HK regulator: HK suffered a mis-selling issue

http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/400786/1/.html

7 Jan 2009

HONG KONG: Hong Kong's securities regulator on Wednesday insisted the city's monitoring system had stood up to the financial crisis, despite criticism complex products were wrongly sold to vulnerable investors.

"Hong Kong's system has broadly worked well," said Martin Wheatley, chief executive officer of the Securities and Futures Commission (SFC). "We have not had a systemic failure."

Wheatley said the fact that Hong Kong had so far avoided the collapse of any major financial institutions or a huge fraud on the scale of disgraced US financier Bernard Madoff showed its regulatory regime had worked well.

Madoff was arrested on December 11 after allegedly admitting he had run a multi-billion dollar pyramid fraud in which individual investors, banks, charities and universities lost vast sums of money.

Wheatley conceded the city had suffered from a "mis-selling issue" over the sale of so-called minibonds backed by failed US bank Lehman Brothers.

However, he said it was too early to say if the banks who sold the products or the regulators were to blame.

Critics have accused the city's regulatory bodies of failing to protect investors from the derivative-backed products.

"We have got a problem with retail selling, we need to put that right," he said at Hong Kong's Foreign Correspondents' Club.

More than 40,000 Hong Kong investors – including many retirees – had put a total of 15.7 billion Hong Kong dollars ($2.0 billion US dollars) of their savings into minibonds and other complex products backed by Lehmans.

The collapse of the Wall Street giant in September meant the value of their investments dropped dramatically, which has sparked protests across the city from investors who said they were mis-sold the products.

The SFC and the city's de factor central bank, the Hong Kong Monetary Authority, are investigating hundreds of cases related to the sale of the bonds.

Constructive total loss of vehicle

Dear Mr Tan,

I bought a comprehensive motor insurance on my vehicle. Unfortunately, I met an accident and the the insurance company informed me that they are only willing to pay me based on the OMV of my car (PARF and COE $28,800/-) value plus cash of $1,000/- ( approx $30,000/-). My vehicle is coming to 5 years old, the cost of repair is estimated to be around $15,000/-.

They claim that it is no longer economical to repair the car. May I know my position in this situation.

REPLY
Under the insurance policy contract, the insurance company has the option to pay the current market value of the vehicle, instead of repairing it. This is called a "constructive total loss".

Usually, if you get the current market value, you will be able to buy a vehicle of similar age and condition as your insured vehicle. If you find that it is not possible to get a replacement vehicle, you can discuss with the insurance company to find a better solution.

Life in Singapore

How do you feel about life in Singapore?

http://www.surveymonkey.com/s.aspx?sm=BXcsoNS8Zotk8ES_2fDxsL1g_3d_3d

Thought for the day - OB markers

"The smart way to keep people passive and obedient is to strictly limit the spectrum of acceptable opinion, but allow very lively debate within that spectrum."

-- Noam Chomsky (1928- ) Institute Professor Emeritus of Linguistics

Contributed by Ho Cheow Seng

Survey – a service to business

http://www.tankinlian.com/marketing/survey.html

1. Introduction
Knowledge is everything. It is important for a business to know what its customers, employees and other stakeholders think and what drives their behaviour and action.

A survey is useful in getting information that can help you to make the right decisions.

We provide a service to help you to design the survey questions and to give you a link that you can send to your target audience. They click on the link to reply to the survey. It is easy.

We will give you a weekly progress report until the survey is closed.

2. Cost
The cost is modest. You pay a fee of $1 per survey reply, subject to a minimum of $100 per survey. There is no additional charge to create the survey form of up to 15 questions. For each additional question, there is a charge of $3.

3. Contact us
If you are interested in this service, send an e-mail to tkl@tankinlian.com with the following:

Your name:
Your company name:
Your e-mail:
Your mobile nr:

A list of survey questions

Thought of the day - Democracy

"We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both."

- Justice Louis D. Brandeis
(1856-1941) US Supreme Court Justice

Contributed by Ho Cheow Seng

Feeder service

Survey:

http://www.surveymonkey.com/s.aspx?sm=scXwXJF8mtnVGQ2i806Zbg_3d_3d

Website to post results of surveys

I wish to ask for a volunteer to manage a blog to post the results of the surveys. I need the survey results to be presented in a chart (where appropriate) and to write some comments. This person should be able to use an appropriate software (e.g. WordPress or Blogger).  If you are interested to spend time on a vountary basis, send an e-mail to kinlian@gmail.com. 

A survey is useful, in spite of its limitations

I am actively using surveys in this blog. I find the results to be useful, as follows:

> It collects the views of a larger number of persons (instead of one person's views)
> Usually 25 replies are sufficient, as results are usually close to a larger sample
> The respondents are usually random and generally unbiased.

There are obvious limitations - hence the results have to be used with caution. Furthermore, it is important to phrase the questions fairly, so as to obtain useful answers.

Some people argue that it is important to select a proper sample. I agree, but this is costly and difficult to achieve. In the absense of this budget and luxury, a simple sample survey on the internet is better than nothing. As someone said, "knowledge is everything".

I wish to encourage people to use sample surveys to gather information for business and social decision.

Partial retreat from globalisation

RBS's shift towards its home market is a microcosm of what most banks are doing all over the world.

And as banks do their patriotic duty and direct their increasingly precious and scare capital resources towards their domestic markets, the amount of credit available in the world as a whole is being compressed.

What's going on can be seen as a partial retreat from globalisation in the financial economy.

The scale and longevity of that retreat in this new year will determine all our economic fortunes, wherever we may be in the world.

http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/01/british_banks_have_to_lend_mor.html#top

Survey of Taxi Drivers on SMS booking

http://www.surveymonkey.com/s.aspx?sm=NvyTAfd_2faaNY1x3YRfEsWA_3d_3d

The mortgage crisis explained

http://clusterstock.alleyinsider.com/2009/1/the-mortgage-crisis-explained

Thought for the Day: study of history

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

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% 

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.

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.

Taxi drivers - booking for taxi by SMS

This survey is for a taxi driver, or someone answering on behalf of a taxi driver:

http://www.surveymonkey.com/s.aspx?sm=QCCZmu_2fgoBeaieeeZMuyqw_3d_3d

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

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'.

Rating of political Leaders

How do you rate our political leaders? 

http://www.surveymonkey.com/s.aspx?sm=KyvGqmGbLcGQQxjD3sXIGw_3d_3d

Survey - J. B. Jeyaretnam

Survey results

Seasons Greetings and best wishes for 2009

http://uk.youtube.com/watch?v=-jgH5-P2sB0

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

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....

http://www.scmp.com/portal/site/SCMP/menuitem.2c913216495213d5df646910cba0a0a0/?vgnextoid=6706eaf33ad8e110VgnVCM100000360a0a0aRCRD&vgnextfmt=teaser&s=news

In memory of Mr. J. B. Jeyaretnam

Please participate in this survey:

http://www.surveymonkey.com/s.aspx?sm=o8NC2vbEBs8wFpqFwBNqbg_3d_3d

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 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.

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. 

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