lehman) is in financial trouble and the investor should take a decision on the notes as there is a substantial risk. On the contary, I have in my possession the letter written by Brandon Lam on 27 th June 08, in which he informed the downgrading of HN5 notes, but goes onto say "collateral rating does not constitute a credit event. A market-to-market decline in HN5 also represents a paper and not actual loss" The tone is to encourage the investor to hold on to the notes.
Secondly, while there are 8 reference entities, it is not clear how the value of the note can go down to zero with the failure of one entity.
MAS should ensure that valuation will not be manipulated to bank's advantage.

Anonymous said...

Dearest reader just remember this when you walk into and shops or even the most reputated shop sales people job is just to meet the sales target. Regardless the consumer interest.This is life.

Anonymous said...

Hi all

I think it all these some responsibilities must be borne by the investor. Why is it 'mis-selling' when losses crystallizes?

Should it not have occurred at the point of the sale, and not on any market event?

If we do not wish to have a patrochial type of govt but come running to them at the first hint of trouble, I guess we are really infants with respect to our lives and personal finance.

It is perhaps no wonder that the CPF and CPF annuity schemes are a 'must-have' for the citizens here. Otherwise, most of us would consider taking the boats back home to our villages like our forefathers did, except this time it would be in the opposite direction.

Thank you and regards
Chuan Kok Hooi

Anonymous said...

I do believe that the investors of High note 5 have a strong case against DBS if they wish to recoup all their money. Within this year alone, DBS sent out a few letters to the investors to "reassure" them. However in one of the letters, the explaination regarding how the principle amount invested in High note 5 will be affected is deeply flawed. This is proof that DBS is quite clueless about how the product actually works. I urge all investors to seek legal redress as I believe DBS is standing on shaky grounds as a result of the release of the above letter to the investors. The letter is sent sometime around March 2008 by a Vice President of DBS named Brandon Lam.

Anonymous said...

I just saw the following note on the DBS website for High notes 2.

* DBS has exercised the option to redeem High Notes 2 at par on 13 December 2009.

Does it mean we will get back the full value we invested?

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