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.

16 comments:

CC said...

I'm moving my accounts to UOB.

Anonymous said...

I am assessing how these financial institutions sort out the current fiasco. I will select my bank and bokerage based on which treat their affected customers most fairly and generously. One can never know I will be affected by some problem next time and I like to know I am in good hands

Anonymous said...

Me too.
No more lip service DBS.

Anonymous said...

It is the biggest shame, the so called the people's bank.Dragging seems to be the culture. MAS drags. DBS drags, garmen drags and all find excuses for the drag.

Anonymous said...

Reputation hurt? Yes in a short run. But in the long run when market rebounds, the banks will be greedy selling toxic waste and investors - regardless whether vunerable or not - will be greedy buying toxic waste with just a few percentage points of yield about risk free rate. All previous pain will be long forgotten. People will once again think that POSB/DBS is their national bank and get con again.

History will repeat itself. Nothing will ever change. This is how Singapore works and will always work like that.

Concerned said...

To show its sincerity, UOB Kian and CIMB should compensate all its customers of Minibond, rather than compensate some customers the full amount and have nothing for the rest. To compensate a selected few is just a showing, to save its reputation and goodwill and rather than its generousity or compassion.

Anonymous said...

I hope these 2 FI will lead the way for the "non-vunerable" group as well to start paying fair compensation to affected investors in this group, who form the bulk of the affected. Do not make publicity using the small group of "vulnerable" group only.

Anonymous said...

i am moving my accounts away from uob.

Anonymous said...

CIMB from what I know is pushing away its liabilties to its Financial Advisors (FA). All the marketing about buying back from vulnerable investors protects their brand name at the expense of their FAs. From what I garnered, their FAs are to bear the full loss. So basically, they only shifted their liabilities and demonstrate goodwill at the expenses of their employees. If commissions between CIMB and FAs are shared, I believe CIMB should not be viewed as doing the "right" thing if nothing comes out from CIMB's pocket.

Anonymous said...

Dua Bao Sian.



get it? ;)

Anonymous said...

This is SO amazing!

Now they are turning the ongoing fiasco into a whole new marketing bridge for newer fancier products and brandnames.

Talk about using your problems to polish their emblems.

Anonymous said...

for those who said they wan to move their account to uob, beware, this was used as an opportunity to attack dbs. come on, how much is the 5% interest of $200K? just a peanut $10K per year. $10k per year not even enough for the depreciation of the boss' bmw 7 series. but the money is well spent just to dethrone yr biggest arch rival and bank in s'pore. i would do that if i'm the boss then get the press to report that i'm so generous. very smart business strategy indeed. if they are sincere, all investors should be compensated, whether minibond, jubilee or pinnacle. i don't know how big that amount is but suspect it runs in $miilions. so u wait long long. and don't get me wrong, i'm not on dbs' side either, all of them the same...$evil..

Anonymous said...

Learning from what I read in this issue, I will never buy a financial product from bokerages in future. Looks like these guys are much behind compared to banks in terms trying to resolve the issue.

Anonymous said...

I do not believe that they are so good. They have calculated their sums and realised that the amount they return can fit into an advertising budget since it is only so little.

Anonymous said...

and i guess consumers will never be satisfied. y should everyone be compensated?

Anonymous said...

Why are CIMB and UOB only compensated some investors and the press making such a show of it ? What about the rest ?
Is this just for PR ?, another wayang show ?, a decoy from the real issue ? ie. mis-selling and mispresentation ??

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