Monday, July 27, 2009

TODAY:We should follow HK's example ; Protect individuals, not just the banks

27 July 2009

WHILE the Lehman Minibonds affair is far from over, a final solution to the problem of the ill-fated notes linked to the now-failed American investment bank appears to be nearer in Hong Kong than in Singapore.

Last week, Hong Kong’s Securities and Futures Commission (SFC) announced BOC Hong Kong Holdings and 15 other financial institutions in the Special Administration Region had agreed to pay at least US$0.60 ($0.86) on the dollar to the nearly 30,000 people who invested in the notes.

The total compensation in Hong Kong, where some US$1.8 billion worth of the notes were sold, will amount to about HK$6.3 billion ($1.17 billion). The final compensation will however depend on the amount of collateral the banks can recover from Lehman’s liquidators. And according to Hong Kong’s Financial Secretary John Tsang, investors could get back 70 per cent or more of their original investments.

By comparison, compensation to the nearly 10,000 people here who invested some $520 million in structured notes like the Lehman Minibonds, DBS High Notes 5 and Merrill Lynch Jubilee Series 3 LinkEarner Notes amounted to far less — just over $105 million. In fact, the compensation ranged from a mere 1 per cent of the amount sold as in the case of stockbrokers UOB Kay Hian to the 67 per cent, or some $58 million paid out by Hong Leong Finance to those who complained that they had been misled into buying the notes.

Despite acknowledgment by the Monetary Authority of Singapore (MAS) that there had been at least some mis-selling by the institutions concerned, those investors who have not been offered any compensation have been told to either continue with the three-step dispute resolution process recommended by the MAS, or take legal action on their own, a step a number have since taken. Its findings on the matter were disappointing for many, to say the least.

Worse still, the MAS has also come out to say that the findings of its recent report on the matter, under which some 10 financial institutions were punished, did not automatically mean the institutions are legally liable despite the tacit acknowledgment of mis-selling. The 10 institutions concerned, which included Singapore’s largest bank, DBS Bank, and Hong Leong Finance, have been barred from selling complex financial instruments for periods of up to two years.

It appears the authorities here were more concerned about protecting the system rather than the individual.

The 10 institutions were found guilty of at least one of three failings — misclassifying the rather complex notes they were selling as lower-risk products than they really were; not providing accurate and complete information about the structured notes to sales staff; and not ensuring that the sales teams were adequately trained to sell the notes.

Many felt the punishment meted out was merely a slap on the wrist.

While some investors, especially the elderly and the more ignorant, were able to secure full compensation, the authorities here appear to have relied more on moral suasion rather than have exerted any real pressure on a settlement.

So, why wasn’t the Hong Kong model followed? After all, it isn’t as if the institutions here do not have the capacity to have been more generous with their payouts.

For sure, not all the investors were as ignorant as they made out to be. Many were led by greed to buy the notes by the relatively-high returns they promised. Others did not even bother to assess the risks involved in buying these instruments.

But the authorities must also accept some blame in not adequately monitoring the institutions and the people who sold these highly complex and risky products, which even many bankers did not fully understand.

It is ironic that Hong Kong, one of the greatest bastions of free-wheeling and dealing, was able to wrest a better deal for the victims of the Lehman Minibonds than Singapore, which has a reputation for having a better regulated financial environment.


Anonymous said...

The deputy chairmei of MAS recently said in parliament that they do not question the merits of the products.What he meant is "this is not our business". We let FIs do anything with their products so long they make the money.

Anonymous said...

Singapore by Pro FI may attarct many more FIs to operate here. But if you are the wealthy customers or investors, would you want your money to be managed in Singapore or Hong Kong? We may have more FIs but less customers and eventually the FIs would move to Hong Kong too.

Anonymous said...

Why didn't the opposition party bang the table in Parlaiment immediately? I don't understand it. MAS cannot behave like ISO9000 garbage in garbage out Quality Control system just checking documentation and processes. MAS must be responsbile to scrutinise products to some detail. The Malaysian regulator is much smarter, they must have read the details and found it too difficult and banned it. That was very smart, our regulator made mistake and refuse to admit it, that is sin upon sin.

OF what use is the oppostion party ? I'm not gonna vote for them either. Hopeless!!! Waste your time to vote for the opposition!!!!!!

Anonymous said...

hmm.. why do we keep expecting the opposition to say things that we ourselves really want to say? I guess it's easier to "bang table" when we are anonymous...

Anonymous said...

Finally our mainstream news is publishing such a story.
- A Singaporean

Anonymous said...

Quote: Why didn't the opposition party bang the table in Parlaiment immediately?

How do you know they didn't?
Even if they did, would it ever be reported or highlighted in the news or Parliamentary snippets?

Just electing oppostions would not do you good IF you cannot/do NOT/not allowed keep track of their performance.
What good is THREE opposition in the Parliament? This is the same as sending three people to a gangster infested slum and try to outshout the hoodlums...will it work?

You are not a bright thinker, apparently...

Anonymous said...

It is cristally clear that SG govt is strongly
backing the FIs in the structured products scandal. From SM,Minister and CEO of MAS, all have the same mindset and thinking, totally forget that their high pay come from SG
citizen. They were not really blind and cannot
see that 600m dollars of hardearn savings were
swindled by the cheating syndicates. Why they so
concern about their reputation being tarnished?
The answer is simple:
1.Their interest with the FIs are interlinked.
2.They have to admit their own faults if they
point the finger on FIs.
We lack a powerful and MPs to query
the integrity of govt in handling the scandal.
We also lack media critic's views to pressurize
the relevant authorities. The outcome of investigation by MAS is actually preditable.
HK govt and retail investors earn praise and respect worldwide. In contrast, our SG top man always self-conceited and think they are smarter,perform poorer than many of our neighbours. At least they banned the toxic products to be sold to the public.
I suggest Mr Tan to advertise the petition letter in all the press. Fees can be collected
from all the petitioners. The moral and financial effect of the open letter may be greater than we expected.

Anonymous said...

Li AO of Taiwan once said s'porean are stupid.
It seemed that there is some truth in it.
Even if they are not stupid, they must be too trusting.

Anonymous said...

The moral of the story is the HK regulators and legco have better morals. Over here perhaps we have fatter pay.

Anonymous said...

"THE senior House Democrat in charge of overhauling US banking regulations warned on Monday that foreign banks would be denied access to the US system if they become an 'escape hatch' for risky investments."

Risky products must be banned totally and forever.

Anonymous said...

Who is this reporter trying to bluff when he said many bought it out of greed. He is ignorant not to know good quality bonds around the world have coupons >5%. The true coupon for Minibond is closer to 20% but the issuer disguised the product and did not disclose the true risk. Therein lies the crux of the fraud.

Anonymous said...

In the investigation conducted by MAS, it was found that in the sale of these credit linked notes there were failings at these 10 financial institutions, including the misrepresentation of product risk in the prospectus and pricing statement, and inaccurate and incomplete information given by sales staff to investors.

The result was that investors were missold these notes whose risks were misrepresented to them and in the process suffered huge financial losses.

So why shouldn't the FIs be made to compensate for the losses suffered by their customers that they misled and buy back the notes at par? Not to mention 70%, whereby the current market value of the minibonds is estimated at 60%

btw the estimated current market value of 60% applies to Lehman minibonds only..
DBS claims the current value of its High Notes 5 is 0%... and these were sold to the mass customers!

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