Wednesday, October 29, 2008

High risk from inception

Dear Mr. Tan

One of the crucial issues that MAS has to consider is whether all these structured products that have come to grief can be categorized as high risk products from the time they were rolled out to the public. If Lehman Brothers has not become insolvent, would it make the scenario any different, with regard to the question of the underlying risks of the products?

Surely, the answer must be No. If an evaluation of these products [with Lehman being Arranger and Counter-swap Party etc] were to show that they were highly risky to investors, then the risks would remain unaltered regardless of the financial status of Lehman for much of the term of the investment, or until the investors were repaid their principal.


If the consensus is that these structured products were highly risky investments, then it was grossly irresponsible for any distributor to sell them to retail investors without making clear the risks involved, or by making misrepresentations of the risks involved, or closing the deal with the investor despite knowing, from risk-analysis, that this was against the risk-profile of the investor - let alone adopting a marketing strategy promoting them as safe or sound investments through the use of such terms like “Invest on solid foundations” and “With our Minibond Series 3 credit-linked to six major financial institutions, you can enjoy the returns you deserve with peace of mind.”

Any misrepresentations made by the RMs would of course constitute a legit ground for seeking restitution from the institution[s] they were representing. MAS should come down hard on the distributors who had mis-sold or misrepresented, instead of blurting out "This group should have understood the risks of investing in these products and take responsibilities for their actions”, clearly a prejudicial or arbitrary comment.

Richard Woo

9 comments:

VS said...

Globalisation, sub-prime crisis, future of USD etc.

This economist gave this presentation aound Feb-08. He described the making of the current financial crisis in an easy to understand manner, drawing on the cultural differences between East and West, how the East was exploited by the West etc. He alleges that USA is the master financial criminal of all times. You are free to draw your own conclusions.

THE GLOBAL ISSUES AS PRESENTED BY AN INDIAN ECONOMIST. It is quite scary.

http://video.google.com/videoplay?docid=4343898391323537541

-VSL

Anonymous said...

I feel that somewhere someone has not done the right thing to let those toxic product go into the market. Now that DBS has admitted that there are cases that have not met the standards set by the bank. Which means mis-selling and misrepresentation did occurred and we want to see how the errant FIs are going to be punished.
Even town councils have invested in products linked to Lehman Brothers according to news reports. I wonder whether these town council have invested in structured such as High Notes and Minibonds that were sold by the same FIs and whether the town council would considered these products were mis-sold to them and whether they will take any action to recover the lost.

Anonymous said...

Richard,
10,000 investors will agree with you but so.....sigh

ph he said...

As long as the RM / sales rep. did not hightlight the following at POS, it must be considered as mis-selling /misrepresentation:

- that it could lead to the loss of the entire investment.

I think this the most crucial element because if it had been mentioned/highlighted, almost NO one would ever invest in it!

Anonymous said...

one of the key reason SOME societies consider the outcries of the masses is becos the masses ACTUALLY cry out loud on the streets.

traffic, NOT ONLINE TRAFFIC, actual traffic does come to a stand still.

this doesnt happen on the Little Red Dot. the masses get detained, one, two or many many. Every. Permission is NOT granted, sorry. Read MacBeth - Respect is not about Love, its about Fear.

Public Agencies dont like to play judge, they dont want to point fingers. Not especially the defense involves National Bank.

Anonymous said...

It was pre-meditated fraud right from the start with the name "Minibond". Why did MAS allow this very misleading name to be used when this product is not a bond at all ?? Are they sleeping on the job or what ??

Try calling it "MiniBomb" and see if anyone will buy !!

Anonymous said...

When I discussed this issue with my friends who are all well educated, I realized most of them did not understand the whole picture. As that is not their money, they do not bored to know what really happened. So does the MAS & goverment. But the leader of MAS and goverment have the responsibility to understand the full picture. However, until now, Mr Lee still said, investor should responsible for their own decision. Maybe he still think the loss is same as other investments. He may not know the loss is due to cheating, criminal. He can not ask consumer take their responsibility to buy the toxic milk powder.

Anonymous said...

10,000 investors - Minibonds 8,000, DBS HN5 1,400 & ML Jubilee 350.

There are more:

*DBS HN Series 1,2,3,9,10 & First to Default link notes. DBS is both the arranger, issuer and distributor.

*Pinnacle Credit-linked Notes Series 1,2,3,5,6,7,8,9.10.11,12,15 & 16. Morgan Stanley is the arranger & issuers. The distributors are CMIB-GK Securities PL, DMG & Partners Securities PL, HLF Ltd, Kim Eng Securities PL, Philip Securities PL, OCBC Securities PL, RHB Bank Berhad & UOB Kay Hian PL.

FAs & RMs are of a disparity of quality among themselves. There is fraudulent misreprsentation in those who are well verse in the structured product whereas there are reckless & innocent misrepresentation acted recklessly or in belief of the structured product as a safe investment which they do not understand or not qualified to advise. Whatever it is, the FIs being the employers of them are fully responsible for the misrepresentation of their employees in respect of the structured products sold to the unsuitable investors.

Kevin

CC said...

Absolute prejudicial, and very sweeping statement!
Contradicts their statement of looking into each case and everycase.

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