Tan Kin Lian's Blog: Reputation as financial services hub

Friday, October 24, 2008

Reputation as financial services hub

Hi Mr. Tan,

I have been quietly watching you championing for those who have lost their money at minibonds and High Notes. And, I must congratulate you as it is a good first success step that ST reported that the 3 banks may compensate the "vulnerable".

I have to tell you that I also bought the minibonds, series 2, although a small sum only.

I did not seek out for such an investment. I think I went to May Bank 2 years ago to do an FD, and the RM sold it to me.

Also, with the explanation, I was given to understand that I bought the bonds of these 7 organisations. Bonds should be quite safe right esp if held to maturity?

I remembered very clearly that I asked him what was the risk?

He told me that the risk is - if any of the 7 organisations went under , then I would lose the portion depending what is the percentage of the bonds. So, I calculated the risk. At most 1 company go under, then I should still get back he rest of the money from the balance of the bonds in the basket I remembered asking him this scenario, and he did not disagree with me. Looking at the list of the 7 big companies, the chance of 1 going under is slim leave alone more than one company going under.

No time during our conversation was Lehman Bros a risk analysis factor.

My friend, who has low risk appetite and is an accountancy grad, is also affected when she bought High Notes (given the understanding that in the worse case scenario, she would get the full sum back if held until maturity). Again, she did not seek out the investment, she went to DBS to do an FD.

Hence, my main point here is that - it is not only the vulnerable is affected. Someone with degree is also affected.

The Govt need to deal with banks who gave misleading info to consumers , if it wants its banks and our financial services here to retain a reputation as a reliable financial service hub.

KKW

19 comments:

Anonymous said...: When I was interviewed recently by an FI using MAS format, one of the question is your highest education level to which I put down, Diploma in Engineering but illeterate in Credit/financial market. Hope the remarks will reach MAS to re-assess the word illeterate.

HS; October 24, 2008 8:56 AM
Anonymous said...: Dont think I will ever buy any more products from the FI. I WILL STICK TO SHARES AND CURRENCIES, risk that I understand.; October 24, 2008 9:10 AM
Anonymous said...: So what if you are a Finance graduate or a MBA graduate, even MAS and all the FIs are fooled.; October 24, 2008 9:14 AM
Anonymous said...: Dear Sir
I make reference to a letter in today's Straits Times' forum, and would like your views and comments on it. Especially the point that ordinary shareholders of the banks being affected if everyone get back compensation in full.
I've read and understand your views with regards to mis-selling and your proposal of sharing 50-80% of losses.

Also, I've read some of the comments by your blog readers demanding compensation in full, which I feel its not really justifiable especially under the current climate.

My position;
I'm 38 & married. I've been learning to invest in the local stock market since 1992 and am still learning. I've positions in bank shares here as well as several unit trusts with half that's well below my purchase price. And thru my elderly father, we've experience the non-performance of a structured product (Sept2003 - Sept2008).

For your reference, the ST forum letter;
==================================
Buy back at current market value
I READ with interest recent articles on the Lehman Brothers structured products.

While I sympathise with investors who have incurred losses, demands for compensation by the banks selling these products are unreasonable.

Singapore banks should follow the example of Hong Kong and buy back the investments at their current market value, which is what all investors are entitled to.

Any compensation beyond current market value would be borne by shareholders in the banks, as a result of negative implication on the banks' share prices.

Why should tens of thousands of passive shareholders in local banks have to bear the losses of 10,000 investors, as a result of the latter's greater risk-taking behaviour?

This would be like the scenario in the United States, where innocent taxpayers have to bail out greedy sub-prime mortgage originators.

In cases of gross mis-selling by the banks, I agree relationship managers should bear the consequences of their reckless, hard-sell tactics.

For retirees who have been hard hit by the loss of their savings, the Singapore Government, which has so far urged the financial institutions to 'do what is right', should itself 'do what is right' and implement off-Budget measures with more reliefs to this group of investors.

Tay Wi Keng
==================================
http://www.straitstimes.com/ST%2BForum/Story/STIStory_294182.html

Sincerely
twei

ps: i'm not the writer of the ST forum letter, but i do share his sentiments; October 24, 2008 9:24 AM
Anonymous said...: Hi (User of 9:24 AM) and (ST Forum's author Tay WK),

I do not share your sentiments.

This is bank misselling, fraud is involved. Both the Bank and RM should be penalised.

The innocent passive shareholders of the bank is unforunate case, but they are willing investor. They can choose not to invest.

On the other hand, the innocent taxpayers (in subprime crisis) is the genuine unforunate ones. They cannot choose not to pay tax. Now they paying the price for someone's mistake.

That's the difference.

- OTB -; October 24, 2008 9:49 AM
Anonymous said...: Tay Wi Keng,
I believe you agree with me that brand name is very important, some brand name even worth millions of dollars.

If a FI made mistakes and keeps insisting on evidence where the mistake is normally done verbally, the FI will, normally win the case, save the money(as compensation) but lose the reputation and hence affect their value of their brand name.
Take for example, if DBS were to announce it will compensate all the S$ 360Million, DBS will still make money this quarter !!!
Let me ask you a question, will compensation of S$ 80 Miilions (with quarterly profits exceed half a billions)affect the share price od DBS so much ?? it is now trading below $11!!; October 24, 2008 10:28 AM
Anonymous said...: In response to Tay Wi Keng: "Current market value" - a rational statement but what if 'market value' is zero? Another technical terminology to 'mampus' the affected investor and to protect the FI. Do you really recommended this?; October 24, 2008 10:33 AM
Anonymous said...: Shareholders should go after the CEO and the management for letting in toxic products. You should take to task at the next AGM and grill them for mismanagement.
For the investors who were misled, mis-sold and misrepresented they are entitled to full compensation. The malpractice amounts to cheating. Cheating is a serious crime.
Investors should be restored to where they were before being cheated.
The banks are stalling hoping that that there will no legal suit against them .The legal suit will cause more harm to the bank than paying the full compensation to the investors.Share prices of these banks may plummet; October 24, 2008 11:12 AM
Unknown said...: KKW, well said.

I believe that the MAS has singled out the elderly and less well educated as a vulnerable group to settle their predicament, as this group of people may be very emotional and resort to measures which will be regretable.

Are we then to assume that the younger set of investors who may be well educated, are not also equally affected by this whole Lehman debacle and may resort also to regretable measures to solve their problems (as a means of escape from reality i.e. losing their entire life savings or even savings which may have been entrusted to them by their elderly parents who have worked hard for many many years and now see their savings all gone).

I appeal to all the relevant parties (FIs, MAS, Securities Firms) to expedite their actions and settle cases of clear cut mis-selling and misrepresentation to avoid regretable actions taken by affected investors.

The longer we delay, the longer the anguish faced by affted investors.

Concerned Investor; October 24, 2008 12:32 PM
vertigoer said...: People looking for Fixed Deposit are not considered investors. Primarily, the returns are low compared to unit trust are available everywhere.

So, people doing FD are not investors and not savvy on "Credit event' etc.

The bank has chosen a wrong customer base to sell such investment and it is clear case of mis-selling.; October 24, 2008 1:49 PM
Anonymous said...: If no one admits to the mistakes, no reform is then possible.; October 24, 2008 2:12 PM
whattodo said...: If we were to adopt this type of buyer beware attitude and push all the responsibilities on to the consumer, the milk powder manufacturer could have put "Melamine" or its chemical symbol on the packaging and sell it. Majority of the consumer will not know what it is. I only know that "Melamine" is a harmful substance not to be used in food after the saga is exposed in the media. By the way I do have a degree and I did not sleep during my chemistry lessons.; October 24, 2008 2:16 PM
Xtrocious said...: To anonymous (11.12am)...

Isn't the regulator (gatekeeper) even more at fault for letting such toxic financial products for sale to retail investors (in what I've read, these are not even investors in any sense of the word - retirees and other people looking to put their money in FDs)...

Forgive me if I digress - but I don't know whether to laugh or cry when I read the Page 2 commentary in the ST today (24 Oct) - "there is nothing financial wrong with the Lehman products", or something along these lines, writes senior writer of the paper...; October 24, 2008 3:30 PM
Anonymous said...: If you are a small shareholder, the share price drop will affect you very little.
The drop in dividend will also be very minimum.
If you are a big shareholder, you are already very rich, and the money mean very little to you. So why shd u be so "heartless" to the poor victims?????; October 24, 2008 8:56 PM
Anonymous said...: I think the ST writer does not understand the structured product so give her a break.; October 24, 2008 8:56 PM
Anonymous said...: i have friends working in banks 'getting it left and right' on a daily basis. This is a very unfortunate case, dont take it out on someone/anyone just becos they work in the bank that sells you a product that went south esp if they are not the ones selling the desfunct product to you. Aiyo.; October 25, 2008 12:10 AM
Anonymous said...: American had lost their faith, trust and basic integrity around the world. This will be remebered for generations. Exporting toxic CDOs. They-the legal system should fine, prosecute and auction CEOs's luxury properties and equally distributed to all victim around the world. ANYone or everyone should file a case in the World COurt and claim from CEOs.This is a crime . A crime to cheat.; October 25, 2008 5:24 AM
Anonymous said...: U not only hv to do the right thing, u must also get thing right.

It is not compensting poor victims that may cause the share prices to fall.
It is other factors (e.g. downgrade banking sector by xxx) that hv caused the bank share prices to drop!!!!!; October 25, 2008 7:51 AM
Anonymous said...: KKW,
Your situation is similar to mine. Series 2 from Maybank; only warned that the risk of loss was tied to the fate of the reference entities.

Jasmin; October 25, 2008 10:25 AM