Contributed by Ho Cheow Seng
"The study of history is a powerful antidote to contemporary arrogance. It is humbling to discover how many of our glib assumptions, which seem to us novel and plausible, have been tested before, not once but many times and in innumerable guises; and discovered to be, at great human cost, wholly false."
- Paul Johnson
E-mail: kinlian@gmail.com. Website: www.tankinlian.com Facebook: www.facebook.com/kinlian
Saturday, January 03, 2009
Regular visitors to my blog
Based on 103 replies
Age band
Below 20: 0.0%
20 to 29: 9.7%
30 to 39: 17.5%
40 to 49: 21.4%
50 to 59: 35.9%
60 and above: 15.5%
Gender
Male 72.3%
Female 27.7%
Occupation
Professional 32.4%
Retired 14.7%
Management 12.7%
Student 2.9%
Office worker 7.8%
Home maker 2.9%
Service worker 2.9%
Sales and mkg 2.9%
Consultancy 2.9%
Other 17.6%
How often do you visit my blog?
Daily 50.0%
A few times each week 44.0%
Less frequently 6.0%
I will not come back 0.0%
What types of information do you find most useful ?
Investments 76.7%
Insurance 57.3%
Credit-linked notes 55.3%
Economic issues 48.5%
Life in Singapore 45.6%
General topics 42.7%
Surveys 17.5%
Friday, January 02, 2009
Market price understates the value of the shares
I invested in a REIT a few months ago at a dividend yield of 6%. The price has dropped by 50% during the past few months, due to the global financial crisis. The REIT now yields 12%.
During the economic recession, the rentals may fall. If it drops 50%, the REIT will still yield 3% based on my purchase price or 6% based on its current price for a new investor.
Eventually, the economy will recover and the rentals will go up. The price of the REIT will also go up.
There is little risk that the REIT will go bust, as it comprise of a few good, well managed properties. The borrowings are capped at a certain percentage (maybe 30%) of the value of the assets.
The current price represents the price that a distressed holder has to sell the shares and the lack of buyers. The price is low, compared to the intrinsic value of the assets and the rental income. According to the experts, the "valuation is attractive".
For a long term investor, the current prices are attractive. When the economy recovers, the price will run up rapidly and many investors will not be able to catch the low prices.
During the economic recession, the rentals may fall. If it drops 50%, the REIT will still yield 3% based on my purchase price or 6% based on its current price for a new investor.
Eventually, the economy will recover and the rentals will go up. The price of the REIT will also go up.
There is little risk that the REIT will go bust, as it comprise of a few good, well managed properties. The borrowings are capped at a certain percentage (maybe 30%) of the value of the assets.
The current price represents the price that a distressed holder has to sell the shares and the lack of buyers. The price is low, compared to the intrinsic value of the assets and the rental income. According to the experts, the "valuation is attractive".
For a long term investor, the current prices are attractive. When the economy recovers, the price will run up rapidly and many investors will not be able to catch the low prices.
DJ:HK Regulator: Investigating All Minibond Distributors
31 Dec 2008
HONG KONG (Dow Jones)--Hong Kong's securities regulator said Wednesday it is investigating all distributors of the structured products, known as minibonds, that were backed by Lehman Brothers Holdings Inc. (LEH).
This is the first mention of an investigation by the Securities and Futures Commission into all distributors of the minibonds. Previously, it said it would investigate distributors of the products that it had received complaints against for mis-selling.
When Lehman filed for bankruptcy protection in September, thousands of Hong Kong investors in the minibonds, who thought their money would be safe, found out they faced huge losses.
A person familiar with the situation said the SFC's investigation now involves more than 20 local financial institutions.
An SFC spokesman, who asked not to be named, declined to comment, saying any comment may prejudice the integrity of the investigation or any action that may follow.
HONG KONG (Dow Jones)--Hong Kong's securities regulator said Wednesday it is investigating all distributors of the structured products, known as minibonds, that were backed by Lehman Brothers Holdings Inc. (LEH).
This is the first mention of an investigation by the Securities and Futures Commission into all distributors of the minibonds. Previously, it said it would investigate distributors of the products that it had received complaints against for mis-selling.
When Lehman filed for bankruptcy protection in September, thousands of Hong Kong investors in the minibonds, who thought their money would be safe, found out they faced huge losses.
A person familiar with the situation said the SFC's investigation now involves more than 20 local financial institutions.
An SFC spokesman, who asked not to be named, declined to comment, saying any comment may prejudice the integrity of the investigation or any action that may follow.
Taxi drivers - booking for taxi by SMS
This survey is for a taxi driver, or someone answering on behalf of a taxi driver:
Reply to Ho Yew Kee
Sent to Straits Times on 13 December 2008, but not publised.
Editor
Forum Page
Straits Times
I refer to the letter by Mr. Ho Yew Kee entitled “A mistake to overreact” (ST, 13 Dec 2008).
Mr. Ho said, “It would be imprudent for the stewards of town council funds to play it safe and place their reserves in fixed deposits or government bonds, as the returns would not even offset the inflation rate.” He also said, “Corporate bonds provided a yield of 4 to 6 percent, but the corporate have different credit ratings”.
In my view, it would be prudent for the town councils to invest in corporate bonds, provided that the investments are spread over several corporate bonds to reduce the impact of the failure of some of these bonds.
In fact, over 10,000 people were sold the credit linked notes. They were misled into believing that they were investing in a basket of 5 to 8 of the entities, which were financially strong companies or sovereign governments.
They were told that if one entity should fail, they would only lose their invested sum on a proportionate basis. If 1 of 8 entities failed, their loss would be 12.5%.
They were shocked to learn later that they were actually selling credit insurance against the failure of any of these entities. If any single entity failed, their entire principal would be lost. Instead of spreading the risk proportionately over 8 entities, they were taking 8 times of the risk of any single bond!
In addition, their principal was actually invested in a portfolio of 100 to 150 underlying securities, which could comprise of collateralised debt obligations of lower rating. This has additional risk to the investors.
The combined risk of failure of “toxic” credit-linked notes is very high. This explains why many of these notes have failed totally, compared to bond funds.
The stewards of the town councils, who have access to professional advisers, should explain if they were aware about the nature of the credit-linked notes and if the return of 5% is insufficient to match the risk. If the town councils were also misled about the nature of these products, it is their fiduciary duty to take appropriate action to recover their loss.
Several local government bodies in the UK were also misled into investing in similar high-risk products. They took legal action and were able to obtain a court decision to rescind the contracts. I urge our town councils in Singapore to do the same.
Tan Kin Lian
Editor
Forum Page
Straits Times
I refer to the letter by Mr. Ho Yew Kee entitled “A mistake to overreact” (ST, 13 Dec 2008).
Mr. Ho said, “It would be imprudent for the stewards of town council funds to play it safe and place their reserves in fixed deposits or government bonds, as the returns would not even offset the inflation rate.” He also said, “Corporate bonds provided a yield of 4 to 6 percent, but the corporate have different credit ratings”.
In my view, it would be prudent for the town councils to invest in corporate bonds, provided that the investments are spread over several corporate bonds to reduce the impact of the failure of some of these bonds.
In fact, over 10,000 people were sold the credit linked notes. They were misled into believing that they were investing in a basket of 5 to 8 of the entities, which were financially strong companies or sovereign governments.
They were told that if one entity should fail, they would only lose their invested sum on a proportionate basis. If 1 of 8 entities failed, their loss would be 12.5%.
They were shocked to learn later that they were actually selling credit insurance against the failure of any of these entities. If any single entity failed, their entire principal would be lost. Instead of spreading the risk proportionately over 8 entities, they were taking 8 times of the risk of any single bond!
In addition, their principal was actually invested in a portfolio of 100 to 150 underlying securities, which could comprise of collateralised debt obligations of lower rating. This has additional risk to the investors.
The combined risk of failure of “toxic” credit-linked notes is very high. This explains why many of these notes have failed totally, compared to bond funds.
The stewards of the town councils, who have access to professional advisers, should explain if they were aware about the nature of the credit-linked notes and if the return of 5% is insufficient to match the risk. If the town councils were also misled about the nature of these products, it is their fiduciary duty to take appropriate action to recover their loss.
Several local government bodies in the UK were also misled into investing in similar high-risk products. They took legal action and were able to obtain a court decision to rescind the contracts. I urge our town councils in Singapore to do the same.
Tan Kin Lian
SCMP:Finance chief given report on minibonds saga
http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=6Y578OGP5WS5&linkid=88f1302c-d784-4e0d-b5bb-8d062e4593fc&pdaffid=8HM4kDzWViwfc7AqkYlqIQ%3d%3d
1 Jan 2009
Joyce Man
The banking and securities regulators handed a report on the minibonds saga to the financial secretary yesterday, three months after investors started complaining.
The Monetary Authority and the Securities and Futures Commission filed the report, on the lessons learned and issues they identified during an investigation into complaints about the Lehman Brothersissued minibonds, to acting Financial Secretary Chan Ka-keung.
Although there has been speculation that the report would pinpoint a few banks, sources at the regulatory bodies said the securities commission’s investigation had highlighted more than 20 distributors that sold minibonds, including banks and brokers.
The report focused on the misselling of the investment product.
Minibonds are not corporate bonds, but consist of high-risk creditlinked derivatives. They are marketed as proxy investments in well-known companies.
Although the Monetary Authority regulates banks, it has referred all the cases to the commission for further investigation, the sources said.
The government would keep an open mind on any review of the regulatory system and on whether the city needed a single regulator for all investment products, a spokesman for the Financial Services and the Treasury Bureau said.
He said the government would probably publish the report but that the regulators who submitted it had expressed concern that doing so would affect the ongoing investigation and any improvements to the system.
The Monetary Authority and the commission declined to comment on the report.
Meanwhile, two leaders of Singapore’s Lehman investors flew to meet their Hong Kong counterparts yesterday in the hope of finding common ground for a class action in the US.
Both the Singaporeans and Hongkongers said they were considering inviting leaders for similar investors from Taiwan to form a Southeast Asian group to mount the suit on US turf. They would probably meet again soon in Hong Kong, which had greater political freedom than Singapore, they said.
Lung Tze Kuen, a Minibond Victims Group committee member, and Goh Meng Seng, a National Solidarity Party executive council member, met Hong Kong’s Kam Nai-wai– a Democratic Party member – and Peter Chan Kwong-yue, chairman of the Allied Victims of Lehman Products.
The four investors’ leaders hope to go to the US because the legal system there provides for class action, which Hong Kong’s does not.
Mr Lung added that the jury system and contingent fee – where clients do not pay lawyers if they lose their cases – would work in the favour of investors who decided to join the suit.
They attempted to identify commonalities in the products sold in the two cities that would allow them to unite for a class action in the United States.
Mr Chan said: “ The Lehman products are very similar in their basic structures, in issuer, trustee, and even the law firms that drew up their documents.”
In Singapore, about 10,000 people invested S$500 million (HK$2.69 billion) in Lehman-related investment products, of whom 8,000 purchased minibonds, Mr Lung said.
Buyer beware and seller beware too
Business Times - 01 Jan 2009
By R SIVANITHY
AS A dismal 2008 rolls to a close, it's customary for us to draw up a wish-list for the new year. Last year, our list focused mainly on disclosure, particularly with regard to IPO prospectuses, short-selling positions and structured warrants. Some of these calls have been met - the Singapore Exchange (SGX) recently circulated a discussion paper on short-selling disclosure, and although IPOs were virtually non-existent in 2008, disclosures with particular reference to use of IPO funds have undoubtedly improved.
As for structured warrants, we are optimistic that it can only be a matter of time before SGX turns its attention to improving information dissemination in the segment. Having said that, which other areas could do with disclosure improvements in 2009? Before going into specifics, our preference is for a regulatory framework that not only stresses 'buyer beware' but should now also give equal emphasis to 'seller beware'.
For instance, the fiasco involving various failed structured products such as Lehman Brothers' Minibonds and DBS's High Notes exposed the very real possibility that those who sold these instruments did not adequately disclose the risks involved to hapless retail investors and yet appeared to have avoided accountability. Surely, these parties have to bear some responsibility for their lapses.
In addition, if an instrument is in essence one thing, the disclosure documents should describe that thing accurately and not imply something else - for example, the Lehman Minibond was an insurance policy to protect Lehman from defaults in debt instruments issued by five other banks but the prospectuses were cleverly worded to make it appear as if it was a bond issued by those five banks while Lehman's role was downplayed. This obfuscation started with the very name 'Minibond' which diverted attention from the product's true nature.
Stronger regulatory action would have been welcome but although it wasn't forthcoming, it isn't too late for the authorities to engineer a shift towards sterner penalties for parties that hide behind the fine print or legal disclaimers. In other words, if finance professionals don't call a spade a spade and try to conceal the true nature of a product they are selling, they should be penalised.
Similarly, we'd also like to see better disclosure on 'sell' side research reports, especially of how much risk there is to target prices, the extent of any investment banking relationships between the organisations in question for the past six months or one year and of the credentials and track record of the recommending analyst.
All of the above requires a stronger regulatory stance than what the market has become accustomed to since deregulation 10 years ago, which means that change has to start at the top.
For starters, SGX should scrap its controversial policy of privately censuring listed companies whose disclosures are less than satisfactory; and going public instead with all disciplinary actions. SGX says that it wants to have a range of measures at its disposal to tailor the punishment to fit the crime. Thus, if SGX judges a company's lapse to be minor and not having a material impact on the market and investors' decision-making, then a private censure is warranted, it argues.
But corporate governance advocate Mak Yuen Teen has already described the disadvantages of such a covert, private approach in a letter to this newspaper ('SGX should publicise all its enforcement actions', Nov 11). Suffice to say that the practice of judging what can be privately penalised and what might be publicly disclosed is in effect a step backwards to a merit-based regulatory system, the very system that the exchange sought to scrap when the market deregulated, giving way to a disclosure-based regime.
Perhaps the best suggestion we can make to the SGX and its overseeing body, the Monetary Authority of Singapore, is the same given to all listed firms, namely: a disclosure-based regime relies on full and public disclosure. If there're grey areas, then the correct approach should be 'when in doubt, disclose'.
By R SIVANITHY
AS A dismal 2008 rolls to a close, it's customary for us to draw up a wish-list for the new year. Last year, our list focused mainly on disclosure, particularly with regard to IPO prospectuses, short-selling positions and structured warrants. Some of these calls have been met - the Singapore Exchange (SGX) recently circulated a discussion paper on short-selling disclosure, and although IPOs were virtually non-existent in 2008, disclosures with particular reference to use of IPO funds have undoubtedly improved.
As for structured warrants, we are optimistic that it can only be a matter of time before SGX turns its attention to improving information dissemination in the segment. Having said that, which other areas could do with disclosure improvements in 2009? Before going into specifics, our preference is for a regulatory framework that not only stresses 'buyer beware' but should now also give equal emphasis to 'seller beware'.
For instance, the fiasco involving various failed structured products such as Lehman Brothers' Minibonds and DBS's High Notes exposed the very real possibility that those who sold these instruments did not adequately disclose the risks involved to hapless retail investors and yet appeared to have avoided accountability. Surely, these parties have to bear some responsibility for their lapses.
In addition, if an instrument is in essence one thing, the disclosure documents should describe that thing accurately and not imply something else - for example, the Lehman Minibond was an insurance policy to protect Lehman from defaults in debt instruments issued by five other banks but the prospectuses were cleverly worded to make it appear as if it was a bond issued by those five banks while Lehman's role was downplayed. This obfuscation started with the very name 'Minibond' which diverted attention from the product's true nature.
Stronger regulatory action would have been welcome but although it wasn't forthcoming, it isn't too late for the authorities to engineer a shift towards sterner penalties for parties that hide behind the fine print or legal disclaimers. In other words, if finance professionals don't call a spade a spade and try to conceal the true nature of a product they are selling, they should be penalised.
Similarly, we'd also like to see better disclosure on 'sell' side research reports, especially of how much risk there is to target prices, the extent of any investment banking relationships between the organisations in question for the past six months or one year and of the credentials and track record of the recommending analyst.
All of the above requires a stronger regulatory stance than what the market has become accustomed to since deregulation 10 years ago, which means that change has to start at the top.
For starters, SGX should scrap its controversial policy of privately censuring listed companies whose disclosures are less than satisfactory; and going public instead with all disciplinary actions. SGX says that it wants to have a range of measures at its disposal to tailor the punishment to fit the crime. Thus, if SGX judges a company's lapse to be minor and not having a material impact on the market and investors' decision-making, then a private censure is warranted, it argues.
But corporate governance advocate Mak Yuen Teen has already described the disadvantages of such a covert, private approach in a letter to this newspaper ('SGX should publicise all its enforcement actions', Nov 11). Suffice to say that the practice of judging what can be privately penalised and what might be publicly disclosed is in effect a step backwards to a merit-based regulatory system, the very system that the exchange sought to scrap when the market deregulated, giving way to a disclosure-based regime.
Perhaps the best suggestion we can make to the SGX and its overseeing body, the Monetary Authority of Singapore, is the same given to all listed firms, namely: a disclosure-based regime relies on full and public disclosure. If there're grey areas, then the correct approach should be 'when in doubt, disclose'.
Thursday, January 01, 2009
Exchange Traded Fund (ETF) information
Dear Sir,
I am Kay from moneytalk.sg. I have wrote a series of posts that discusses about the STI ETF in detail. The reason why I'm doing this is that I wish to create more awareness that STI ETF is a good form of investment that can give adequate returns if one is willing to hold in for the long term. Instead of putting their hard-earned money into risky products that offer poor returns, I hope more people can consider the STI ETF.
Some of the information in my posts include an explanation of the STI ETF, likely returns in the long run, dividend yield, when to buy it and a dollar cost averaging plan.
Thanks and all the best for 2009 :)
Kay
I am Kay from moneytalk.sg. I have wrote a series of posts that discusses about the STI ETF in detail. The reason why I'm doing this is that I wish to create more awareness that STI ETF is a good form of investment that can give adequate returns if one is willing to hold in for the long term. Instead of putting their hard-earned money into risky products that offer poor returns, I hope more people can consider the STI ETF.
Some of the information in my posts include an explanation of the STI ETF, likely returns in the long run, dividend yield, when to buy it and a dollar cost averaging plan.
Thanks and all the best for 2009 :)
Kay
HK: Finance chief given report on minibonds saga
Joyce Man
Jan 01, 2009
The banking and securities regulators handed a report on the minibonds saga to the financial secretary yesterday, three months after investors started complaining....
In memory of Mr. J. B. Jeyaretnam
Please participate in this survey:
Speech at Hong Lim Park, New Year's Eve Party
I wish to thank Chee Siok Chin for inviting me to this event and giving me the opportunity to speak a few words in memory of Mr. J. B. Jeyaretnam.I do not know Mr. Jeyaretnam personally. I attended only one of his election rally in the late 1970s and only for a few minutes.
What I knew of him came mainly from reports in the newspapers over the next 20 years. They covered the unhappy events in his life, like defending against defamation suits or for infringements of certain regulations on his political activities. Like most Singaporeans, I had a somewhat negative opinion of him from these reports.
In July this year, my friend invited me to the inaugural dinner of the Reform Party that was just set up by Mr. Jeyaretnam. At the dinner, I decided to buy two copies of his books as a show of support. The book was a collection of his speeches in Parliament over the years.
My impression of Mr. Jeyaretnam changed quite completely after reading a few paragraphs from the book. Here was a man who was passionate about the well being of the people of Singapore and, especially in uplifting the life of the lower income levels in our society.
I realised that I shared many of his values and passion. I thought of finding the occasion to get to know him better as a person.
That opportunity is now gone forever. Mr. Jeyaretnam passed away suddenly a few months later.
Someone circulated an e-mail containing a tribute to Mr. Jeyaretnam. He described Mr. Jeyaretnam as a person who had done his best for what he believed to be good for Singapore and Singaporeans, and yet many Singaporeans did not know of him and his sacrifice. I decided to post this tribute in my blog.
A few people asked for signatures to an open letter to the Prime Minister to ask for the public service of Mr. Jeyaretnam to be recognised. I decided to join in and to help to get more signatures.
I was disappointed in getting only 25 signatures after a week, in spite of several efforts to publicise it. This number was so small, compared to an earlier signature campaign on the credit linked notes which collected nearly 1,000 signatures. Perhaps, Singaporeans did not see Mr. Jeyaretnam in a positive light or were afraid to be seen as supporting the call in the open letter.
I was disappointed in getting only 25 signatures after a week, in spite of several efforts to publicise it. This number was so small, compared to an earlier signature campaign on the credit linked notes which collected nearly 1,000 signatures. Perhaps, Singaporeans did not see Mr. Jeyaretnam in a positive light or were afraid to be seen as supporting the call in the open letter.
I hope that, over the years, Singaporeans will get to know better of Mr. J. B. Jeyaretnam and what he has done for Singapore.
2008 has been a difficult year. 2009 will continue to be challenging. In spite of the uncertainties, let me wish all of you the very best for 2009 and the years ahead.
2008 has been a difficult year. 2009 will continue to be challenging. In spite of the uncertainties, let me wish all of you the very best for 2009 and the years ahead.
Tan Kin Lian
Credit freeze in Singapore
A few weeks ago, the Government took the bold step of guaranteeing all bank deposits in Singapore. This was to prevent the outflow of deposits to other countries that provided similar gaurantees. (Personally, I do not agree with this approach, as it continued to depress interest rate in Singapore).
Later, the Government provided some guarantee for banks to provide credits for business operations, subject to some due diligence. I remembered that the guarantee was for 50% of the lending.
I heard from a business friend that the guarantee had since been increased to 80 or 90 percent, but the banks are still reluctant to lend. (I have not verified this information). The unwillingness of banks to lend is causing some business failures - as they depend on credit to continue their operations.
In my view, it is a bad idea for business to depend on short term credit from banks for their operations. They should increase their capital or issue long term bonds that pay a higher rate of interest (say 4 to 7% p.a.). They can earn a higher return on their investment, so they can afford a higher and fairer payout to the bond holders.
To make these bonds attractive to long term investors, the guarantee can provide a guarantee on the principal and dividends and charge a guarantee fee to the issuer. This will allow the issuer to get a source of long term funding and do not have to worry about talking to the bank yearly.
This Government guarantee fee can be at a subsidised rate, to support the economy in its current phase. When the conomy stabilises, it can be done at the market rate, which depends on the risk. The Government can also set up a separate insurance company to provide the credit default insurance on commercial terms.
Summary: Encourage businesses to issue long term bonds to get a secure source of funds for their long term operations. The Government can provide a guarantee on these bonds (subject to due diligence and a guarantee fee), to help businesses to overcome the current economic turmoil.
MAS acting on complaints
Dec 31, 2008
I REFER to last Wednesday's letter by Mr Leong Kok Ho, 'Why MAS should handle complaints'. The Monetary Authority of Singapore (MAS) understands the anxiety of many investors who have bought DBS High Notes 5, Lehman Minibond Notes and Merrill Lynch Jubilee Series 3 LinkEarner Notes.
I REFER to last Wednesday's letter by Mr Leong Kok Ho, 'Why MAS should handle complaints'. The Monetary Authority of Singapore (MAS) understands the anxiety of many investors who have bought DBS High Notes 5, Lehman Minibond Notes and Merrill Lynch Jubilee Series 3 LinkEarner Notes.
We assure investors that we are monitoring the financial institutions' complaints handling and resolution process. Our priority is to ensure that all complaints are handled seriously and impartially without the process becoming overly legalistic.
Independent parties have been appointed to review the resolution processes of the financial institutions concerned to ensure that these processes are independent, fair and transparent.
MAS has, in consultation with the independent parties, conducted on-site visits to assess the handling and review of complaints, including observing the internal review panels in action. We are working with the independent parties to ensure that each financial institution has a robust assessment framework to identify indicators of potential mis-selling and offer fair financial settlement where appropriate. The independent parties have provided feedback to MAS on how the financial institutions have applied the framework across a sample of actual cases. We are ensuring that the assessment framework is consistent across financial institutions.
Investors who are not satisfied with the outcome of the financial institution's review of their complaints may refer their complaints to the Financial Industry Dispute Resolution Centre (FIDReC) for resolution. FIDReC is an independent body set up to provide investors with an affordable and impartial avenue to pursue claims against their financial institution. The decision of the FIDReC adjudicator is final and binding on the financial institution, but not on the investor. If the investor is not happy with the decision made at FIDReC, he is free to reject the decision and pursue his claim through other avenues.
As part of MAS' formal investigations, we are looking at financial institution-wide issues, such as the financial institutions' due diligence on structured notes, the procedures used at the point of sale, and the training and supervision of relationship managers. MAS will take firm and appropriate regulatory actions where there are breaches of law or regulations by the financial institutions or their representatives. MAS is also working with the independent parties to ensure that any potential financial institution-wide issues identified in the course of investigations have been incorporated into the assessment of individual complaints.
Angelina Fernandez
Director (Communications)
Monetary Authority of Singapore
http://www.straitstimes.com/ST%2BForum/Story/STIStory_320293.html
MAS has, in consultation with the independent parties, conducted on-site visits to assess the handling and review of complaints, including observing the internal review panels in action. We are working with the independent parties to ensure that each financial institution has a robust assessment framework to identify indicators of potential mis-selling and offer fair financial settlement where appropriate. The independent parties have provided feedback to MAS on how the financial institutions have applied the framework across a sample of actual cases. We are ensuring that the assessment framework is consistent across financial institutions.
Investors who are not satisfied with the outcome of the financial institution's review of their complaints may refer their complaints to the Financial Industry Dispute Resolution Centre (FIDReC) for resolution. FIDReC is an independent body set up to provide investors with an affordable and impartial avenue to pursue claims against their financial institution. The decision of the FIDReC adjudicator is final and binding on the financial institution, but not on the investor. If the investor is not happy with the decision made at FIDReC, he is free to reject the decision and pursue his claim through other avenues.
As part of MAS' formal investigations, we are looking at financial institution-wide issues, such as the financial institutions' due diligence on structured notes, the procedures used at the point of sale, and the training and supervision of relationship managers. MAS will take firm and appropriate regulatory actions where there are breaches of law or regulations by the financial institutions or their representatives. MAS is also working with the independent parties to ensure that any potential financial institution-wide issues identified in the course of investigations have been incorporated into the assessment of individual complaints.
Angelina Fernandez
Director (Communications)
Monetary Authority of Singapore
http://www.straitstimes.com/ST%2BForum/Story/STIStory_320293.html
Wednesday, December 31, 2008
Invest in the stock market
Dear Mr. Tan,
Should I invest in a capital guaranteed product that pays 2% for 2 years?
REPLY
If you have spare cash, you can invest in shares to earn the following:
a) STI ETF can earn a dividend yield of around 5%. Even if the dividend drops, you can still earn 3% or more.
b) REITs (real estate trust) can earn you a dividend yield of 10%. Even if the rental drop, you can still earn 5% or more.
Do not worry about the share price (ETF or REIT). If it drops, you can still wait and collect the dividend of 3% or 5%. Wait for the stockmarket to recover in 2 or 3 years or longer, in a worse case. You can get a gain of 20% to 50%. Be prepared to take risk and get a better return.
Do not invest in capital guaranteed product that earns 2% and locks you for 2 years.
Tip: Avoid performance chasing based on short-term returns
In a book entitled "Common Sense Investing", the author Jack Bogle said, "In selecting mutual funds, most fund investors seem to rely .... on exciting performance over the short term. Studies showed that over 95% of all investor dollars flow to funds rated four or five stars by Morningstar, the statistical service most broadly used by investors in evaluating fund returns".
These star ratings are based on a composite of a fund's record over the previous 3-, 5- and 10-year periods. It has a heavy bias in favor of recent short-term returns.
A study showed that a mutual fund portfolio continuously adjusted to hold only Morningstar's five-star funds earned an annual return of 6.9 percent between 1994 and 2004, nearly 40% below the 11.0 percent return on the Total Stock Market Index.
Jack Bogle selected the top 10 performers among the 851 equity funds during the "new economy market bubble of 1997 to 1999. These funds performed badly during the bursting of the bubble in 2000 to 2002. For the six year period, these funds earned a cumulate return of 13% for the full six-year period, compared to the cumulative return of 30 percent for the S&P 500.
For the shareholders of these funds, it was a disaster. While the funds achieved a net gain of 13 percent, the shareholders incurred a loss of 57 percent. Most shareholders invested in these funds when they were close to the peak and suffered the full effect of the downfall.
Jack Bogle's message is: avoid performance chasing based on short-term returns, especially during great bull markets.
Results - Mis-selling of credit linked notes
Based on 58 replies
2. Which notes did you invest in?
Minibond 29
High note 12
Pinnacle note 11
Jubilee note 3
Other note 3
3. Which distributors did you buy the notes from?
Hong Leong 23
DBS 13
Maybank 9
OCBC 3
Philip Sec 2
ABN Amro 1
Other 7
4. How much did you invest?
Less than $25,000 10
$25,000 to $50,000 18
$50,001 to $100,000 16
$100,001 to $200,000 11
More than $200,000 3
5. Have you lodged a complaint with the distributor?
Yes 55
No 3
6. Have they made you an offer for compensation?
No offer yet 35
Rejected my complaint 20
Offer 0 to 30% 0
Offer 31 to 50% 1
Offer more than 50% 1
7. How long did they take to make their decision, from the time that you lodged the complaint?
Less then 4 weeks 8
4 to 8 weeks 17
More than 8 weeks 21
8. Was the distributor fair in attending to your complaint?
Yes 15
No 30
Tuesday, December 30, 2008
Survey - Mis-selling of Credit Linked Notes
This is a new survey, to collect statistical information by product and distributor. Please participate:
MAS reply on Pinnacle Notes
Hi Kin Lian,
Now a piece of positive news. MAS has finally responded to the PLEA I had sent last month on behalf of some 80 PN holders in November. I will like to share this with you and the other PN holders, hopefully before the year is out.
I will therefore like to impose once again on your kindness to post MAS's letter (attached below) on your website for their awareness.
We refer to your letter dated 19 November 2008 to Mr Heng Swee Keat, Managing Director, MAS.
2. On 18 December 2008, Morgan Stanley Asia (Singapore) Pte, the arranger of Pinnacle notes published a number of Frequently Asked Questions (FAQs) that address the issues you raised, among others. The FAQs are available athttp://www.morganstanley.com/pinnaclenotes/pdf/series9-10/FAQs_18-12-08.pdf
3. You enquired about the root causes for the devaluation of Pinnacle credit linked notes. Please refer to questions 5 and 11 of the FAQs which explain the reasons for the fall in value of the Notes. You also raised the question on whether any steps could be taken to protect the value of the Pinnacle notes. The petition alluded to steps being taken for the Lehman minibond notes and that these steps if viable should similarly be extended to Pinnacle notes. Please refer to Questions 8 and 9 of the above FAQs where the differences in the circumstances giving rise to early redemption of Minibond notes and the Pinnacle notes are explained, and on the restructuring of Pinnacle notes. You may also refer to MAS' press release of 2 Dec 2008 where we informed investors that due to legal complexities that have arisen, the trustees and receivers are of the view that restructuring of the Minibond notes is not currently viable.
Link to MAS press release on 2 Dec 2008:
4. For consumers who consider that the Pinnacle notes were mis-sold to them, we would advise them to first lodge their complaint directly with the financial institution (FI) that sold them the products. MAS requires FIs to have a rigorous process to look into every complaint of mis-selling and resolve them fairly. In the event that consumers are not satisfied with the FI’s reply, they may consider approaching the Financial Industry Disputes Resolution Centre (FIDReC). FIDReC is an independent institution which aims to provide consumers with a one-stop avenue for resolving disputes in the banking, insurance and capital market sectors. Separately, where we have clear evidence that a FI has breached our laws or regulations, we will hold the FI to account.
5. If you have any queries, please feel free to contact me.
Christina Tan
Consumer Issues Division
Monetary Authority of Singapore
5. If you have any queries, please feel free to contact me.
Christina Tan
Consumer Issues Division
Monetary Authority of Singapore
Pinnacle Notes: Website should be more free with info
Published in Straits Times, Dec 30, 2008
I WAS directed to the Morgan Stanley website for Pinnacles Notes by the Monetary Authority of Singapore (MAS) website. When I entered the Morgan Stanley website, I was welcomed by a long legal disclaimer that required the answer 'yes' before I was granted further access. As a result, I was discouraged from entering the website for more information.
May I ask Morgan Stanley to consider removing this legalistic disclaimer and making access free for the following reasons:
- Pinnacle Notes is of public interest, and basic information such as redemption value should be freely available.For example, a bank website provides information on fixed deposits and exchange rates. In another example, unit trust investments are quoted daily via normal marketing channels.
- Morgan Stanley should not impose such a legalistic disclaimer because it is merely allowing access and not providing professional advice. Its exposure is next to zero. Members of the public who want access are looking for information and not professional advice.
It would be fair for Morgan Stanley to allow public access to general information without agreeing to a disclaimer. However, if professional advice is solicited, it is free to give it.
Leong Kok Ho
HK Standard: Lehman minibond values up in air
30 Dec 2008
The Hong Kong Association of Banks announced yesterday that leftover values of Lehman Brothers minibonds are as much as 78.31 percent.
However, a source from the banking sector said the pricing, set as at November 21, is no longer applicable because of fundamental uncertainties following a legal challenge from Lehman liquidators.
"There have been no attempts to update the valuation," the source said.
The pricing of the minibonds will continue once the legal issue is settled, the source said.
However, "there will be potentially additional costs to be incurred as a result of the legal challenge.''
The banking association also said: ``If this claim [from Lehman's liquidators] is upheld, the value of the minibonds will significantly decrease.''
According to a Legislative Council document submitted by the association's Lehman task force yesterday, prices, as at November 21, of the minibonds ranged from 0.82 percent to 64.03 percent on average.
Series 11, tranche A, was worth the most among all the series and its price was 78.31 percent, after calculating the value of the underlying collateral. Those who bought the product for US$100 (HK$780) would get US$78.31. Remaining values of series five to nine of the minibonds were only 0.82 percent.
The pricing information no longer represents the current market value of the minibonds and the banks cannot assess how much a minibond investor may recover from the proceeds of the collateral underlying the minibonds, the association added.
A Legco meeting relating to the government buyback proposal for the minibonds will be held this morning.
Late last month, the minibond trustee, a US unit of HSBC (0005), received a letter from legal advisers to Lehman in the United States that the proceeds from any sale of the underlying collateral for the minibonds should be paid to the collapsed US investment bank before the issuer of the minibonds and in turn the investors.
The banks are still circulating the documents for the provision of up to HK$100 million to the trustee and expect it will not only be used for paying legal fees.
"The precise terms of the proposed funding have not yet been agreed between the banks and the trustee," the association said.
The Hong Kong Association of Banks announced yesterday that leftover values of Lehman Brothers minibonds are as much as 78.31 percent.
However, a source from the banking sector said the pricing, set as at November 21, is no longer applicable because of fundamental uncertainties following a legal challenge from Lehman liquidators.
"There have been no attempts to update the valuation," the source said.
The pricing of the minibonds will continue once the legal issue is settled, the source said.
However, "there will be potentially additional costs to be incurred as a result of the legal challenge.''
The banking association also said: ``If this claim [from Lehman's liquidators] is upheld, the value of the minibonds will significantly decrease.''
According to a Legislative Council document submitted by the association's Lehman task force yesterday, prices, as at November 21, of the minibonds ranged from 0.82 percent to 64.03 percent on average.
Series 11, tranche A, was worth the most among all the series and its price was 78.31 percent, after calculating the value of the underlying collateral. Those who bought the product for US$100 (HK$780) would get US$78.31. Remaining values of series five to nine of the minibonds were only 0.82 percent.
The pricing information no longer represents the current market value of the minibonds and the banks cannot assess how much a minibond investor may recover from the proceeds of the collateral underlying the minibonds, the association added.
A Legco meeting relating to the government buyback proposal for the minibonds will be held this morning.
Late last month, the minibond trustee, a US unit of HSBC (0005), received a letter from legal advisers to Lehman in the United States that the proceeds from any sale of the underlying collateral for the minibonds should be paid to the collapsed US investment bank before the issuer of the minibonds and in turn the investors.
The banks are still circulating the documents for the provision of up to HK$100 million to the trustee and expect it will not only be used for paying legal fees.
"The precise terms of the proposed funding have not yet been agreed between the banks and the trustee," the association said.
Hong Kong: Lehman dozen feeling bullied
A dozen investors in Lehman Brothers products suffered a further setback yesterday when the Small Claims Tribunal adjourned until March a hearing on their demands for refunds. Adjudicator Anthony Chow Siu- wo told the tribunal that a further 100 claims needed to be processed, while one of the banks being sued, DBS, as well as an employee of Chong Hing Bank, had asked for their cases to be transferred to the District Court since they needed legal representation.
Legal representatives are not permitted at a hearing by the tribunal, which is limited to dealing with claims not exceeding HK$50,000.
Investors suing DBS complained of being bullied, saying they could not afford the fees in the District Court.
Chow told the 12 individual claimants seeking refunds from six banks that they will have to wait for another three months before the hearing can be continued.
Four claimants who bought DBS' Constellation products were told by a representative of the bank at the tribunal that their products had zero value.
Chow said the problem with some of the cases was that no one, including the banks, knew the value of the financial products that had been sold, though they may have been valued at zero for a certain period. Thus, one could not calculate the amount of money lost by investors, Chow said. ADELE WONG
Monday, December 29, 2008
Thought for the day - make an exception of myself
Contributed by Ho Cheow Seng
"The essence of immorality is the tendency to make an exception of myself: Jane Addams
(An example is a ruler who passes laws for his people and exempts himself from those very laws)
SCMP:Mis-selling of minibonds had 1980s precedent in Britain
http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=20Y5PIVUMQU5&linkid=593eb6f4-f2d5-4fa5-b42a-9ab1cf136f74&pdaffid=8HM4kDzWViwfc7AqkYlqIQ%3d%3d
29 Dec 2008
Jimmy Chow, Cheung Sha Wan
The controversy over the minibond saga does not only relate to compensation. It is about [alleged] mis-selling.
Instead of paying investors of Lehman’s minibonds back, local banks have come up with a complex way by providing a pool of HK$100 million to help the minibond trustee to perform its duty to protect the “interest of minibond investors” (“Deduction decision in legal fight irks Lehman investors”, December 19).
If a retired taxi driver did not seem to understand the minibond in which he had invested his life savings, he can hardly be expected to grasp this legal game [unfolding in the US]. Neither can I.
So far, only a limited number of people have received compensation from the banks, a small percentage of total claimants.
The mis-selling of securities in Hong Kong, which mostly occurred over the last two years, is reminiscent of the mis-selling in Britain between 1988 and 1994.
In 1988 the British government encouraged people to make private provision for retirement in addition to the state pension by purchasing personal pension plans.
It turned out that fast-talking salesmen misled people into buying retirement pension products they did not really need.
Realising there had been mis-selling on a huge scale, in 1994 the British financial services regulator “instructed” banks and insurers to stop these practices and review all cases.
By 1997 only 5 per cent of the cases were cleared up.
That year, the newly-elected Labour government decided to “name and shame” and to fine the laggards.
Disciplinary action was taken against 349 firms which resulted in fines totalling £11million (HK$126.3 million). Nearly £12 billion was paid in compensation to policyholders.
I hope I am wrong, but if our government remains reluctant to conduct a radical review on both the minibond scandal and the city’s regulatory framework, the saga will drag on indefinitely.
Jimmy Chow, Cheung Sha Wan
The controversy over the minibond saga does not only relate to compensation. It is about [alleged] mis-selling.
Instead of paying investors of Lehman’s minibonds back, local banks have come up with a complex way by providing a pool of HK$100 million to help the minibond trustee to perform its duty to protect the “interest of minibond investors” (“Deduction decision in legal fight irks Lehman investors”, December 19).
If a retired taxi driver did not seem to understand the minibond in which he had invested his life savings, he can hardly be expected to grasp this legal game [unfolding in the US]. Neither can I.
So far, only a limited number of people have received compensation from the banks, a small percentage of total claimants.
The mis-selling of securities in Hong Kong, which mostly occurred over the last two years, is reminiscent of the mis-selling in Britain between 1988 and 1994.
In 1988 the British government encouraged people to make private provision for retirement in addition to the state pension by purchasing personal pension plans.
It turned out that fast-talking salesmen misled people into buying retirement pension products they did not really need.
Realising there had been mis-selling on a huge scale, in 1994 the British financial services regulator “instructed” banks and insurers to stop these practices and review all cases.
By 1997 only 5 per cent of the cases were cleared up.
That year, the newly-elected Labour government decided to “name and shame” and to fine the laggards.
Disciplinary action was taken against 349 firms which resulted in fines totalling £11million (HK$126.3 million). Nearly £12 billion was paid in compensation to policyholders.
I hope I am wrong, but if our government remains reluctant to conduct a radical review on both the minibond scandal and the city’s regulatory framework, the saga will drag on indefinitely.
HK: More frustration for minibond investors at tribunal
http://www.thestandard.com.hk/breaking_news_detail.asp?id=11349&icid=3&d_str=20081229
Lehman Brothers minibond investors have had their hearing at the Small Claims Tribunal in Wan Chai adjourned to March 23.
More than 10 investors who had bought products from banks such as DBS, Bank of China and CITIC Ka Wah filed cases with the tribunal, which has the power to claim compensation up to a ceiling of HK$50,000.
At the hearing, DBS representatives applied for cases against their bank to be heard in the District Court, citing complications in the case and the bank's need for legal representation. Cases needing legal representation cannot be heard at the tribunal.
More than 10 investors who had bought products from banks such as DBS, Bank of China and CITIC Ka Wah filed cases with the tribunal, which has the power to claim compensation up to a ceiling of HK$50,000.
At the hearing, DBS representatives applied for cases against their bank to be heard in the District Court, citing complications in the case and the bank's need for legal representation. Cases needing legal representation cannot be heard at the tribunal.
Sunday, December 28, 2008
Satisfaction with Life Index
http://en.wikipedia.org/wiki/Satisfaction_with_Life_Index#International_Ranking_.282006.29
Rank Country SWL
1 Denmark 273.4
2 Switzerland 273.3
8 Canada 253.3
16 Malaysia,
New Zealand
United States 246.7
25 Australia 243.3
33 Germany 240.0
41 United Kingdom 236.7
48 Singapore 230.0
61 France
Hong Kong
Indonesia 220.0
71 Thailand 216.7
77 Philippines 213.3
81 China 210.0
88 Japan 206.7
100 South Korea 193.3
122 India 180.0
177 Zimbabwe 110.0
Singapore rank below Malaysia (surprising!), USA and UK but ahead of Hong Kong, Japan (surprising!) and France.