Tan Kin Lian's Blog: Marketed to Asians

Wednesday, October 22, 2008

Marketed to Asians

Mr. Tan,

It suddenly struck me that I should share a nugget of the telephone conversation between my Financial Adviser and I which happened about 2 weeks ago.

My FA had unwittingly revealed to me that, after Lehman Bros went bust, the financial institute she is attached to found out that the structured products were protected from the US investors. She added that they were only marketed to investors in Taiwan, Hongkong and Singapore, apparently because these predominantly Chinese cities have cash rich citizens with a money-saving habit. I could tell that she was insinuating that Lehman knew very well then that those were unworthy and dangerous products for their own people. But of course, the "reason" cited for not allowing US investor participation was "owing to tax reasons". Even the term "Minibond" was coined to deceive the unsuspecting investors they had intended to court in this part of the world.

From the above information, I arrive at the conclusion that we Asians have been bullied, and taken advantage of by the faltering American financial giants. A large number of Asians have been suckered, MAS and the FIs here too have been suckered, having not done thorough research before letting onto our shores such dubiously-named, out-to-deceive investment products. In my opinion, we were all fooled BIG TIME!

Why should this Singaporean group of ill-fated investors be pushed to moan, groan, cry foul and battle their way through to convince everyone that they were indeed innocent victims bearing the brunt of a spectacular con job. Why should they be made to bear a substantial loss of their investment capital, made up of their hard-earned life savings?

SF

21 comments:

freeier said...: don't think this is a very fair comment.

US market has always been a non-derivative market, as in alot of retail choose to put their money into pension funds and ETF, or even stocks.

alot of products that are good to asians are not really that well sold in US.

As for UK, the tax and the spread bet regime has alot to do with whether a product is successful or not.. 8-); October 23, 2008 12:10 AM
David said...: I have one from Merrill Lynch in July and it was the 3 year Fixed Income Notes and at only 3.5%. The footnotes in the product description stated:

"The Notes may involve a high degree of risk,... and is not suitable for all investors.
The Notes are not for sale in the United States or to US persons. This material may not be distributed in the United States."

So do others also have similarly worded in the footnotes of their product description/prospectus?
And will such statements absolved the FIs from blame because it also did warn investors (especially the well educated ones) despite what the RMs may have assured verbally otherwise?; October 23, 2008 12:20 AM
kilroy said...: The reason that they are not available for sale in the USA is simply that the securities offered was not filed under Rule 144A of the Securities Act 1933...nothing sinister there...; October 23, 2008 12:44 AM
freeier said...: oh, and the reason why the 'not for sale in US' is placed is more because of the tax regime. you would see the same disclaimer in all research materials and stuffs distributed online.

why ? because uncle sam tax all investment and capital gains. and they expect all broking house and banks to help them withhold capital gain tax on american citizens or american green card holders....; October 23, 2008 12:48 AM
i.mortensen said...: I believe nobody in the US in the right mind would invest in these financial products even if they are available here. Just letting your money sits in a regular savings account in the US fetches almost the same returns as those offered by these financial products.

I looked into my US bank statements from Jan 2007 to Jun 2007, the interest income was 4.85% P.A. with no risk (savings under US$100,000 are FDIC insured) and full liquidity. Some of the Minibonds offered in Singapore around the same period paid only 5% and involved great risk! The spread here is 0.15%, so for every $100,000 invested in the Minibond, the investor would make only $150 extra and have no liquidity for 5 years. No one in the US would buy this deal.

Someone very clever from these investment banks knew that they can get capital from Asia (Singapore, HK and Taiwan) with such bad deals because the savings accounts there don't pay much. I'm sure these investment bankers know what they were doing when they offered these financial instruments to these Asian countries. The US real estate market had already showed signs of problems back in 2006. You can hear this from the US presidential debates from Obama and Mc Cain on TV.

These unethical investment bankers just know how to make a quick buck.

Good luck to those who are involved in these scam.; October 23, 2008 2:19 AM
Unknown said...: A spectacular con job indeed! Even the rating agencies were in on it. See "Credit-Rating Companies `Sold Soul,' Employees Said" -

http://www.bloomberg.com/apps/news?pid=20601087&sid=ac8Bkp_7F4Rc&refer=worldwide

So who should bear the loss, assuming that the FI was equally fooled? The FI thought it was selling product A and the investor thought it was buying product A. Unknown to both parties, the product was Product X. The investor is entitled to rescind the contract and the FI should return the money to the investor and both parties put back to their original positions. The FI would have a right of recourse against the product manufacturer of the product they are distributing. Just because the FI is unable to do so because of the bankruptcy of the manufacturer, it does not mean that the loss should fall on the investor.; October 23, 2008 6:14 AM
G C said...: The Fis own a duty to ensure that the products is suitable to be marketed in our an Asian environment. No one should just think of the commission that they will get with out due consideration given to the investors.

We hope that in future all investment products should only be marketed after detail studies and full and detail disclosure being made known to all intend investors.

The regulations on these kind of products should be tightened up now.; October 23, 2008 8:00 AM
Everlearning said...: It won't happen again because America will take time to fix their own problems due to the financial meltdown.

History repeats itself and I do hope the next round of heartaches and headaches will not come from the two rising powers of Asia.

Henceforth we must equip ourselves by being financial literate. Don't follow the trend blindly. Living on credit terms will surely lead you to debts and downfall.

Take heed!; October 23, 2008 9:33 AM
Anonymous said...: So who should bear the loss and could it be done:
Assuming that the FI and the investor fell into the specific area of Law - Mistake - as it is defined in Contract Law? The FI thought that the investor intended to buy product A and the investor thought that the FI offered him product B. Unknown to both parties and without examing the mind of both parties as to the intention to the product to purchase,
the contract was closed in MISTAKE. The investor should be entitled to rescind the contract and the FI should return the money to the investor and both parties put back to their original positions.; October 23, 2008 9:45 AM
i.mortensen said...: MAS needs to establish stricter rules and regulations to govern its banking industry. The financial institutions are the experts in financial stuffs. If they didn't know what they were selling, then they don't deserve to be around running business. Financial institutions that sold products through misrepresentation should bear full responsibilities. They can't plead ignorance!; October 23, 2008 9:57 AM
Anonymous said...: Did someone mentioned the low deposit rates in Asian countries? Maybe this area needs to be revisited by the authorities. The higher interest paid to depositors in the US may have blocked the sales of these toxic investment products there, causing Asia to be the dumping ground for these toxic waste.

By RTA; October 23, 2008 10:52 AM
Anonymous said...: This is where MAS has failed to protect retail investors

This is where the FI failed in their responsibility to explain product true nature and risk; October 23, 2008 11:00 AM
Anonymous said...: i wonder

has any country actually blocked the sale of these product ? eg malaysia, thailand.

has any FA who may have bought these product, but manage to pull out from these just when they got the wind of the collapse of lehman brothers ?

If FA knewn that the health Lehman brothers is crititcal to these products, why were there no update or advice to investor to withdraw ?
FA sleeping or know nuts ?

???; October 23, 2008 12:00 PM
Anonymous said...: Just my 2cts of input!
The US govt/ Federal Reserve bailout Freddie Mac & Fannie Mae while letting Lehman collapsed subsequently. The reality was that the buyers of Freddie Mac/Fannie Mae mortgage securities were foreign sovereign government eg. PRC, Japan & South Korea. They were flushed with US$ due to their export oriented economies & were prohibited from investing other than in these securities. Thus the foreign treasuries were reimbursed for their loss due to security reasons (US cannot offend North Asia govts) & the fact that if it is not done, the US govt & economy would collapse as no one would buy US govt securities and fund their balloning deficit.
The Lehman situation was different. They were cowboys! They were structuring complex & speculative products (based on derivatives, not on a tangible asset like shares or property backed mortgage) to sell to unsuspecting customers. Even a financially astute person would have trouble understanding their products. The local marketing banks & their financial advisors do not even understand the risk profile of these products & were psycho'ed to tagging the structured products as 'capital-protected' or 'capital-assured' which was not the case! They were doing it cos the commission was more lucrative than plain vanilla unit trusts which was based on diversified share portfolio (eg. asset backed).
As the end consumers were not sovereign govts but politically weak retail buyers from Singapore, HK & Taiwan - there was no security reasons for the US govt to salvage Lehman nor to compensate the hard-working, thrifty savers from Asia looking for higher returns.
In the end, the US screwed the overseas Chinese people while they kow-towed to the North Asian govts!; October 23, 2008 12:45 PM
Anonymous said...: Even with the new offer of swap , we may know the 7 or 8 underlying reference entities, but how about the basket of 100 companies. What happen there are 3 or 4 already rotten? (2) Can monthly CDP statement provide the indicative price of such product to let investors know their investment worth. eg if one knows the minibond series 1 pricing is below par, he would not have continue to invest in the subsequent series.; October 23, 2008 2:00 PM
Anonymous said...: This whole saga is a SCAM ! LB should have known their financial positions and repackage such products to con ASIAN !; October 23, 2008 4:18 PM
Anonymous said...: Same fate in DBS HN2 & Pinnacle 6 & 7!
DBS HN 2 CDOs basket of 100 names - 3 have defaulted and need 2 more to burst.
Pinnacle 7 CDOs basket of 125 names - 4 have defaulted and need 5 more to burst.
More....; October 23, 2008 4:55 PM
freeier said...: malaysia is complex. they have two parties approving investment products. political and most time they do not understand what's the underlying behind. that said, they do approve products that we view as bad... and barred product we think are decent. so its tricky.

thailand is very much a closed market yet. trying to open up. so they are still protective of their investors.; October 23, 2008 11:01 PM
Anonymous said...: Hi 4.55PM,
U see I suddenly wake up to this bad dream and realized that what i had invested was not sound investment.
Do u know about the situation for Pinnacle 5? How many in the basket and how many have defaulted? How many defaults will it take to go burst? Kindly enlighten me...; October 23, 2008 11:07 PM
MARTHO2008 said...: I like to add to what " tiang" said. A great American president used to say " you can fool some people some of the time, but not all people all of the time".
But in this Minibond Saga, many people ( included the very educated ones in high places )have been fool.

This is like SARS, very infectious,
many educated ones also been hit by this virus.We are not immuned.
We Are conned , so should be compensated. FIs should not stuck their heads in the ground like the ostrich. FI should admit there is failure in screening this product for sale. Just like SARS we must find the cure, prevent another pandemic! FI must take this bitter medicine too if they want to recover their customers' trust.; October 24, 2008 6:59 AM
Anonymous said...: Hi 11:07PM,

Pinnacle 7 CDOs basket of 125 names - 4 (Lehman Br, Freddie Mac, Fannie Mac & WAMU) have defaulted and need 5 more to burst. Most of the 125 CDOs I have never heard before.

As for Pinnacle 5 CDOs basket, I suppose there should have 100 to 150 names and Lehman Bro, Ferddie Mac, Fannie Mae and Washington Mutual might be in the list.

It is ideally for U to call the FI to find out.

Rgds!; October 24, 2008 6:27 PM