Saturday, July 25, 2009

Develop your mind

Develop your mind (and your children's mind) with the following books:

TKL intelligence quiz
TKL shape quiz
TKL sudoku

Available from or

SCMP:Lehman inquiry to call SFC chief again

25 July 2009

The Legislative Council subcommittee investigating the Lehman Brothers minibond debacle will again summon the head of the Securities and Futures Commission to explain the HK$6.3 billion deal to repay thousands of investors.

Speaking after a closed-door meeting yesterday, the subcommittee's chairman, Raymond Ho Chung-tai, said it decided to summon the regulator's chief executive, Martin Wheatley, for an open hearing as early as Friday or early next month.

"It's because after announcing the repurchase proposal, we need to understand the deal thoroughly {hellip} and ask about the terms, which are unclear," Mr Ho said.

The 16 banks that sold Lehman Brothers minibonds will send letters to investors early next month, and investors will have 60 days to decide whether to accept the deal.

Mr Ho said the legislators therefore hoped to hold the hearing as soon as possible to obtain more information about the repurchase arrangement. The subcommittee also decided that Financial Secretary John Tsang Chun-wah would be the next to be summoned, Mr Ho said.

The SFC announced on Wednesday the HK$6.3 billion buyout deal, which covers 29,000 investors of Lehman Brothers minibonds.

Under the agreement, those who are over 65 years old will get 70 per cent of the value of their initial investment back, while those below 65 will get 60 per cent back. They will receive at least a further 10 per cent of their initial investment from the residual value of the collateral. Despite their name, minibonds are not corporate bonds but credit-linked derivatives whose worth depends on the health of the underlying assets.

Mr Ho said the subcommittee members had also agreed to extend the area of investigation to include investors' protection, the complaint mechanism and the penalty system for any violation of the law during the selling of financial products.

The subcommittee chairman reiterated that the agreement would not interrupt the subcommittee investigating the matter.

"Unlike previous Legco inquiries, this time the incident is developing and we need to make plans accordingly. But it will not halt our investigation," he said.

Although the subcommittee decided earlier to take a break next month, Mr Ho said that as a result of the latest development, meetings would continue during the summer as long as there were enough lawmakers on hand.

"A lot of members have told me they won't be in Hong Kong in August. But because this is something which has got very wide public attention and interest, we will try our best to find enough members," he said.

Broadcast this message: Petition

Please broadcast this message to your contacts by email, Facebook and other social networks:

"Mr. Tan Kin Lian is organising a Petition to the Prime Minister to ask him to assist the investors to get similar compensation given to investors in Hong Kong. Please inform the people who are affected by the credit-linked notes to sign the Petition. The blog is".

Cheated in a good reputation country

Dear (MAS officer)
I would like to share a story with your MAS people.

20 years ago, my father finished his army service and got a big sum money for his army service in China. The amount is equal to 5 years salary. He bought 10 years China government bond (国库券)with that money from a national bank. He thought China government bond was very safe and he only want to use it for his children's education need in the future. He locked those coupon with much care.

10 years later, when the bond matured, he brought the coupon to bank to cash out, the teller told him the coupon were faked. He can not get anything. What a big shock for him and his family. The teller from national bank sold him the faked coupon. The bank told him they could not find the teller any more. He was not the only unlucky person. Actually there are quite a lot of people faced the same. They together tried to ask help from bank, government, press, and law firm. Finally, a lawyer want to take their case. However, somebody threaten the lawyer and the press. The press stopped reporting their story and lawyer didn't dare to take their case.

His daughter thought this was a place without justice. She studied very hard to got in a good university and later left the place for what she thought was a better country.

However, what happened to her? She fell into the same trap. She didn't suspect that the famous Singapore financial institution would cheat people's money also. She clearly told the FI officer she needed government bond only as she was very conservative and she needed the money for her father's medical need. Her father is paralyzed now. However, The RM sold her toxic complicated product with a faked name "Bond".

She was worse hurt. Her father had to accept the unfair things that happened in a developing country. For her, she didn't prepared for such unfair things in this good reputation country.

If you, MAS people, the best educated and smartest people in Singapore, allowed such unfair things to continue, I won't cry for my money, but cry for your future. If the best educated, smartest people are not looking for justice, what is the future for this country?

Best Regard!

Friday, July 24, 2009

Where the jobs are

Low paying jobs and minimum wage.

Health care systems around the world

Documentary by Frontline.

Journalists refused to cover the Petition

I sent an email to notify the journalists on two occasions about the Petition concerning the credit linked notes. There were about 10 journalists in my mailing list. They have covered the credit linked notes previously.

None of the journalists replied to me. They also did not cover this effort. There was total silence on their part. This is a sad state of affairs.

Unsightly flyover in the center of town

Do you know where it is? Check here.

Pinnacle Notes - many series in trouble

Hi Kin Lian,
Please post the latest valuation (July24)of the following series of Pinnacles Notes. The situation is now very critical for holders of these notes.

Series 9 & 10 are already kaput, 1 & 3 may be gone too, and 2,6 & 7 are almost worthless at 0.3% or less(they were at 2% a fortnight ago!) and Series 5 at 1.8%, barely alive and hanging by their skin.

Only remaining 4 Series are fairly safe at this time.

Yet MAS unlike its HK counterpart is expecting each and every investor to fight it out on a case-by-case basis with his FI distributor when it has already found the FIs guilty of near-systemic or firm-wide errors and faults. MAS is indeed prescribing a slow and painful death for the investors who are the victims in toiling through processes of complaints, FIDREC and/or legal actions, while the guilty are merely given what is effectively an enforced but cost-free and painless holiday.

In the light of the latest empathetic resolution led by HK's authority, I think the Petition ought to updated appropriately to add more punch.


CPF Life - does it need to be compulsory?

Hi Mr Tan,
Thanks for willing to spend time to write on CPF Life. We all understand the NEED to have CPF Life. But I would like to have an unbiased view on this plan which is made compulsory for everybody.

Our government is taking a significant portion of our hard-earned CPF money and place us on this plan. Is this a reasonable deal for us or simply we have no choice but to swallow this bitter pill?

Among the options available in this CPF Life, is it just choose based on "whether I want to leave some money for our younger generation" and thus opt for "receive minimum payout when I am alive"?

Is it really true that since CPF Board will be administering this annuity plan, it is better and reliable than those offered by insurers which definitely have more experience in this area?


SCMP:Minibond decision heartens investors similarly burned

24 July 2009

The watershed decision forcing banks to pay more than HK$6 billion compensation to Lehman minibond victims has given hope to thousands of investors burned in meltdowns of similar structured products.

The Securities and Futures Commission (SFC) ordered 16 banks, including Bank of China (Hong Kong) and Bank of East Asia, to return up to 70 per cent of money invested in minibonds to investors because bank staff sold the complex derivatives as low-risk.

The banking regulator, the Hong Kong Monetary Authority, will now deal with 9,000 other complaints of mis-selling of structured products. These are likely to include gripes about worthless Constellation Notes, sold by DBS Bank, and Octave Notes, sold by 17 banks and designed by Morgan Stanley.

"We will investigate if there is any mis-selling in these complaints. Our target is to complete all the cases by March," HKMA executive director Raymond Li Ling-cheung said.

Democratic Party chairman Albert Ho Chun-yan said: "Octave Notes and Constellation investors now have a stronger case for compensation."

Like minibonds, Constellation Notes were derivative products - financial bets - linked to the financial health of Lehman Brothers. Their buyers wagered that no companies in a group that included Lehman would go bust.

Investors were wiped out when the US bank failed last September.

Out of a series of 18 derivative-based Octave Notes, three required buyers to strike similar bets that Lehman would not fail. Buyers lost everything after the bank's demise.

Many investors who attended meetings organised by the Democratic Party claimed they had no idea they were buying derivatives. Instead, they claimed they were told the notes were comparable to time deposits or simple corporate bonds.

Shelley So, a Constellation investor, said DBS staff told her the notes were "for extra income, because we do not earn very much". In 2006, she and her husband poured US$130,000 into the product. The couple had instructed lawyers to try to get their money back.

DBS declined to comment.

About 4,000 Hong Kong people bought HK$2.4 billion worth of Constellation Notes. Octave Notes were sold to more than 8,000 people, who invested HK$1.8 billion.

Meanwhile, dozens of Lehman minibond investors protested outside the SFC yesterday, saying the new payout proposal was not acceptable and they wanted all of their investment principal back.

The Standard:Protests ease, investors come to terms with offer

24 July 2009

Regular investors started coming to terms with the Lehman minibond compensation offer yesterday, with only a handful of elderly investors protesting outside the Securities and Futures Commission offices.

Some of those protesting said they were inclined to accept the offer, although they held out a sliver of hope that they would get more.

``I have no money to use. My wife and I only have this pension, I can only accept the 60 percent compensation and use it,'' said an investor surnamed Chan.

Another investor said he prefers to reinvest the settlement amount to make more money. ``It's better to get back some money to invest in stocks. As the entanglement goes, chances are you won't be able to get it back some five years later,'' he said. ``Making up for the loss from stocks now is just the same.''

Consumer Council chairman Anthony Cheung Bing-leung advised investors to evaluate their individual situations before deciding whether or not to accept the buyback proposals by the regulators and banks. ``If the investors are willing to accept it, we will be pleased. But we also respect whatever decisions the investors make in the end,'' Cheung said. The council has received about 12,000 complaints from investors so far, including about 50 cases applying to the legal fund.

Customers of DBS Bank (Hong Kong), who bought Constellation credit-linked notes linked to Lehman, are still fighting for more compensation from the bank. They are not covered under the repurchase scheme as what they bought was not minibonds.

Bank shares surged yesterday as investors were relieved that the uncertainty on the minibond compensation plan was removed. Bank of East Asia (0023) jumped 3.3 percent to HK$25.10, while Bank of China (Hong Kong) (2388) rose 2.5 percent to HK$15.54.

Bank of Communications (3328) said yesterday it would have to pay a total of HK$204.54 million in investor compensation. It said the minibond repurchases will have ``minimal impact'' on financial results.

Dah Sing Banking Group (2356) said it would need to pay up to HK$444 million in compensation, plus HK$20 million in ``top-up payments'' and HK$22 million in legal-fund contributions.

China Daily:Investors continue minibond fight

24 July 2009

HONG KONG: A complaint arising from the sale of Lehman Brothers minibonds is headed for the courts. At the same time the Consumer Council will continue assisting those hit hard when the minibonds and other dicey financial instruments became worthless.

The watchdog has received about 12,000 related complaints since the US investment bank collapsed last September causing astronomical losses to investors.

Apart from the one case that has been set for litigation, about 50 other cases are under review for possible legal action.

Investors burnt in the minibonds collapse have accused local banks of malpractice and deception in their efforts to sell the complex investment tools. Many of those who were hurt are elderly. Many don't have education sufficient to provide them a clear grasp on what happened to their money.

Speaking at a Consumer Council seminar yesterday, Secretary for Financial Services and the Treasury Chan Ka-keung urged sellers and financial consultants to expound fully the risk of investment products to investors and to assess actual needs in order to protect the consumers' rights.

They should not "hard sell" products, Chan said.

Meanwhile, Consumer Council chairman Anthony Cheung reminded consumers that it is they who must decide whether to accept the buy-back scheme.

Regulators and 16 banks set up the compensation package which was announced on Wednesday. Investors could receive between 60 and 70 percent of the principal they invested. But "experienced" and "professional" investors will not be eligible.

"The package is proposed by the Securities and Futures Commission (SFC), the Hong Kong Monetary Authority and banks. It is up to consumers to make final judgment. Everyone is under different circumstances," he said at a seminar yesterday.

Lawmaker Kam Nai-wai who has helped to champion the cause of investors pressed for the 16 banks to disclose the valuation of minibond collateral for investors in order to help the investors to consider whether they should accept the buy-back package.

Some minibond holders staged a sit-in at the headquarters of the SFC yesterday expressing their dissatisfaction with the compensation package. The protestors demanded full restitution, not partial.

Some said they had no alternative but to accept the offer. They need money to live. Some were confused, saying they had no idea whether they are entitled to compensation.

Local actress Meg Lam Kin-ming invested about HK$10 million in the minibonds and other investment tools. She may not be able to get back the principal, as a "professional investor" is one with over HK$8 million investment portfolio.

"What is the judgment of an investor as 'professional'? Does it mean buying lots of investment products before? I have no idea at all," said Lam.

Parliament Answers to Lehman Structure Products - 20 July 2009

Dear Mr. Tan,

QUOTE: MAS’ role is not to judge the merits of the product being offered. Rather, MAS checks that the issuer discloses the features and risks of the product, and that there are no false or misleading statements. MAS does so based on the information provided by the issuer and its advisers.

The most significant point from the above statement of the Deputy Chairman is "MAS does so based on information provided by the issuer and its advisers".

If subsequently the court find that the prospectus and pricing statements:
* fail to disclose the features and risks of the product and
* there are false and misleading statements
the investor is able to claim for full recovery of the investment.

SCMP:Some sympathy for the devils

24 July 2009

It's deeply unfashionable to feel any sympathy for bankers these days.

In Hong Kong, they have been exposed as no better than back-alley thieves, cruelly mugging harmless old grannies, stealing their savings and leaving them with purses stuffed with nothing but worthless Lehman Brothers minibonds.

That's pretty much the narrative as it's been told to us. But you have to wonder how accurate that interpretation of the minibond story is. And you have to doubt whether Wednesday's settlement, in which 16 banks agreed to pay minibond investors back at least 60 cents in the dollar, is really as great a deal as it's been made out.

With minibonds sold to senile, illiterate and mentally handicapped savers, there were clear breaches of the regulations in some cases. Those investors should be paid back at 100 cents in the dollar, not 60, and the offending banks should be hammered with stiff penalties to boot, not allowed to escape additional punishment.

But those cases are in the minority. For the most part, minibonds were bought by people who went into their banks with eyes open and who knew exactly what they were after: higher returns.

As the first chart below shows, interest rates on bank time deposits have collapsed in recent years, falling from double-digit levels in the early 1980s to rates as low as zero in the early years of this decade.

As a result, depositors turned into eager buyers of complex structured instruments that promised a higher rate of return than plain vanilla time deposits.

Yet as anyone who isn't senile, illiterate or mentally handicapped can work out for themselves, a product that offers a yield of 5 per cent or more when interest rates are at zero must come with considerably more risk of loss than a simple time deposit. You don't need to understand one-touch options or credit default swaps to work that one out. It's a clear case of caveat emptor: buyer beware.

There is a strong argument to be made that savers who bought minibonds because they demanded higher returns should have to bear their losses. They invested in risky securities and were unlucky enough to have them blow up in their faces. That's tough. But it is hard to see why one group of investors - the banks' shareholders - should be forced to bail out another - the minibond buyers - simply because the second group made a bad decision.

On the other hand, the banks were hardly blameless. Until the mid-1990s, profits were relatively easy to come by. Demand for loans was brisk, and Hong Kong's loan to deposit ratio rose as high as 180 per cent.

The 1997 Asian crisis changed all that. As the second chart below shows, loan demand dried up even as deposits kept mounting. The loan to deposit ratio tumbled, falling to within a whisker of 50 per cent in recent years, brutally squeezing bank's interest income.

In response, Hong Kong banks ramped up their sales of securities, pushing structured products like minibonds to their depositors in order to capture lucrative commission income. Many went for the hard sell, sacrificing long-term customer relationships to boost short-term profits.

Yet although that's dumb and although many of the instruments sold were wildly unsuitable for ordinary retail investors, what the banks did - for the most part - was perfectly legal. It is unclear why they should be punished for it.

But the real problem with the minibond settlement is not so much its injustice, but the precedent it sets.

Securities and Futures Commission chief Martin Wheatley called Wednesday's deal "a watershed in the regulation of financial services in Hong Kong". He's not kidding. In pushing for a blanket bail-out of minibond investors, the regulators have served notice that from now on investors who lose money will be bailed out if only they make a loud enough noise about it.

So, expect a flood of compensation demands from investors who have taken losses on other structured products, on warrants or hedge funds. The list is endless.

Worse, Wednesday's agreement will only encourage investors to take excessive risks in the future, safe in the knowledge that if they end up out of pocket, they will be able to cry "mis-selling" and force the banks to refund their money. The minibond deal badly skews the balance of risk and reward for investors, introducing a hefty dose of moral hazard that stands to inflict severe damage on Hong Kong's financial services industry.

So although it's not fashionable to feel sorry for bankers, perhaps they do deserve some small sympathy in this case.

CPF Life

There are some comments about CPF Life. I will be doing some research about it and will write my views later. If you have specific offers for CPF Life, please send them to me for analysis.

Coverage of HK settlement

I was surprised that ther was no coverage of the HK settlement of the minibonds in the Straits Times today (Friday). I do not know if there were any coverage during the past two days. What about the other newspapers? Did they cover the HK settlement agreed between the regulators and the 16 banks?

Please help me to check your newspapers (Strait Times, Today, MyPaper, Zaobao, Wanbao) for the past few days and report your findings here.

Thursday, July 23, 2009

Minimum wage spurs optimism and debate

Read this article.

The Emperor's Clothes and Singapore

Read this article.

Share your views about this article and the findings of the survey. Does the survey reflect a small proportion of unhappy Singaporeans, or is a wider reflection of the views of many people?

SCMP:How swift lobbying ended a dispute that had dragged on for 10 months

23 July 2009

A 20-day lobbying effort by government officials and bankers has ended a 10-month dispute between banks and investors over settling the Lehman Brothers minibonds issue.

"The past 10 months have been very tough - especially the last 20 days," a banking source said.

The 16 lenders yesterday sealed the HK$6.3 billion agreement with the Securities and Futures Commission and the Monetary Authority to pay back 29,000 investors.

The SFC, the HKMA and banking sources all denied that political pressure forced the agreement, although the Legislative Council is questioning the heads of both regulatory bodies and bankers over more than 20,000 complaints from investors about the conduct of banks in selling the minibonds.

Shortly after Lehman Brothers collapsed last September, the government proposed that banks buy back minibonds from investors - similar to the current agreement. But it took 10 months for the deal to unfold, as banks were initially concerned that it might attract legal challenges from the liquidators of Lehman Brothers.

Since then, the SFC persuaded two brokers - Sun Hung Kai Financial and KGI Asia - to repay investors fully. But until yesterday, it had yet to clinch a deal with the 16 banks that sold the minibonds.

The turning point came only 20 days ago, after Bank of China (Hong Kong) came up with an agreement similar to the deal agreed yesterday. Then the other 15 banks joined forces to negotiate with the SFC as a group.

Bankers said the sector's legislator, David Li Kwok-po, chairman and chief executive of the Bank of East Asia, was one of the most active in lobbying the SFC and the HKMA to accept the deal.

"This is the best deal possible, with the greatest sincerity from the banks. There is upside and no downside in this deal," one banker said. "We want to leave this all behind us, to move on and look forward."

Secretary for Financial Services and the Treasury Chan Ka-keung said: "I hope the settlement scheme {hellip} will help investors return to their normal lives."

SCMP:Legco inquiry to proceed despite agreement on compensation

23 July 2009

A proposed deal to settle all investor claims against banks involved in the Lehman Brothers minibond debacle will not derail attempts by the Legislative Council to get to the bottom of the unprecedented case.

Raymond Ho Chung-tai, chairman of the Legco subcommittee investigating the minibond saga, declined to comment on the settlement deal but said the investigation would continue.

The subcommittee was set up to examine issues relating to the way banks sold the structured investments to clients and not to help investors seek compensation, Mr Ho said. He said it would publish its findings in a report by next year at the earliest.

Similarly, the Consumer Council will proceed with its application to the consumer legal action fund to bring a case to court against a financial institution that sold a Lehman-related product to an investor. But a spokesman for the council said investors should seriously consider the settlement deal.

Some lawmakers, including Regina Ip Lau Suk-yee and Jeffery Lam Kin-fung, said the deal was acceptable. "The deal is quite good and covers a lot of the investors," Mrs Ip said. "Banks here are more generous than those in Singapore." On average, investors in Singapore got back only 32.2 per cent of their investment, she said.

But Democrat legislator Kam Nai-wai called on the government to get the banks to first reveal the remaining value of the Lehman products' underlying assets. Mr Kam insisted it was unfair to investors if they had to decide whether or not to accept the deal before knowing what the collateral of their investment was worth.

Minibonds are not corporate bonds, but consist of high-risk credit-linked derivatives. They are marketed as a proxy investment in well-known firms.

A Ms Lau, who sunk US$100,000 of her grandfather's savings into Lehman minibonds, said the settlement offer did not adequately reflect the banks' responsibility to investors. She said she felt the banks were trying to absolve themselves without shouldering responsibility by paying off investors through the settlement deal. "I still haven't told my grandfather that the money is in Lehman minibonds," Ms Lau said. "I'm afraid he wouldn't be able to take the news if I told him."

Kitty Lai, who poured HK$6 million into minibonds, flatly rejected the deal and accused the government and regulators of siding with the banks.

"You cannot trust the government or the Hong Kong Monetary Authority. Sometimes, when I think about this, I just want to kill myself," Ms Lai said.

To Kam-leung, whose 66-year-old father purchased Lehman minibonds from the Bank of Communications, said his family would accept the deal even though they felt it was unreasonable.

"It's because we don't want it to drag on. And we only invested HK$120,000, which is a comparatively small amount," he said. "My father suffers from diabetes and the minibond issue has troubled us for months. We also bear part of the responsibility because my father trusted the bank staff and didn't consult us before signing the documents."

SCMP:The right rules, and the facts to invest prudently

23 July 2009

The proposed settlement brokered by the Securities and Futures Commission offers a swift and practical way to resolve the long-running minibond controversy. It will not settle all outstanding claims, but it is a realistic solution that should help most retail investors recover up to 70 per cent of their investments, and possibly more, depending on market conditions. No doubt some will still reject it, having clamoured for a 100 per cent refund. But those who want to put the stressful matter behind them can now do so on generally fair terms.

Banks responsible for selling the complex products stand to lose most. But in return for their agreement to settle, regulators will drop all investigations against them. The banks are more willing to settle now because recent market rallies have pushed up the value of the collateral tied to the products. That should help lessen their losses and recover more money for investors.

The deal, therefore, is a compromise that will hopefully bring this sorry saga to an end. But lessons need to be learned if we are to avoid a repeat. The episode has exposed cracks in the regulatory system and lax monitoring. It turns out that many complex financial products proffered by banks are not regulated by the commission or the Monetary Authority. Financial institutions need to be reined in by closing such loopholes. A strong argument can be made that complicated derivative instruments such as minibonds should not be sold to ordinary investors.

On the other hand, investors cannot be absolved of all responsibility. They cannot plead ignorance and demand a refund every time they lose their shirts. Without doubt, some elderly clients and victims of blatant mis-selling deserve to have all their money back. But the majority of minibond investors simply made a bad investment and should accept some losses. There needs to be more of a culture of risk awareness. If something looks too good to be true, it probably is. The latest offer is, nonetheless, an improvement on banks' original proposal to buy back the minibonds at their market value, which is a fraction of what investors paid for them.

The minibonds are just one of many types of derivative instruments being sold to ordinary investors that have caused catastrophic losses during the market downturn. The notorious "accumulators" have caused much grief, but because most who bought them were high-net-worth individuals, regulators have been unwilling to get involved. Already, buyers of so-called Octave Notes - complex derivatives that have gone bust like the minibonds - are demanding compensation. The minibond settlement may offer a template to resolve their dispute as well, and perhaps others. But the line has to be drawn somewhere. Only where there is evidence of abuses should compensation be paid.

Generally, there should be broader markets and greater choices for investors. However, financial institutions should not use this as a pretext to sell fiendishly complex derivative products to gullible investors. Forcing banks to establish better complaint channels for clients and disclose investment information in simple language are moves in the right direction. A strong regulatory regime must not allow problems to fall through the cracks - and ensure people have the information they need to make appropriate investment choices. Greater transparency needs to be enforced in banks' dealings with clients. The financial crisis has forced many jurisdictions around the world to reform their regulatory systems. Hong Kong too needs to follow suit - and make sure it gets it right this time.

The Standard:Deal tones down minibond anger

23 July 2009

The tone of the beleaguered holders of Lehman minibonds has now softened, but many said yesterday they still find the compensation deal unacceptable.

A 74-year-old minibond investor surnamed Yiu said he wants the government to make the banks repay him 100 percent.

``I was about to renew my time deposit on November 2, 2007, when CITIC Ka Wah Bank cheated me to switch to equity-linked products,'' Yiu said.

Peter Chan Kwong-yue, chairman of the Alliance of Lehman Brothers Victims, said the compensation agreement was ``not acceptable at all.''

``This is not making sense,'' Chan said. ``The guy who drafted up this agreement _ either he is doing some very tricky thing, or he does not understand Hong Kong people at all.''

One hundred members of the Alliance protested all day yesterday outside the office of the Securities and Futures Commission.

Alliance member Ng Shing-fung said he thinks the banks will still be able to make a profit after compensating minibond investors, so he will refuse to accept the proposal. ``They are simply cheating us once more,'' said Ng, 63.

Raymond So Wai-man, an associate professor of finance at Chinese University of Hong Kong, urged individual investors to take the compensation, as the value of minibond collateral could fall further. ``The monetary value of your minibond has effectively been locked up,'' So said. ``Not getting back the money, you cannot invest even when there is a better investment opportunity.''

Independent lawmaker Priscilla Leung Mei-fun said minibond holders should seriously consider the proposal because they will have to resort to lawsuits to get full compensation. Sixty percent compensation is a fair baseline, Leung said.

Chan said the problem is the settlement agreement does not apply to so- called ``experienced investors,'' defined as people who had invested in leveraged or structured products five times in the three years before buying minibonds.

Even conservative investors in Hong Kong may have been convinced by banks to put their money into a foreign exchange-linked deposit, he said.

``I tell you, Martin Wheatley has no sense about the Hong Kong people,'' Chan said. ``First he says `minibonds' does not mean `bonds,' then he comes up with this agreement.''

However, Chan admitted the basic framework of the agreement seems ``reasonable at first glance. But when you think more about it, it gives you the sense investors are being trapped.''

Chan estimated about half the members of his group may qualify as ``experienced investors'' and would not be eligible for compensation. He said the Alliance will meet Sunday to decide whether to pursue further action.

Minibond investor Wong Kin-ming, 54, said he thinks the government is treating the public unfairly. ``Government policies are two-sided,'' Wong added. ``Sun Hung Kai just paid us all back.''

The Standard:Nightmare nears end

23 July 2009

Banks have agreed to splash out more than HK$6 billion to buy back all outstanding Lehman Brothers minibonds.

By doing so, they seek an end to a saga that has run for more than 10 months, sparking deep anger and distress among investors.

The 16 banks that sold the complex products will offer about 29,000 Hong Kong investors - more than 90 percent of those in the SAR who bought the high- risk derivatives linked to the collapsed US bank - an average 70 percent of their investments.

That means banks need to pay out around HK$6.3 billion to repurchase the minibonds.

The scandal, which began last September, has fueled street protests and had senior financial officials testifying before the Legislative Council.

The deal announced yesterday was thrashed out with the banks by the Securities and Futures Commission and the Hong Kong Monetary Authority. It will "provide substantial benefits for the vast majority of customers holding minibonds that would not otherwise be received by them,'' said Martin Wheatley, chief executive of the Securities and Futures Commission, who described the deal as a "good compromise.'' Secretary for Financial Services and the Treasury Ceajer Chan Ka-keung agreed. "Those accepting the offers will be relieved of the delay and uncertainty in going through the liquidation process,'' Chan said.

A bank must pay a price equal to 60 percent of the principal of the original investment for investors below the age of 65, and 70 percent for those aged 65 or more as at July 1. They can retain any coupon payments already received.

Once the underlying collateral is recovered by the banks, each of them will make a further payment of initially up to 10 percent of the principal of the minibonds to customers below the age of 65.

And if recoveries exceed 70 percent, the banks will pay the entire excess amount to those who have accepted the offer, which could take some investors' settlements to 100 percent.

For example, assuming an investment of HK$100 and the product's collateral is worth HK$40, an investor will first receive HK$60 and then another HK$10 for the collateral recovered, taking the total settlement to HK$70.

If the collateral is worth HK$80, the investor will get HK$80. If the collateral is worth HK$100, the investor will be refunded in full.

Banks will make available a total of HK$200 million to the trustee of the minibonds to assist in the recovery of the underlying collateral for each outstanding series of the product. Those who have already reached a settlement with the banks will not qualify for the buyback. However, the banks will make ex-gratia payments to those whose settlements were less than they would receive under the deal announced yesterday. Banks need to inform customers about the offer ``in an expeditious manner'' and put money in their accounts within 30 days of the offer being accepted, according to the HKMA.

Professional investors, including non-individual and experienced investors, are not qualified under the repurchase offer, Wheatley said.

The regulators will call off investigations into the sale and distribution of minibonds by the banks in respect of investors accepting the offer. But authorities will continue investigations if there are claims of deception or other crimes. ``We intend to allocate resources to handle non-Lehman complaints,'' said Choi Yiu-kwan, HKMA deputy chief executive.

Each of the banks will also engage an independent reviewer to examine systems and processes relating to the sale of structured products and then report to authorities. The banks must also commit to the implementation of all recommendations by the reviewer.

A qualified third party also has to be engaged to review and enhance complaint-handling procedures.

``The distributing banks should draw lessons from this incident and properly implement the agreement reached with the regulatory authorities'' on selling structured investment products, Ceajer Chan said.

Speaking on behalf of the banks, David Li Kwok-po, chairman of the Bank of East Asia (0023), said the agreement demonstrates their ``unwavering commitment'' to Hong Kong and the welfare of customers.

Ahead of the repurchase agreement by banks, only brokerages Sun Hung Kai Investment Services and KGI Asia had fully refunded their clients. That occurred earlier this year. As of July 16, the HKMA had received 21,490 complaints concerning Lehman-related products, including minibonds.

Blog: Diary of a Singapore Mind

Read his views about the HK final Minibond settlement.

Help Minibond investors to secure the collateral

Mr. Tan
If govt is reluctant to force FI to compensate like what happen in Hk, perhaps you can suggest that it takes the leader role to help Minibond investors to secure the Collateral [GE capital bonds etc] which has up to 70% value for the benefits of the investors.

This is a concrete action that would help all to investors - whether they are compensated or not. Don't forget, many investors are compensated just 10%.

If you read bullet point 3, "banks will make available an amount equivalent to the amount of commission income received by it as a distributor of the outstanding Minibonds to the trustee of the Minibonds to assist in the recovery of the underlying collateral for each outstanding series of Minibonds"


Petition to Prime Minister (5)

389 people have signed the Petition and provided their full particulars. This is much better than the optimists (including me) had earlier hoped. Our initial target was only 300 signatures. Some pessimists poured cold water on this effort.

Please help to get more people to sign the Petition and achieve the new target of 1,000 signatures.

Survey Results: The Emperor's Clothes

Here are the survey results.

Interesting puzzle

Try it.
Can you guess the trick?

Q&A US Health Reform

The BBC news website explains the Obama administration's attempts to reform the American healthcare system

In South Korea, a new worker's grievance

Read this article.

Wednesday, July 22, 2009

SFC, HKMA and 16 banks reach agreement on Minibonds

Read this press release.

The Petition is NOT a futile effort

Another blog described my effort to help the investors get a fair settlement as "futile". It is a sad state of affairs that we have a government that ignores the plight and appeal of the people. It is equally sad that we have many cynics who stand by and pass discouraging remarks.

Many signatories know that the petition may be ignored, as it has happened in the past. But, they are willing to come forward to have their voices heard. It is important that their signatures be placed on the record.

The situation has now changed, and it may warrant a re-consideration by our government. All investors in Hong Kong are being compensated at a minimum of 60% to 70% of the invested sum. I believe that the investors in Singpore should be treated on a similar basis, as the systemic mis-selling is similar in both territories.

I hope that everyone will take a positive approach and help to pass the message to all investors to sign the petition.

The petition is intended to include all investors, including those who have bought from the security firms. They have also been advised, either directly or indirectly, by the sales representatives who acted for the security firms. I hope that these investors will read the Petition more widely and come forwqrd to sign it.

Tan Kin Lian

Gathering in Hong Lim Park on 22 Aug 09

I confirm that there will be a gathering in Hong Lim Park on 22 Aug 09 from 5 pm to 6.30 pm. We will arrange for the Petition to be signed, for those who have not signed the online Petition. This Petition is addressed to the Prime Minister. We will arrange for a few people to speak on this issue. Please encourage more people to show up for bigger impact.

So far, I am the only speaker. If you are able to speak, please send an email to me at I like to ask the coordinators of the class actions to speak and give an update. You may be able to attract more investors to join the class action.

355 people have signed the online Petition to the Prime Minister on the credit-linked notes. We are now aiming for 1,000 signatures. Please pass the word around.

Minibond - misconceptions and unfair criticisms

Dear Mr. Tan,
I would like to respond to the following misconceptions and unfair criticisms:

1) The fixed deposit is about 1.5% in 2007 and you get 5% from minibond. You should have known better. So high differential. Still claims risk?

It is not fair to use 12 months fixed deposit rate because minibond is for 5 years. There are many low risk products offer 4% to 6% returns from the market. E.g. DBS6%NCPS, UOB5.05%NCPS, OCBC5.1%NCPS, OCBC4.2%NCPS…. If we compare the minibond with the OCBC 4.2% and 4.5% preference shares available from the stock market, which we can sell the shares anytime if we need cash, the 5% offered by minibond is not attractive because we can’t touch the money for 5 years.

2) High return high risk, since you get 5%, the risk should be high.

Many financial experts agreed that the reasonable return from long term investments (5 to 10 years) should be around 4% to 6%. A 5% return from minibond should not be considered as high as it is a long term (5 years) investment. All high risk investments are on short term basis, who would want to invest into a long term high risk product?

3) Who ask them to invest blindly on a product which they don’t understand?

Misled by the newspaper advertisements and sales brochures, many investors thought they were buying a five-year bond issued by the six leading banks. It turned out that it is a very complex product which even the sales people from the financial institutions are unable to explain clearly.

4) As a responsible investor, you should have read the prospectus before making the investment.

The minibond prospectus summary is as misleading as the sales brochures. The other parts of the prospectus give plenty of information on the credit ratings of the six leading banks which reinforce the believing that it is a bond issued by the banks.

It is also not realistic to expect an ordinary investor to understand fully the entire prospectus before making an investment. For example, of the tens of thousands of OCBC preferences shares investors, how many of them really read and understand fully the entire prospectus of the preference shares before making the investment?

5) Who would expect Lehman brothers to go bankrupt? (i.e. the risk is low at the time of selling) It is unfortunate that Lehman did fail. You have to accept it and move on.

Minibond is not a bond issued by Lehman or by the six banks. It is a high risk long term complex structure product. Who would dare to invest in a high risk product for 5 years?


NY Times: Temasek scraps plan for American chief

Read this story.

Another report in Reuters.

SCMP:Investors want full refund, not 70pc

22 July 2009
Scores of minibond investors who lost their money when Lehman Brothers went bankrupt are holding out for full compensation of their principal sum and insist a proposed pay-off of up to 70 per cent is unacceptable.

A Ms Siu, 52, who declined to give her full name, purchased HK$6 million worth of Lehman minibonds from Bank of China (Hong Kong) and flatly rejected the proposal.

"This is not all right," she said. "I will continue to fight [for a full refund]."

She did not rule out accepting a 60 per cent pay-off and then taking the bank to court to recoup the rest of her investment. But she was not optimistic.

"Why can't the banks follow what Sun Hung Kai [Financial] did? How come the banks are not able to do something securities firms could?" she said.

Ms Siu said she planned to join about 100 investors at a protest at the Bank of China headquarters on Friday.

Bank of China sold most of the Lehman-linked minibonds in Hong Kong and many of the other banks are expected to follow whatever settlement terms are agreed by it. But a settlement deal offering just 60 to 70 per cent compensation is expected to be a tough sell to angry investors, who were emboldened in their fight by the 100 per cent pay-off arrangement agreed between more than 300 investors and brokerages Sun Hung Kai Financial and KGI Asia.

Democrat legislator Kam Nai-wai said whether the buy-back proposal was adopted would largely hinge on how many investors agreed to it. It was hard to predict how well received the settlement deal would be among the investors. Mr Kam said he planned to get their feedback on Sunday.

"As for the banks, if the proposed settlement cannot save them from trouble [from compensation seekers], it was not wise to take it," he said.

The Securities and Futures Commission should also explain why banks could escape from full responsibility while some securities firms could not, Mr Kam said.

Bloomberg: HK banks agree to repurchase Lehman Minibonds

Read this report.

Investing in gold

Dear Mr. Tan
Since bank interest rates have been very low recently, a friend has recommended me to invest in gold. The buying and selling of gold is through this company. The company’s website is (link deleted)

I do not know if this organisation is reliable. You should not invest in any organisation that you are not familiar with. If you wish to invest with this organisation, you must do your research well. Some banks in Singapore offer similar facilities for you to invest in gold. I think that UOB is one of them. I suggest that you find out more about their offer.

If you wish to invest in gold, make sure that it is not more than 10% of your total savings. And hold it as a long term investment.

Investing in a property for rental

Hi Mr Tan,
My wife and I own a HDB executive apartment, fully paid with CPF and cash.

We have some investments. We are considering to cash them for 20% down payment for a private property. We will rent the property to pay the monthly instalment.

Should we go for a second property or continue investing in equity? We are now in our 40s. It is for retirement use.

This is a personal view. It is all right to buy a property for one's occupation but not a good idea to invest in a property for rental.

I dislike investing in a physical property for the following reasons:
a) the price is too high
b) the return, after deducting expenses, is too low
c) it is a hassle to rent out the property
d) it does not offer diversifcation.
e) it is highly speculative and depends on making the right decision on timing and choice of property.

Investing in REITS may be a better idea, as it offers the same opportunity to make the same kind of potential gain as physical property, has less hassle in managing the property and offers diversification over several properties.

All the best in your decision!

Bird Nest Industry in Kedah, Malaysia

I visited Padang Seria, which is in Kedah and 50 km from Penang Island. It is developing a bird nest industry. Over 100 shophouses have been converted into "bird nest house". The swiflets use the house to build their nests to raise the young swiflets.

My friend told me that a few other towns in Kedah and Johore are also developing this new industry. Bird nest has some medicinal value and is also a delicacy.

I shall be uploading some photos soon.

Personal accident insurance

Dear Mr. Tan
I have a personal accident plan, which cost me about $150/annum with a sum assured of $100,000. Is it too expensive? I am in class 2.

What is the coverage under the personal accident policy? Some policy covers death, accident, and temporary disablement. To decide whether to continue with this policy, it is best for you to get a quote for a comparable product from another company.

Existing whole life policy

Dear Mr Tan,
I am looking for an insurance plan to increase my cover. I was looking for some low-cost insurances (due to my increasing expenses), such as decreasing term insurance.

I bought a whole life policy about 2 years ago, paying almost $160 monthly (for 15 years). I read from your blog that this insurance come with a high cost. What should I do with it? Should I terminate it and take the cash? Or I should hold on to it until the cash value is enough to cover the premiums I paid?

I had now decided to take a decreasing term, personal accident and a medishield plan.

Please read the FAQ in my website:

For the whole life policy which has been taken for 2 years, it is probably better to continue with the policy, rather than to terminate it. However, you can ask for the cash value in 5 years time to decide on the best option. Read the FAQ on "existing insurance policy".

Winners of MySudoku contest

The winners of MySudoku contests are posted here.

A Collosal Failure of Common Sense

Ex-insider's book details Lehman Brother's collapse.

Tuesday, July 21, 2009

Petition to Prime Minister (4)

317 people have signed the Petition.

I have sent an email to the journalists of the major papers to inform them about the progress of this Petiion. I hope that some of the journalists are prepared to write about this Petition. (When I launched the Petition a few days ago, I also informed the journalists, but none responded to my e-mail).

NMP Siew Kum Hong expresses his views on the credit linked notes

Read his views here.

SCMP:Treat us the same as minibondvictims, say Octave Note buyers

21 July 2009

Investors who bought complex investment products - called Octave Notes - linked to Lehman Brothers have accused the government of offering them no help since the collapse of the US investment bank on September 15.

At a meeting last night at which they agreed to negotiate jointly for compensation, one tearful woman said: "As early as September 16, I already knew that my Octave Notes were worth nothing. But how come the government is only helping Lehman minibond victims?"

She was one of 80 investors at the meeting, which the Democratic Party organised.

A total of 48,000 Hongkongers put HK$20 billion into Lehman Brothers-linked minibonds - which, despite their name, are complex, credit-linked derivatives - and lost most of their money with the bank's collapse. The affair has spawned a Legislative Council inquiry and investigation by the city's two watchdogs of thousands of investor complaints that local banks mis-sold the products.

"We hope to press the government to handle the Octave Notes matter together with the minibond debacle," said Ran Leung So-chun, who bought notes worth US$130,000.

Those at last night's meeting had the same complaint as minibond buyers: bank staff neither properly explained to them the risks in buying the complex products nor performed risk assessments before they agreed to put their money into them.

Octave Notes were issued by US investment bank Morgan Stanley; 16 local banks sold HK$2.1 billion of them to about 8,300 customers between 2004 and 2007.

Like most minibonds, the notes contain synthetic collateralised debt obligations (CDOs) - conceptual products that mimic the financial health of a pool of companies. When these businesses collapse, the CDOs lose value. Many of the Octave Notes were connected to the performance of firms that went bust - among them Lehman Brothers.

The Standard:Banks facing China claims

21 July 2009

Hong Kong bankers still trying to calm Lehman Brothers minibond investors are likely to face a second wave of claims _ this time from mainlanders.

The banks are expected to reach agreement with the Securities and Futures Commission this week about their settlement with local minibond clients, sources said yesterday.

But a group of mainland accumulator investors will hold a press conference in Hong Kong this week to seek compensation from Hong Kong banks, according to Sing Tao Daily, sister publication of The Standard. ``Some of the victims in our group have started litigation. We will fight against unscrupulous banks until the end,'' a representative of the group said in an e-mail.

Protection of Investors Association president Lui Chi-wah said Hong Kong banks have been promoting high-risk accumulator products in the mainland. Lui predicts the banks will face claims from investors who made losses.

State-run China Central Television ran two episodes recently on how Hong Kong banks sold accumulators to mainland investors. The investor group has set up a website to attract more people. Meanwhile, the 16 banks which sold Lehman minibonds have reached a tentative compromise with the SFC as they are reportedly willing to repay more of the collaterals sold. It was earlier reported that the banks agreed to pay investors 60 percent of the principal. On top of this they may now repay investors 30 percent of the value of collaterals sold, sources told Sing Tao Daily.

Assuming an investment of HK$100, banks will repay HK$60 plus an extra HK$21 if the collaterals are worth HK$70, taking the total settlement amount to HK$81.

A source said the Bank of China HK (2388) and Standard Chartered Bank (2888), the two largest lenders involved in minibonds distribution, were among the lenders seeking more time to agree on a compensation formula.

Kedah, Malaysia

I am now in Kedah, Malaysia. I arrived on last Saturday. I shall return to Singapore on Wednesday.

Monday, July 20, 2009

Petition to Prime Minister (3)

266 people have signed the online petition to the Prime Minister, asking the PM to help investors get the same type of compensation that is being offered to investors in Hong Kong.

Our target is to get 1,000 signatures by 29 August. Please pass the word around and get the other investors to help. For those who have already signed, please help to get other people to sign as well.

The petition can be found here.

Sunday, July 19, 2009

Financial invention vs Consumer Protection

Read this article.

SCMP: Clear up the mess

18 July 2009

The incessant dispute over compensation for Lehman Brothers minibond victims could seriously tarnish Hong Kong's image as an international financial centre. And without proper closure, protests by victims will continue to be a common sight outside banks in Central. Nearly a year after Lehman collapsed, leaving behind HK$30 billion in now virtually worthless minibonds, some 40,000 local customers are still awaiting a resolution and proper compensation.

After the crisis exploded, all the political parties immediately swung into action to help victims, a special Legislative Council subcommittee was set up to investigate the debacle, and the government also moved quickly last October to push banks to devise suitable buy-back packages.

Despite the slow progress, we are beginning to see some breakthroughs in negotiations. There have been reports that 16 banks are offering to settle with minibond investors for about 60 to 70 per cent of their principal investment. This is similar to the Bank of China (Hong Kong)'s proposed settlement.

But, Peter Chan Kwong-yue, chairman of the Alliance of Lehman Brothers Victims, said the offer is unacceptable because the underlying assets are worth more than 60 per cent. Investors want to be fully compensated for their principal investments.

About 48,000 Hongkongers lost billions of dollars when the value of minibonds credit-linked to Lehman Brothers plunged after the US investment bank collapsed last year. Critics question whether banks that offer to buy back the minibonds at only 60 or 70 per cent should still have full title to the collateral.

The market values of collateralised debt obligations (CDOs) are determined by numerous factors, and a slight economic rebound in recent months could have pushed up their values. But the question is: does the modest recovery truly reflect the beginning of a bull market? We would do well to remember that we might not have experienced the full impact of the financial crisis.

All things considered, it is doubtful whether the market values of CDOs could retain the 60-70 per cent level for a sustainable period. Market trends are incredibly erratic, thus the buy-back offer is realistic and reasonable. The tug of war over compensation should not be allowed to drag on indefinitely; the longer the process drags on, the fewer benefits investors will receive.

It is understandable that investors want to hold out, hoping for a better deal. But it's baffling to see why the Securities and Futures Commission has been involved in negotiations. It has flatly rejected the offer on behalf of investors and asked banks to pay a higher value of the principal investment.

The minibond crisis has exposed a myriad of problems in the financial regulatory system - loopholes in the law, gaps in the regulatory system, inadequate investor protection and a lack of crisis management in the event of the failure of a large firm. And the SFC must shoulder a fair share of blame.

Frustrated at the lack of compensation, many minibond investors have criticised the lengthy negotiations with the sellers and the lack of clear guidelines from the regulators about handling their complaints. They are also confused as to where they should take their case - the Monetary Authority, which regulates banks, or the SFC, which regulates the securities market.

Still, we cannot ignore the fact that the SFC has failed to police banks and brokers that sold toxic investment products to ill-informed investors. It has been grossly negligent in performing due diligence in regulating Hong Kong's increasingly complex financial markets. And now it has put on a futile political show by assuming the role of saviour, which will benefit no one at best, and damage its reputation and that of the government at worst.

Our regulatory system has failed to evolve with the times, despite the emergence of increasingly obscure and complex financial products.

The ever-increasing amount of cross-sector selling has intensified calls for reform. But the key question is: do we have the will and the wit to move forward?

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