Saturday, May 30, 2009
In a disturbing echo of the Lehman minibonds scandal, the Hong Kong Monetary Authority has received more than 400 complaints from people who have lost hundreds of millions of dollars on a complex credit-linked product designed and sold by US investment bank Morgan Stanley.
The bank sold HK$2.1 billion of the products, called Octave notes, through 16 local retail banks, including ABN Amro, Bank of China (Hong Kong) and Wing Lung, between 2004 and 2007. Eighteen series of the notes were sold, of which 10 have lost more than 90 per cent of their value. Three - series 10, 11 and 12 - are worthless.
The HKMA revealed the complaints yesterday. It said the banks had sold the Octave notes to about 8,300 customers.
Lawmaker Regina Ip Lau Suk-yee called yesterday for much stronger regulation of financial products sold to retail investors.
She said she had been contacted by people who had suffered big losses on the Morgan Stanley products but had not understood their nature. "The people who have contacted me are ordinary grass-roots people. They are not wealthy," she said.
Like most minibonds, the Octave notes contain synthetic collateralised debt obligations (CDOs), which in the United States and Europe are sold only to professional investors.
"They [Octave investors] sounded very similar to the Lehman investors, who didn't know the products they bought were so risky," Mrs Ip said.
Some 48,000 Hongkongers lost most of the HK$20 billion they invested in minibonds issued or guaranteed by Lehman Brothers when the bank collapsed in September.
Synthetic CDOs are complex, conceptual products that mimic the financial health of a pool of companies. When businesses collapse, the CDOs lose value. Many of the Octave notes are virtually worthless because they were connected to the financial performance of firms that went bust.
Information that Morgan Stanley has posted on a dedicated Octave website illustrates the toxic mess.
Octave series 21, for example, is now worth 0.37 HK cents per dollar invested. It contained a CDO linked to the financial performance of some very troubled companies. These include Icelandic bank Glitnir, which collapsed in October, and US carmaker Chrysler, which entered bankruptcy protection on April 30. Notes that were priced at a fraction of their original value had a high chance of becoming worthless soon, informed sources said.
Only one Octave note is trading at anything approaching a healthy valuation. Series one, issued in 2004, is priced at 68 HK cents per dollar invested.
A spokesman for the regulator said it had taken steps to stop such a debacle recurring. "The HKMA has taken a number of steps, including the issuance of circulars and reminders, to ensure that banks implement adequate measures to manage the risks associated with retail investment products," he said.
The regulator has also asked banks to keep their relationship managers well briefed so they can handle customer inquiries.
Thursday, May 28, 2009
Wednesday, May 27, 2009
Tuesday, May 26, 2009
Monday, May 25, 2009
Sunday, May 24, 2009
I have bought a vivolife policy 2 yrs ago. Recently, I am thinking of increasing my coverage as I am planning to start a family soon.
After reading your blog, I am thinking of the following: switch to term plan and invest my savings on equity personally. Do you think it's advisable?
Please read this FAQ before you take your decision to terminate the Vivolife policy.
If you terminate the policy now, you will lose a large part of what you have paid during the past two years. If you look at the cost for the next five or ten years, you can get a better idea about the advantages of making a switch.
You should also find out the cost of the term insurance policy and critical illness coverage.
It is advisable to take up a term insurance policy, rather than a whole life policy, but a decision to terminate an existing whole life policy has to be considered separately on its merits.
The Justice Department has questioned several former executives at Lehman Brothers Holdings Inc. as part of its criminal investigation into whether they sold supposedly safe, liquid securities to clients while knowing that the market for the securities was drying up.
Prosecutors from the U.S. attorney's office in Brooklyn and lawyers from the Securities and Exchange Commission in recent weeks interviewed several former executives who ran Lehman's auction-rate-securities business, these people said. Auction-rate securities are short-term debt instruments in which the interest rates reset at periodic auctions.
By Kevin Lim and Saeed Azhar
SINGAPORE (Reuters) - Singapore's Temasek defended its money-losing exit from Bank of America
The explanation, a rarity for the state investor, came in a letter to major Singapore newspapers after the loss on BofA attracted fierce criticism from the usually muted pro-government local media, investors and independent blogs, which noted BofA shares have rallied more than 70 percent after Temasek's exit.
The losses are also expected to be discussed when Singapore's Parliament convenes next week.
Temasek, which is headed by Ho Ching, the wife of Singapore's prime minister, sold its 3 percent stake in BofA in the first quarter after converting its Merrill shares into BofA in January. Temasek has not said how much it lost in the process, but Reuters estimated the loss was more than $3 billion.
Temasek announced in February that Ho will step down and be replaced by Chip Goodyear, the former CEO of BHP Billiton
"Our investment thesis had changed from Merrill's specific businesses to the more diversified BoA linkage to the broader U.S. economy. The risk-return environment had also changed substantially," Myrna Thomas, managing director for corporate affairs, said in the letter.
Temasek's aim is to ensure that its portfolio delivers returns that are higher than the cost of capital employed on a risk-adjusted basis, Thomas said.
"We may choose to divest an investment, even at a loss, to optimize our risk or portfolio exposure, or if there are better opportunities elsewhere or later," she added.
Temasek, which like other sovereign wealth funds, plowed billions into Merrill Lynch in the early phase of the credit crisis, saw the value of its portfolio plunge 31 percent to S$127 billion between March 31 and Nov 30 last year during the severe market turmoil.
KEY QUESTION UNANSWERED
Financial investments accounted for 40 percent of its portfolio.
"The letter doesn't give the answer that everybody is asking. How much did they lose?," Leong Sze Hian, president of the Society of Financial Services Professionals, told Reuters.
The exact losses are difficult to quantify because Temasek had also offloaded about 30 million Merrill shares last year in smaller lots, reducing its exposure to the investment bank by the time BofA took over Merrill.
Conraj Raj, editor-at-large at the Today newspaper in Singapore, threw the spotlight on the sovereign wealth fund's stated strategy of taking a long-term view of its investments.
"After all, it has been drummed into us ad nauseam that both Temasek and its cousin, the Government of Singapore Investment Corporation, invest for the long term with a time horizon that could stretch for as long as 50 years," he wrote on May 18.
"Whatever happened to the sovereign wealth fund's (SWF) strategy of taking a long-term view of its investments?"
Singapore's bigger sovereign wealth fund, GIC, on the other hand said it was a long-term investor in Citigroup
"It is difficult to understand why a long-term investor like Temasek was willing to stick with a dud like Australia's ABC Learning centers to the end, but did not try to exercise a little bit more patience with a U.S. government-backed entity like BofA," Png Eng Huat wrote in a letter to Straits Times forum.
"The U.S. government has stated clearly that it will not nationalize BofA even though it is technically the largest shareholder of the bank."
(Editing by Muralikumar Anantharaman)
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