Saturday, June 27, 2009

Only 20% received offer

Dear Mr. Tan
508 million was invested in minibonds. but Mr. Goh revealed offers made to victims from the distributors totalled 100 million, or 20%. Is it a joke of the century or what when Mr. Goh bragged about "2/3 receiving compensation?

ST: Lehman saga: Two thirds get payment offer

June 27, 2009
One in four who had mis-selling complaints fully compensated
By Francis Chan

MORE than two-thirds of the investors in Singapore who complained of mis-selling after losing money from the collapse of US investment bank Lehman Brothers, have been offered compensation.

Out of 5,350 cases dealt with by financial institutions that sold the Lehman-linked structured products, a quarter saw investors receiving full compensation, said Senior Minister Goh Chok Tong yesterday.

The latest updates came from the Monetary Authority of Singapore (MAS).

Mr Goh, who is also MAS chairman, was speaking at The Association of Banks of Singapore's (ABS) annual dinner.

He said the financial institutions that distributed the failed structured products have generally reviewed investor complaints in accordance with MAS recommendations that they should not take an overly legalistic approach.

Three banks and one finance company told MAS that as at last month, settlements worth $105 million - on a no-admission-of-liability basis - had been offered to more than 3,600 investors of Lehman-linked notes.

Of the 5,350 cases dealt with and decided on by the financial institutions, 67 per cent had seen settlements offered, while investors in 25 per cent of the cases decided were fully compensated.

Ten financial institutions sold over $660 million worth of Lehman-linked investments to more than 10,000 investors, who bought Lehman Minibonds, DBS High Notes 5 and Merrill Lynch Jubilee Series 3 LinkEarner Notes.

Mr Goh said MAS had recently consulted the public on proposed regulatory enhancements to cover the sale and marketing of structured products to retail investors.

'Broadly, the findings from MAS' policy review and investigations show that financial institutions will need fundamental changes in both business models and mindsets to win back the trust and confidence of consumers. This is true not only in Singapore, but across the globe.'

Mr Goh said that MAS had completed its probe into the sale of the structured notes and would release its findings soon.

Investors caught up in the fiasco have been looking forward to the the findings for months, most with mixed feelings.

'If the investigation process is conducted properly and without prejudice, I am hopeful that the findings will be in our favour,' said one investor who did not want to be named.

'My case is still in adjucation, so I do hope to hear favourable findings,' said another Minibonds investor whose complaint is being dealt with by the Financial Industry Disputes Resolution Centre.

'But all they need to do is tell us the truth, and I am sure most, if not all, cases should receive full compensation.'

MAS recently set out in its Fair Dealing Guidelines the roles and responsibilities of boards and senior management in driving some fundamental changes needed for good customer outcomes.

Mr Goh said MAS will fine-tune its approach to supervision of the market conduct of financial institutions, including greater probing of boards and senior management on the steps they are taking to embed fair dealing outcomes in all their processes, from product approval to staff incentive structures.

GST records adds to cost of doing business

The owner of a small business told me that the keeping of tax invoices to support GST has added to his cost of doing business. He has to keep separate records for the purpose of GST, which is additional to the records for preparing his accounting statements.

Do you agree with this view? If you are runnning a business that needs to comply with GST or have any friends in this situation, please share your views here.

Health care reform in the USA

The Obama Administration wants to offer a government-backed insurance program to compete with private insurance. The aim is to extend coverage to all Americans and bring down cost.

This may take the form of a national cooperative, owned by the policyholders. It has to be national-based, rather than state-based, so that it can have an efficient size.

Another proposal is to remove the restriction on using cost-effectiveness studies to pick which drugs and medical devices Medicare funds for the elderly and disabled. Supporters like evidence-based research to be used to make decisions to figure out what strategies work, then have incentives to use the best possible -- not only lowest cost, but most effective -- treatment protocol. This would result in significant savings.

The opponents argues along with other Republican opponents that such comparative effectiveness research would be use to ration care.

The final bill being discussed in Congress will include some kind of nonprofit entity to compete with private insurers, whether a co-op or government- run program. This will encourage competition and private insurers may not make as much money as they’re making currently.

Tan Kin Lian

Friday, June 26, 2009

Quality of life in Ipoh

Hi Mr Tan,
I went to Ipoh yesterday to visit the cave temples. I enjoyed myself very much there. Things are so cheap and with the limestone hills as a backdrop and low storied buildings, there is such a huge expanse of sky over you.

Here you really feel that there are other ways to live other the life I know, and it can be so pleasant and enjoyable.

From Jusco I tried to take a cab to the bus terminal. The taxi driver wanted to overcharge me so I decided to walk back. I thought it would be good to see the hills grow dark as night fell.

Unfortunately as night fell, I lost my bearings. Luckily, I was picked up by a retired police officer who delivered me to the bus terminalI treated him to a meal. He told me that he retired at 40 and is now a used car dealer. He is doing very well, enough to play an expensive game of polo on horseback every month.

I envied him. He took pride in his job as a police officer and is enjoying his life. I do not think such a quality of life is achieveable in Singapore. It echoed the taxi driver in Penang who said, "Singapore is a place where you make money and get out". He had worked in Singapore as a SBS driver.

I'm thinking of buying a place in Ipoh in the future!

Thank you for telling me about your visit to Ipoh (which I last visited 35 years ago). I will be visiting Penang, Ipoh and Kedah next month. My friend in Kedah will take me around.

I agree with your views about the nice pace of life in Ipoh. But many people in Ipoh seemed to take a different view, as they leave this town to work in Singapore and Kuala Lumpur.

Shape Quiz (T Puzzle)

Print the PDF document in this website. Cut out the 4 pieces. Try to form the shapes shown in the brochure. It is challenging and fun.

Financial reforms in America

A key proposal of Obama's Administration is to set up a Consumer Protection Agency on financial products. It will encourage financial institutions to offer "plain manilla" products that meet their needs.

Critics said that it will stifle innovation. I disagree with these critics. My view is that consumers are best served by buying simple products. They do not need "innovative" products, which were created to make profit for the financial institutions, at the expense of the unwary consumers.

Another interesting proposal is for the products to be offered on an exchange. For example, the Administration is working on a health insurance product to be offered by the Government, which will be offered on an internet exchange together with private sector products. This will allow the consumers can make an informed choice on the available products. In my view, this is a major step forward.

I read that Paul Vocker, who is an adviser to the Obama Administration, is strongly in favour of all derivative products being transacted on an exchange, rather than over the counter. This will ensure transparency and fair pricing. I agree with this approach. If it had been adopted earlier, the world would have avoided the global financial crisis.

Free market and innovation have been misused by the proponents to act unethically and to take big risks, which has caused the downfall of the global economy.

We need new foundations to rebuild the global economy, namely:
a) plain manilla products
b) transacted through an exchange
c) consumers to be protected

My best wishes for the success of the financial reform that is being promoted by the Obama Administration. They have the courage to do the right thing.

Tan Kin Lian

Thursday, June 25, 2009

Unable to take up rights issue

Dear Mr. Tan,
I have invested in REITS. Due to the recent right issues carried out by several REITS, I have been forced to buy more shares or suffer dilution. Can you advice on:

1. Could you please kindly advise if it is worthwhile to buy & hold REIT for many years (i.e. 10-20 years)?

2. Should I switch into high dividend yield blue chips, as they do not issue rights often?

All shares are subject to rights issue, i.e. not just REITs but other shares as well.

If you are not able to take up the rights issue, you have the option to sell the rights. The amount that you get for the rights should be almost the same as the amount of dilution in your shares.

For example,
Price of shares before rights issue $5
Rights issue (1 for 1) at $3
Share price after rights issue, due to dilution: $4
Value of rights, if sold in the market, should be $1.

The value of the rights is usually the same as the loss due to dilution, but it may vary somewhat, due to market condition.

Whether you should invest in REITS or blue chips is a different matter. Usually, it is better to be well diversified, e.g. buy a ETF of shares and REITS (if available).

Learn about medication

I was prescribed with Naproxen Sodium before. I had some remaining tablets but forgot what it was used for. I searched Google and found the following explanation. It was quite useful for me to learn about the medication. It is important for each person to learn about the medication that they are taking. The internet provides an easy reference.

sodium is a non-steroidal anti-inflammatory drug (NSAID) that is most often used to treat pain, inflammation, menstrual cramps and fever. It is also a favorite medication used to treat the stiffness associated with arthritis, osteoarthritis and rheumatoid arthritis and other conditions affecting joints. Naproxen sodium, or naproxen, as it is often referred to, is less commonly used to treat Paget’s disease and Barrter’s syndrome.

Note: remaining details are removed.

Shopping through the internet

I need envelopes to send my books to customers. Each envelope (A5 size) cost 26 cents from a stationary shop.

As I needed a large number of envelopes, I searched the internet for a manufacturer to supply in bulk. I found an internet-based stationery who offered the envelopes at 8 cents, i.e. about 1/3rd of the retail price. I bought the envelopes and other stationary items for my office through this source, and paid using Paypal.

Lesson: It is easy to do "shopping" through the internet and find out the best source.

Tan Kin Lian

Wednesday, June 24, 2009

Paying in foreign currency

Dear Mr Tan,
I am doing a 3-year distance learning course from a UK university. They offer payments by credit card or bank transfer and installment payment for each semester.What is the best way to make payment for my course? Should I open a foreign currency account and convert my money into GBP before the GBP increases?

You should not try to speculate on whether the GBP will increase or drop. It can go either way.

When you make payment, look at the exchange rate and the bank charges. Get a few banks to quote to you, so that you get the best rate and lowest charges.

China Daily:Banks may face action from SFC

24 June 2009

HONG KONG: The Securities and Futures Commission (SFC) may take disciplinary action against some financial institutions due to misconducts related to the mis-selling of risky derivative products to individual investors, Martin Wheatley, chief executive of the market watchdog, said yesterday.

The SFC has completed its investigation into 11 of the 19 banks that had distributed toxic Lehman Brothers "minibonds" to individual investors, Wheatley told legislators yesterday at a public hearing on the issue by the legislature.

Seven of the banks have been served with a notice of proposed disciplinary action (NPDA) while the other four will soon be served with a similar notice as apparent evidence indicated mis-selling of risky debt derivatives, he said.

Disciplinary proceedings will be taken against these banks unless they agree to compromises, he said.

Sending out an NPDA is the first step the SFC will take after it has decided to start disciplinary proceedings.

A NPDA sets out the findings of the SFC investigation and indicates the sanctions the SFC considers appropriate to impose.

Wheatley did not elaborate on the likely disciplinary sanctions.

But, according to the Securities and Futures Ordinance (SFO), which governs the operation of the SFC, the market watchdog is empowered to discipline regulated persons or firms who are found guilty of misconduct.

Sanctions that could be taken by the SFC include revocation of license or registration, suspension of licence or registration, prohibition of application for licence or registration, fines up to $10 million and reprimands.

Individual investors, who have bought minibonds or other toxic derivatives products, welcomed the latest move by the SFC but claimed that the move is far from enough to force banks to buy back the toxic financial products at their original investment value.

"It is too mild a move. The SFC should have applied for the establishment of a Market Misconduct Tribunal to handle these serious market misconducts," said Peter Chan, chairman of Allied Victims of Lehman Products.

"Banks (that distributed the toxic products) have tried their best to avoid redeeming all the toxic financial products at full face value. The SFC should have taken disciplinary sanctions much earlier," he added.

Wheatley said the market watchdog will complete its investigation of the remaining eight banks as soon as possible.

He also confirmed during the hearing that the SFC had received complaints about mis-selling against financial institutions from investors who had bought credit-linked notes (CLN) and equity-linked notes (ELN) from them.

Many of these investors, who have suffered huge losses from their investment in CLNs and ELNs amid the volatile market in the past several months, claim that they bought CLNs and ELNs only because of mis-presentation by financial institutions.

The market watchdog has not started investigation on these complaints yet, Wheatley said.

He said the SFC had received 8,400 complaints against financial institutions, mostly alleging mis-selling of Lehman minibonds.

Wheatley declined to comment on reports that BOC Hong Kong had offered to buy back all minibonds it distributed at 40 percent discount to the original investment value.

Wheatley is scheduled to attend another public hearing on the minibond issue by the legislature this Friday.

SCMP:At least 11 banks mis-sold minibonds, SFC chief says

24 June 2009

Preliminary findings indicate that at least 11 banks violated regulations when selling Lehman Brothers minibonds, legislators heard yesterday.

Securities and Futures Commission chief executive Martin Wheatley told a Legislative Council subcommittee meeting that was the result of investigations of all 19 banks that sold the complex investment products.

"In seven of those, we have reached our preliminary conclusions where we have either filed preliminary notice of disciplinary action or we have opened settlement investigations," Mr Wheatley said, adding that there was prima facie evidence of lapses in control.

The securities regulator was also concluding initial investigations with four other banks, which would either receive a preliminary notice or face settlement talks, he said.

Mr Wheatley refused to comment on market rumours that the regulator had rejected Bank of China (Hong Kong)'s offer to buy back minibonds from clients at 60 per cent or more of the investment principal.

Earlier, brokers Sun Hung Kai Investment Services and KGI Asia reached an agreement with the commission to buy back minibonds from their clients at their original value.

"In terms of the statement about whether the initial agreements the SFC reached with the brokers is the only model, the answer is no, we are not dogmatic," Mr Wheatley said. "We have said that we will take account of the extent to which any bank mitigates the losses in the enforcement action that we take."

The regulator has received 8,400 complaints since September, most of them alleging that Lehman Brothers minibonds were misleadingly sold.

At the three-hour hearing, Mr Wheatley was repeatedly asked if there was any problem with the demarcation between the commission and the Monetary Authority.

"I think the demarcation is clear," he said.

Saying that the commission had no legal role overseeing the authority in the regulation of banks, Mr Wheatley said the commission was in "a co-ordination role, not a supervisory or an oversight role" with the banking regulator.

Asked whether the commission would regulate the names of financial products, Mr Wheatley said it would ask the issuer to justify the name.

It had also proposed to the financial secretary that more guidelines and codes be developed to cover the marketing of related documents.

Minibonds were not corporate bonds, but high-risk, credit-linked derivatives marketed as a proxy investment in well-known companies.

Mr Wheatley will give evidence again on Friday.

Will Hong Kong investors get a higher compensation?

A few months ago, the media reports gave the impression that a high proportion of credit linked note investors in Singapore received full or partial compensation. The investors in Hong Kong used this reports to pressure their Government to set similar compensation for them. The general public believed that the regulators had intervened to get satisfactory compensation for the Singapore investors.

As the months went by, many Singapore investors, especially those who invested a large sum, were disappointed that their requests for compensation were rejected by the financial institutions or the compensation offers were unacceptably low.

Many investors rejected the offers and brought their cases to be heard in FIDREC. A few cases had their cases adjudicated with disappointing results to the investors.

Some investors did received satisfactory compensation, which they accepted gratefully. But, the proportion appears to be small.

The Legislative Assemby in Hong Kong had summoned the regulatory authority to testify in their chambers. These hearings were well reported in the media. The legislators were unhappy with the measures taken by the regulators before and after the crisis had erupted. In response, the regulators were compelled to take stronger action now to remedy the situation.

Recent media reports suggested that some financial institutions in Hong Kong are now willing to compensate the investors at more than 50%, which is more generous that the settlements offered in Singapore.

In my view, a compensation of 50% of the amount of loss would be fair, as the loss should be shared equally between the distributor (due to their negligence in mis-advising the investors about the nature of the product) and the investors (who wanted to earn a higher yield).

I hope that all investors in Singapore will receive this level of compensation, regardless of their age or educational level.

Tan Kin Lian

Tuesday, June 23, 2009

Full refund of premium under ILP

A policyholder was shocked to learn that the surrender penalty under his ILP policy at the end of 2 years was so high that it took away 90% of his savings. He was not properly advised of this matter by the distributor who sold the policy to him.

He pursued this matter vigorously against the distributor who sold the policy and the insurance company who created the product. He met with the senior officials of both organisations and also complained to MAS.

He was given various types of excuses and disclaimers. He was not discouraged but continued to fight on.

He was finally offered a full refund of the premiums paid for the 2 years and was asked to sign a non-disclosure agreement.

Lesson: If you are willing to fight for your right, the financial institutions may surrender, instead of the consumer.

Tan Kin Lian

The Standard:BOCHK, regulator reach minibond impasse

23 June 2009

Talks between Bank of China (Hong Kong) (2388) and the Securities and Futures Commission have stalled over how much Lehman minibond investors should be compensated despite nearly two months of discussions.

BOCHK will not accede to the regulator's demands that it pay back 100 percent of the purchase value of the toxic investments and is suggesting a maximum offer of 70 percent, sources said.

Peter Chan Kwong-yue, chairman of the Allied Victims of Lehman Products, said he is disappointed by the development and demanded BOCHK take responsibility.

``They did not even show they felt sorry for the situation and it is not acceptable to just pay back 60 percent,'' he said.

Investors aged 65 or older would get up to 70 percent of their capital back. Everyone else would be offered 60 percent. Both offers are on the condition that BOCHK does not accept liability for misselling of the toxic products.

The government has no intention of intervening, The Standard has learned.

A government spokeswoman said: ``We hope the matter can be resolved as quickly as possible.''

BOCHK, the city's largest distributor of Lehman minibonds products in Hong Kong, has submitted a proposal to the SFC and is awaiting its response, sources said.

BOCHK's proposal was based on the government's buyout plan submitted last year with an ``additional premium,'' a source said.

The administration last November suggested banks refund 55 percent of the principal on all minibond products but this proposal was scrapped for legal reasons.

The SFC has insisted on pursuing the same 100 percent rebate for investors that it has already negotiated with Sun Hung Kai Investment and KGI Securities.

BOCHK led minibond sales in Hong Kong with 40 percent of the market. Dah Sing Financial was the second-biggest seller of the structured products, according to research.

BOCHK's settlement will set a precedent for other banks' negotiations with the SFC.

Its 60 percent proposal will cost it HK$2.52 billion, according to Citigroup Global Markets, while paying back 100 percent would cost HK$4.2 billion.

It has so far set aside HK$769 million in provisions.

Dah Sing Financial sold about HK$1.1 billion in Lehman minibonds. So far it has put aside HK$300 million in provisions, according to Citi.

Monday, June 22, 2009

Employment is the key to economic recovery

Read this article.
Survey: Give your views to these suggestions.
Here are the survey results.

Brain Workout (aka Intelligence Quiz)

I have got 5 orders through the website for my books now. Payment for 3 orders were made through ATM and 2 by internet banking transfer. The process is working smoothly. I will be offering more products through the website later.

Click on these links:
Play online
Order books

A customer called me today as she wanted the book urgently for her children. They love the puzzles which appeared in The New Paper on Sunday.

Correct approach to select an insurance policy

Many people think that a good insurance policy provides the widest cover. This is not the correct approach.

A good insurance policy meets the following criteria:
a) Provides cover that is relevant to the needs
b) The cover is clearly defined (i.e. not ambigious)
c) The premium is computed fairly.

The consumer should avoid a policy that provides wide cover that is irrelevant to the needs, have a negligible chance of occurence, and are ambigiously defined. Many of the coverages provided under a critical illness policy fall into this category.

To ensure that the premium is computed fairly, the ratio of claims to premium should be at least 60% in the case of a policy that covers the risk and does not accummulate any savings. If the ratio is less than 60%, the premium is overcharged, and gives poor value to the consumer.

Many travel insurance policies have a claim ratio of less than 30%. A large part of the premium goes to commission, expenses and profit to the insurance company. Many Shield plans also have claims ratio of less than 50%.

Motor insurance has a claim ratio of more than 70%, due to intensive competition. It gives good value to the consumer, except that the claims are inflated due to incompetency in claims control.

When you buy an insurance policy, make sure that the coverage is clearly defined and that the claim ratio is more than 60% of the premiums.

Tan Kin Lian

Politics of Fear - Reader's Views

There were 7 replies from readers. All of them mostly agreed with the views contained in this article. Here are their reasons:

1. 40-50 years ago in Singapore, I always heard 2 news among my friends and elderlies : a) Ghost stories b)Secret police terrorised the oppositions. But since 1990 onwards I hardly hear such news. I believe, as our society progresses, most of the ghosts and secret police have gone for reincarnation. It is a more civilised society now.

2. Many years ago, someone found an intrusion into their home computer from the internet. The intrusion was later found out to be authorised from MOHA. Strangely this was reported in the press. WKS defend the move stating they are doing Singaporean a favour by checking for virus on the computers of singaporean. I think I was in my teens then and did not understand much about politics. The fact is that the gov is snooping on us and collecting intelligence. They can add any law they want and they have the power of ISA. They even have the control of the press and media. If Singaporean can see this control being broken or a change, they may become less fearful.

3. Take me as an example, I will criticize government poor policy with similar minded friends only. And will not go beyond that or go public. Largely, the mass follow local press and accept what is reported in the newspaper even it is sometime biased reporting. They do not challenge it. Hence, it is tough to enlighten them, as they will ask me to shhh... This is also fear on my part, sadly.

Any points to add?
1. Singaporeans should have more moral courage to speak up. This is our country.

2. Singapoeran males are not only afraid to vote. Some of them(20-39yrs old) that are civil servants even express their fears of deferment of their reservists even when they have valid reasons on fear that their promotion chances will be compromised.

3. There are some very prominent politicians who if they are willing to make a anti PAP stand, become the opposition party, it will definitely sway singaporean into changing their mindset. But that is if they are willing to open their eyes and see the trouble ahead for singaporean under PAP continued rule - example Tan Soo Khoon. If in this election we have PAP turn anti PAP, the tides will finally changed.

4. Besides the point you raised on the secrecy in election, the slogan "compulsory in voting" is a malpractice. Nobody should be force to vote against his/her wish. I believe Singapore has the highest turn out rate for voting in election. Coupled with the fear of the vote can be traced (serial number), most (fearful) vote will go to the party-you-know-which.

5. Even Francis Seow, a prominent public figure from a respectable background, can be so easily dealt with. Dear Mr Tan, please be careful. But I will definitely vote for opposition in this election.

How to construct a diversified portfolio

Dear Mr Tan,
I've read several articles that you've written where you've advocated buying the STI ETF. Thanks for taking the time to explain in simple terms the pros and cons of the issue.

I belong to the passive investing camp and believe in buying and holding a diversified basket of index-tracking, low-cost funds tracking several world markets and different asset classes. The STI ETF appears to be one such index-tracking, low-cost fund.

However, investing in the STI ETF only gives you exposure to the Singapore market, which is less than 1% of the global market. While it is a good way to participate in the local stock market, it is certainly inadequate if one wants to create and hold a diversified portfolio.

I'm interested to know if you or your readers have managed to construct a portfolio of low-cost (less than 1% expense ratio), passively managed index funds that track global market indices, investing from Singapore?

I advise people to invest in an ETF rather than to manage their own stocks. They may forget to take up rights issue or sell the rights, leading to loss due to dilution of their shares. The dividends due to them may be paid to the wrong account. To avoid these losses, the investor has to keep track of the shares - which is quite tedious. It is better to leave these matters to the fund manager of the ETF.

Sunday, June 21, 2009

Incomplete information on shares

Dear Mr. Tan
It is easy for an ordinary share investor to be cheated when they are provided with incomplete information. Below are some examples:

1) The investors are told that a company has huge cash on hand to the tune of say several hundred millions of dollars which give the impression that the company is cash rich and hence will pay good dividend or ready for business expansion. But they are not aware that the company also has huge debt to the tune of say several billions of dollars to clear.

2) The investors are told that the current year profit of a company will exceed say $100 millions which give the impression that the company is making a lot of money. But the investors are not aware that the earning of the company is only a mere 5 cents per share because there is a total of 2 billions shares in the company.

3) The investors are told that the earning of a company has increased 100% over the past 3 years but they are not aware that the company share price has increased 500% over the same period.

4) The investors are told that a company is wining a big contract worth $50 millions which give the impression that the company business is very good. But they are not aware that the wining of a $50 millions contract is not significant to a company with annual turnover of several billions of dollars.


Puzzle: The Two Tribes

An island is inhabited by two tribes. Members of one tribe always tell the truth, members of the other tribes always lie.

A missionary met two of the natives, one tall and the other short. "Are you a truth teller?" he asked the taller one.

"Ba" the tall native answered. The missionary recognised this as a native word meaning either yes or no, but he could not recall which. The short native spoke English, so the missionary asked him what his companion had said.

"He say 'yes' " replied the short native, "but him big liar!". Which tribe did each native belong to?

Give your answer here.

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