Sunday, March 22, 2009
SCMP:New bank rules should better protect customers
Asymmetric information is not an elegant phrase, but it is a useful economic concept by which to analyse situations that involve conflicts of interest - and whether, and how, they need to be regulated. A salesman who tries to promote a product is asymmetrically disadvantaged because he does not know - and can only guess - the size of your wallet. It is not so with banks, which have privileged access to clients' financial information and have often exploited it to sell risky financial products. The Lehman Brothers minibond fiasco has exposed that danger and become a catalyst for regulatory change. Hopefully, better supervision of banking activities, which will come into force this year, will bring more protection for clients and their financial information.
The banks have fought hard to resist changes, arguing at one point that knowledge of clients' finances enables banks to tailor services to their needs. Leaving aside this obviously self-serving argument, regulators around the world have been having the upper hand as a result of the global financial turmoil - and Hong Kong is no different. Instances of apparent mis-selling of Lehman minibonds have helped generate intense pressure on banks to adopt new regulations.
The new rules require banks to separate traditional banking services, such as deposit-taking and making loans, from retail securities and investment services. One of the most irritating and unfair bank practices in recent years has been allowing counter tellers to look at clients' bank books during ordinary transactions and then promote dodgy investment or insurance products. Under the new rules, they can no longer do so. Furthermore, one bank department cannot share clients' information with another to promote sales without their express consent. Recordings of investment transactions will be made and retained for at least seven years. In cases involving the sale of risky products, a third staff member needs to review the transaction. It is not clear what amounts to high-risk investments these days when the share prices of some US banking and insurance giants are behaving like penny stocks. Even the shares of locally beloved HSBC have plunged to lows most investors found scarcely imaginable.
The new rules will not ban all instances of cross-selling. That would not be desirable, because banks offer mostly legitimate investment products. But they should offer better protection to customers.
The banks have fought hard to resist changes, arguing at one point that knowledge of clients' finances enables banks to tailor services to their needs. Leaving aside this obviously self-serving argument, regulators around the world have been having the upper hand as a result of the global financial turmoil - and Hong Kong is no different. Instances of apparent mis-selling of Lehman minibonds have helped generate intense pressure on banks to adopt new regulations.
The new rules require banks to separate traditional banking services, such as deposit-taking and making loans, from retail securities and investment services. One of the most irritating and unfair bank practices in recent years has been allowing counter tellers to look at clients' bank books during ordinary transactions and then promote dodgy investment or insurance products. Under the new rules, they can no longer do so. Furthermore, one bank department cannot share clients' information with another to promote sales without their express consent. Recordings of investment transactions will be made and retained for at least seven years. In cases involving the sale of risky products, a third staff member needs to review the transaction. It is not clear what amounts to high-risk investments these days when the share prices of some US banking and insurance giants are behaving like penny stocks. Even the shares of locally beloved HSBC have plunged to lows most investors found scarcely imaginable.
The new rules will not ban all instances of cross-selling. That would not be desirable, because banks offer mostly legitimate investment products. But they should offer better protection to customers.
Singapore Equity Investments
Dear Mr Tan Kin Lian,
We are a team of independently opinionated Singaporean retail equity investors in Singapore and our website is at www.sgdividends.blogspot.com. We would hope that you will allow our link to be placed on the bottom right corner of your blog with the other external links you have.
About us
Basically, the objective of our blog is to create investment awareness and set Singaporeans to think more about their investments.
We try to be different and state our own opinions instead of relying on what the crowd says or what analysts reports says. We do not recommend stocks, but instead, show data and fact derived from Reuters, SGX website or company financial reports/ announcement and present to our readers and hopefully, they can form their own judgement.
Hope to hear from you =)
Stephen Lim
SGDividends
We are a team of independently opinionated Singaporean retail equity investors in Singapore and our website is at www.sgdividends.blogspot.com. We would hope that you will allow our link to be placed on the bottom right corner of your blog with the other external links you have.
About us
Basically, the objective of our blog is to create investment awareness and set Singaporeans to think more about their investments.
We try to be different and state our own opinions instead of relying on what the crowd says or what analysts reports says. We do not recommend stocks, but instead, show data and fact derived from Reuters, SGX website or company financial reports/ announcement and present to our readers and hopefully, they can form their own judgement.
Hope to hear from you =)
Stephen Lim
SGDividends
US Treasuries - the next bubble?
It is not safe to invest in US Treasuries. When inflation returns, this investment will also drop in value. It may be safer to invest in stocks now. Read this article.
Creating jobs in a global crisis
I heard on CNBC TV that the banks are still not lending money. They take a lot of money from the Fed at low interest rate and invest the money in US Treasuries and other safe assets to make the spread. Meanwhile, businesses cannot survive due to lack of credit. More people will lose their jobs.
There is no point in giving money to the banks or to businesses. They cannot survive, if there is no demand for their products. People are scared to spend, so they have to save their money to prepare for the bad times. The global economy will collapse, if things continue to spiral downwards. Fear will fear on itself.
The same condition will apply in Singapore. It is important for the Government to recognise the failure of the current system, and to implement a new approach. The Government can create many new social services jobs to keep people occupied and do some useful work in the following areas:
a) Take care of the elderly people
b) Take care of babies
c) Provide local transport
d) Provide tuition
These jobs can be at $6 per hour or at an specified rate (sufficient to balance supply and demand). 70% of the cost can be paid by the Government (subject to a maximum of $600 per month for each worker) and 30% can be paid by the user.
For example, an eldercarer can make a house visit at $30 per visit. Each nurse can make 3 visits a day to earn $90. The government pays $21 per visit (subject to a cap of $600 a month for each carer). The user pays $9 a visit. The carer can visit clients near their home, to reduce the travelling cost.
A person can provide local transport for $1.00. The user pays $0.30 with $0,70 paid by the Government. If the operator takes 100 passengers a day to earn $100 a day and incurs expenses of $60, there is a net income of $40.
The Government expenditure will keep people employed at a modest income level, and offer a service to improve the lives of people. As the income is quite low, there will be a temporary measure. When the economy recovers, these people will find other higher paying jobs and the supply for this service will dininish. If there is still a demand for this service, the Government subsidy can be reduced to achieve a better balance of supply and demand.
I hope that this type of innnovative approach will be adopted in some countries or in Singapore.
Friday, March 20, 2009
Surrender a Living policy
I have decided to surrender my Living policy which was taken 17 years ago. I paid an annual premium of $2,102. The cash value after 17 years is $44,893 giving a yield of about 2.5%.
If I keep the policy for another five years, the estimated cash value increases to $62,417, giving a yield of 3.9% for the next 5 years, based on the projected bonus for the next 5 years. I have decided not to take the risk of a further reduction in bonus, which will reduce the yield below 3.9%.
By surrendering the policy, I can invest the money in other investments. As the share prices are quite low, there is a good chance of earning a better high rate of return from other investments.
The calculation is based on this FAQ.
Pinnacle Action Group: Class Action in U.S. Courts being considered
Dear all
A top US law firm is interested to actively pursue on behalf of all Pinnacle investors a class action in US courts. It will be on a contingency fee basis - "no win, no pay" and all investors will be automatically included, unless they opt-out, after the class action is filed with US Courts. It will be an action similar to the one being done for Hong Kong Minibonds investors.
However, under US law such a class-action can only be initiated if there are at least one or more lead plaintiffs who fit the following criteria:
(a) US citizens who bought one or more of series of the Pinnacle Notes;
(b) Spore citizens with bank accounts kept in a US Bank who bought one or more series of the Pinnacle Notes;
(c) Spore citizens who own homes in the US who bought one or more of the Notes.
If you fit into any of the 3 criteria mentioned in the above paragraph, please contact us with your name; tel. no.; email and other details such as Pinnacle series no . that you bought, etc. We will forward the information to the US law firm, which for confidentiality reasons cannot be revealed at this early stage. When the US law firm in turn contacts you in the matter of the proposed class action to be pursued in US courts, you will know who they are.
This 'US style' class action, by the way, is separate from the proposed class action we are planning for all Pinnacle investors under Spore law and pursued in Spore courts. In the Spore case, we will be making an official announcement when we have finalized the details. It could take another 2-3 months more to do that since there are many details to iron out. But don't be discouraged, we are not going to allow this matter to simply evaporate and will work vigorously to pursue justice and compensation.
Best regards
Pinnacle Action Group
A top US law firm is interested to actively pursue on behalf of all Pinnacle investors a class action in US courts. It will be on a contingency fee basis - "no win, no pay" and all investors will be automatically included, unless they opt-out, after the class action is filed with US Courts. It will be an action similar to the one being done for Hong Kong Minibonds investors.
However, under US law such a class-action can only be initiated if there are at least one or more lead plaintiffs who fit the following criteria:
(a) US citizens who bought one or more of series of the Pinnacle Notes;
(b) Spore citizens with bank accounts kept in a US Bank who bought one or more series of the Pinnacle Notes;
(c) Spore citizens who own homes in the US who bought one or more of the Notes.
If you fit into any of the 3 criteria mentioned in the above paragraph, please contact us with your name; tel. no.; email and other details such as Pinnacle series no . that you bought, etc. We will forward the information to the US law firm, which for confidentiality reasons cannot be revealed at this early stage. When the US law firm in turn contacts you in the matter of the proposed class action to be pursued in US courts, you will know who they are.
This 'US style' class action, by the way, is separate from the proposed class action we are planning for all Pinnacle investors under Spore law and pursued in Spore courts. In the Spore case, we will be making an official announcement when we have finalized the details. It could take another 2-3 months more to do that since there are many details to iron out. But don't be discouraged, we are not going to allow this matter to simply evaporate and will work vigorously to pursue justice and compensation.
Best regards
Pinnacle Action Group
Email:- pinnacle.action.group@gmail.com
Thursday, March 19, 2009
Motor insurance premiums
Many motorists will have to pay higher insurance premiums this year. What can be done about it?
Read my articles:
Puncturing motor insurance claims.
New Motor Insurance measures - will it work?
If you are not happy with the increase in premiums, you should lodge a protest with your member of parliament or with the consumer association of Singapore.
Read my articles:
Puncturing motor insurance claims.
New Motor Insurance measures - will it work?
If you are not happy with the increase in premiums, you should lodge a protest with your member of parliament or with the consumer association of Singapore.
Wednesday, March 18, 2009
The best places to be laid off
Read this article about countries with generous unemployment benefits and its impact (if any) on the work ethic.
Creating service jobs in Singapore
Global demand has dropped significantly. Singapore will have to suffer a drop in production and exports for many months while global demand remains weak. Many more jobs will be lost. The Government's strategy of helping businesses to reduce cost may not help to save jobs in this environment.
I hope that the Government will look into other ways to create jobs and keep people occupied at a modest wage level. They only need to keep people usefully engaged until the recovery of the global economy.
In France, the Government pays a large part of the cost of nannies to look after babies. The parent pays only a small portion. The nannies will look after the babies in the nannies' homes. The parents can afford to send the baby to the nanny, as their share of the cost is low. This helps to keep many nannies to be usefully employed.
I suggest the following ways to create temporary jobs in Singapore:
1) The Government can pay a large part of the cost of engaging nannies to look after babies. The parents can pay only a small part (say 20%) of the cost. The nannies can be asked to meet certain standards of care.
2) There is a need for tuition to help the students from poor families. The tuitors can be trained quickly to meet the educational standards. A large part of the cost of these tutors can be paid by the Government, so that the cost to the students is kept low.
These two ideas can keep many people to be usefully employed until the recovery of the global economy. The wages can be kept low. When the economy recovers, they can find higher paying jobs in the private sector.
Tan Kin Lian
Tuesday, March 17, 2009
Thought for the day: challenge and controversy
"The ultimate measure of a man is not where he stands in moments of comfort, but where he stands at times of challenge and controversy.":
Rev. Dr. Martin Luther King, Jr. (1929-1968), US civil rights leader
Monday, March 16, 2009
Survey: Rating of Government ministries (Singapore)
Motor insurance - regulator can play a part
14 March 2009
Editor
Forum Page
Straits Times
I refer to the letters by Raganathan Vivek “Why should we pay for insurer’s laxity” and Sia Chong Yew “It’s high time motor insurers put their house in order”.
I agree with the views of these writers. Motor insurers should be more active in combating inflated claims instead of passing the higher cost to consumers through premium increases.
During the 30 years that I headed NTUC Income, my colleagues paid special attention to deal with the inflated claims. We were able to keep the premiums at a more affordable level. We considered it to be our duty to the consumers and be profitable at the same time.
I wish to point out that, apart from the motor insurers, the regulatory authority can play a part as well. Most inflated claims are made by third parties claiming for the repair cost, injury and medical expenses. These claims are lodged with the insurance company a long time after the accident, making it difficult for the claim adjustor to assess the actual and fair amounts of compensation.
To make matters worse, the claims are lodged through lawyers, which increased the total claim payments by an estimated 30%.
This matter can be resolved by a simpler regulatory change. Make it compulsory for a third party to lodge the third party claim with the insurance company within 24 hours of the accident. The insurance company should be given the opportunity to inspect the vehicle and settle the claim directly and promptly. The third party should engage a lawyer only in the event of a dispute on liability.
This practice is adopted in many countries, either as a regulator requirement or as a market practice. It is surprising that Singapore continues to have many third party claims settled in an inefficient and expensive manner through the legal system.
I hope that the relevant authority, i.e. the Monetary Authority of Singapore or the Land Transport Authority, will make the necessary change to the regulation to address this problem. This will reduce the inflated claims by several hundred millions of dollars and lower the cost of motor insurance to consumers.
Tan Kin Lian
Editor
Forum Page
Straits Times
I refer to the letters by Raganathan Vivek “Why should we pay for insurer’s laxity” and Sia Chong Yew “It’s high time motor insurers put their house in order”.
I agree with the views of these writers. Motor insurers should be more active in combating inflated claims instead of passing the higher cost to consumers through premium increases.
During the 30 years that I headed NTUC Income, my colleagues paid special attention to deal with the inflated claims. We were able to keep the premiums at a more affordable level. We considered it to be our duty to the consumers and be profitable at the same time.
I wish to point out that, apart from the motor insurers, the regulatory authority can play a part as well. Most inflated claims are made by third parties claiming for the repair cost, injury and medical expenses. These claims are lodged with the insurance company a long time after the accident, making it difficult for the claim adjustor to assess the actual and fair amounts of compensation.
To make matters worse, the claims are lodged through lawyers, which increased the total claim payments by an estimated 30%.
This matter can be resolved by a simpler regulatory change. Make it compulsory for a third party to lodge the third party claim with the insurance company within 24 hours of the accident. The insurance company should be given the opportunity to inspect the vehicle and settle the claim directly and promptly. The third party should engage a lawyer only in the event of a dispute on liability.
This practice is adopted in many countries, either as a regulator requirement or as a market practice. It is surprising that Singapore continues to have many third party claims settled in an inefficient and expensive manner through the legal system.
I hope that the relevant authority, i.e. the Monetary Authority of Singapore or the Land Transport Authority, will make the necessary change to the regulation to address this problem. This will reduce the inflated claims by several hundred millions of dollars and lower the cost of motor insurance to consumers.
Tan Kin Lian
Motor Insurance premiums set to rise
Last week, it was reported that the motor insurers lost more than $200 million in 2008 and that the insurance premiums are set to rise significantly in 2009.
Last May, the General Insurance Association of Singapore announced bold measures to tackle this matter. They involved measures that could cause much inconvenience to motorists, but the Association promised that these measures would arrest the problem.
Today Paper asked me to write an article on this matter last May. It is published in the paper. I was sceptical about the masures. Perhaps, someone can asked the Assocation to comment on the failure of their measures?
Tan Kin Lian
Sunday, March 15, 2009
Bird Nest Stadium in Beijing
The Beijing National Stadium, more commonly described as the Bird Nest, cost USD 423 million to build.
Someone commented that the stadium was not used after the Beijing Olympics. Is this wasteful?
What could China do with the same money?
1. Invest in US Treasuries to earn interest at 4%?
2. Build houses for the people in China to live in?
3. Give the money to third world countries as aid?
I believe that the money is well spent, as it builds the infrastructure that can be used for the next 30 years. It also gave jobs for the workers who are involved in the construction. If not, these workers might be idle.
Of course, the workers can be used to build houses for the people to live in, but this is already catered by the private sector. I believe that it is the duty of the Government to build the long term infrastructure of the country.
Someone commented that the stadium was not used after the Beijing Olympics. Is this wasteful?
What could China do with the same money?
1. Invest in US Treasuries to earn interest at 4%?
2. Build houses for the people in China to live in?
3. Give the money to third world countries as aid?
I believe that the money is well spent, as it builds the infrastructure that can be used for the next 30 years. It also gave jobs for the workers who are involved in the construction. If not, these workers might be idle.
Of course, the workers can be used to build houses for the people to live in, but this is already catered by the private sector. I believe that it is the duty of the Government to build the long term infrastructure of the country.
Life insurance quotation gives misleading information
A policyholder bought a 21 year anticipated endowment policy with an annual payment of $14,500. The quotation clearly stated that a sumof $20,000 is paid every 3 years and the payment on maturity is $80,000 plus RB/SB of $264,800 giving a total payout of $344,800. There was no explanation about the RB/SB and that it is not guaranteed. The policyholder was misled by the agent into believing that the payment is guaranteed.
The policy is now approaching the maturity date. The policyholder is now told that the actual maturity payout is only $232,400, comprising of $80,000 plus RB/SB of 152,400 (i.e. decrease of $102,400) from the quotation. The policyholder was shocked to see this amount of reduction.
I advised the policyholder to file a complaint to FIDREC and, if not resolved, to take a legal case.
MY VIEW:
Now I know why this insurance company was so successful in its sales over the past years. The agents were able to sell large policies by providing misleading quotations to the customers. Most of these customers are not well educated and trusted the verbal explanation of the agents. When they learned the truth years later, it was too late.
The root cause of this problem is the excessive commission paid to the agent and the poor supervision of the insurance company on the conduct of their agents. I hope that this unhealthy practice is properly addressed.
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