Friday, November 07, 2008

Saving the Financial Industry?

Contributed by RW

After destroying the savings of valued customers, we have to wonder if the financial industry, in its present form, is worth saving.

The carnage has now extended to our Town Councils.

The same pattern is seen elsewhere.

Tens of thousands of individuals in Hong Kong and Taiwan. In United States, UBS customers of products marketed in a remarkably similar manner are shocked to receive statements showing their investments are almost wiped out and are suing the bank.

Some United States Municipalities, School Districts, etc are on the verge of bankruptcy. Using derivatives, JPMorgan pitched a host of deals whose names alone are indecipherable. For Philadelphia International Airport, the bank sold something called a ``path-dependent knock-out swaption.''

Individual customers were unfairly tricked and trapped into products with long lists of secretive "underlying securities", purposely hidden from view. Perhaps, the key to the scam?

But if Town Councils, Municipalities, etc did not escape, what chance do individual customers have?

The banks and FIs should act promptly with humility and humanity, and not with tiny gestures. Your bold acts can still save the local industry and earn the enormous goodwill and gratitude of the victims and your other customers.

The costs of sustaining a futile public relations campaign, expensive legal advice, loss of management and staff focus on the real battles, fallout costs, opportunity costs, etc must easily exceed the amounts you need to return. In the United States, banks have returned customers their money in dubious products.

If this impasse continues, what future is there? Working-class individuals will never look "relationship" managers and "personal" bankers in the eye ever again. Rich individuals, burnt by collapse of hedge funds and wealth management investments, will avoid "private" bankers like the plague.

It is very sad when the mainstream media continues to come up with articles from its own employees or from commentators, without researching the trail of destruction, without regard for the feelings of the victims but instead to deride their intelligence, and focus on a tiny few who could afford to "move on". The distress, worries, fatigue and permanent psychological damage extends to not only the 10,000 victims, but their immediate families, relatives, friends and colleagues. The tipping point must surely be near.

In the United States, justice has been done and continues to be done. Banks are forced to pay back all customers in full and are heavily fined. Banks and FIs in Singapore can show the world that they do not need the prodding of the authorities to "do the right thing".



Anonymous said...

Not so straightforward for the banks, FIs or even MAS just to do something for the victims. If so they would have done it fast. They are still weighing their options and meantime let their victims wait case by case under distress and uncertainty. Maybe after sometime the victims will be resigned to their fate (just like when faced with death, destruction etc) and move on? After all, tragedies came and passed.

Anonymous said...

RW, an excellent piece, much, much higher than superlative.

Investors have a lot to thank you for; if they end up unscathed [getting refund of their money]it was helped through the efforts of people like you.

With so many people and so much money being involved, every contribution counts.


Betsybug said...

Agreed RW.

But it is NOT the working people that cannot look the RMs in the eye. It's the other way round. In fact, we see this already whether in the DBS dialogues or interviews or teh decreased calls from RMs now.

Until the banks take courage in their hands and own up to the problem, this thing will fester. It is remarkable to me that these institutions swimming in money cannot wake up to the realisation that all the effort and money they poured into building up their brand is being eroded every day they fight against the current.

Anonymous said...

Well said and written on behalf of the victims fallen to scams by the FIs. We appreciate your altruistic crusades on our behalfs, taking up so much of your time and efforts!

Keep up the pressures and publicise what authorities in other countries are doing on the MiniBond Saga. It does not speak well of CASE whose duties are to protect the consummers.

Anonymous said...

Dear all ,

Is ‘Casino business‘ considered part of Financial Industry?
If the answer is yes, please read the following report :

“ Las Vegas Sands Chief Adelson Said to Hold Talks With Singapore 2008-11-06 23:53:12.820 GMT By Beth Jinks

Nov. 7 (Bloomberg) -- Sheldon Adelson, the billionaire who controls Las Vegas Sands Corp., held talks with the Singapore government this week as the casino company struggled with a cash shortage that threatens a $4 billion casino development there, a
person with knowledge of the meetings said.
Las Vegas Sands is seeking funding to stave off defaults on loans..... Las Vegas Sands and government officials will publicly pledge to complete the development in Singapore, said the person, who declined to be identified because the information isn't public.
Las Vegas Sands plunged in New York trading yesterday, posting its biggest drop since going public in 2004 after saying it might default on loans arranged by Citigroup Inc., Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc.....
The Las Vegas-based company's dwindling cash flow might jeopardize $16 billion worth of developments in Macau, China, and Singapore, where Las Vegas Sands is building resorts to cater to wealthy Asian gamblers.
Las Vegas Sands spokesman Ron Reese declined to comment on any negotiations. Singapore government officials didn't have immediate comment. “

If (as reported by Bloomberg)Las Vegas Sands Chief can 'Hold Talks With Singapore', should we ( victims of toxic structured products ) elect one representative ( e.g. Mr. Tan Kin Lian )to hold talks with PM and MM so that the 'mini-bond & related product issue' can be expedite ?

Anonymous said...

SINGAPORE - Singapore's DBS Group, Southeast Asia's biggest bank by assets, said Friday it was cutting 900 staff to trim costs amid the global credit crisis, and reported a slump in third quarter net profit.

Chief executive Richard Stanley said most of the cuts, to be carried out at the end of the month, will come from its offices in Singapore and Hong Kong and will account for six per cent of the workforce. He added that this was the largest job cut ever.

The job cut will be across all businesses and all levels.

Anonymous said...

DBS and other banks in Singapore extend US$1.4 billion loan (or maybe HN, minibond)to finance this project.

Anonymous said...

DBS retrenching 900 people my guess is likely mostly RM as sale of wealth management products declined.

At its peak, 2Q, 2007, sales reached 1.1 billion in Singapore but in 3Q 2008, it was only 334 million.

If the minibond issue drags on, I think the sale would drop further with all the negative news.

DBS should move to settle with all the minibond investors. It may be painful but over the medium term, it will gain much more.$file/3Q08presentation.pdf?openelement

Anonymous said...

From the FI shareholders viewpoint, the drop in share price due to the loss of goodwill and the loss in sale of wealth management products due to the bad publicity will probably exceed the compensation made to the minibond investors.

Anonymous said...

The HK sale was even worst dropping from 1 billion in Q2, 2007to 187 million in Q3, 2008!

Anonymous said...

If the bank drags on, it will not "tahan" soon.

Anonymous said...

I am still waiting for the PAP town councils to explain their minibond investments

HDB guy

Anonymous said...

Lehman Bros bankruptcy happened in mid September. Thus the sales would drop more significantly from Oct to Dec period for all the banks.

This result will be announced around Feb next year.

zhummmeng said...

If the industry is to change for the better it must consider the consumers as partners for a win-win outcome.The industry must realise that its very existence is to serve these consumers and its survival depends how well it can deliver the best consumer outcome.
The products designed must have the consumers' needs in mind, real needs and not dubious, not complicated, not confusing and must be transparent.
The way to meet the needs of the consumers must through a fact finding , need based approach and not dumping,product pushing without considering the interest of the consumers.It must be made mandatory this need based approach
The private bankers have found and realised that it should be the way too. The days of product selling and pushing must be over.
The industry must strive for win-win and NOT the FIs and the reps on one side and the consumers on the other side.
The advisers must be qualified . The current qualifications of the insurance agents and the RMs are too low to be of use to meet the consumers' expectation. The CMFAS modules as cited by the deputy chairman of MAS are too low and need to be upgraded and the way the exams are conducted must change.
If MAS wants to avoid another debacle the laws that regulate these people, the RMs and the insurance agents and the FAs must be enforced rigorously.
No more closing 2 eyes to the activities of these people and the policing must fall on the FIs and failing which the CEOs and the senior management must be held accountable.This is market discipline. The responsibility must be top down. The culture must orientate towards fair dealing and best outcome to consumers and not the current culture of how best and how many ways to skin the consumers to bolster the bottomline and market share.
The parties to the success are MAS, the FIs and the reperesntatives and the consumers.

Anonymous said...

It makes no difference however qualified the RMs are as they have to sell the high margin products to meet the targets.

Anonymous said...

Theres nothing to save the Finance Industry

It is behaving exactly as the people driving it.

Anonymous said...

"If (as reported by Bloomberg)Las Vegas Sands Chief can 'Hold Talks With Singapore', should we ( victims of toxic structured products ) elect one representative ( e.g. Mr. Tan Kin Lian )to hold talks with PM and MM so that the 'mini-bond & related product issue' can be expedite ?"

hahaha dont make me laugh. it's always ridiculous to hear how client demand to speak to the ceo. they are just a small fry. do u think the ceo will care 2 hoots?
how can u compare Las Vegas Sands directly with the minibond investors? The Las Vegas Sands project is on a much greater scale and concerns the whole nation. The minibond issue? Just 10000 pple.

jiante said...

I am working in a bank structuring derivative products. They never fail to surprise me.

I myself is quite amazed at the really good rates I can quote to the customer after structuring them. (even after the deduction of commissions)

However, one important thing to take note is that good stuff always comes with a price. The better the price I can provide to the customer, the more risk the customer must be willing to stomach.

Not all derivative products are bad. It is just a transfer of risk from one party to another. The problem occurs when the other counterparty is not amply nodified of the risk they have to take.

It is a the responsibility of RMs to properly explain what risk the customer have to take. At the same time, proper disclosure of commissions is important because it will affect price of the product directly. The product they are selling is afterall a "financial product" and not some product whereby price as important an issue.

Concerned said...

Put it this way. We are no match for the evil machinations of those greedy, no conscience investment bankers who created such products.

DBS CEO said he saw his RMs cried when they explained the total loss of their investment to their customers. Did the RMs cried because of the total loss of their customers' investment or the RMs cried knowing that they are going to be retrenched.

Anonymous said...

DBS CEO should disclose who designed the toxic product that poisoned so many of his ex-loyal customers instead of putting up a wayang. Surely he must know and come clean. Otherwise, he himself will soon cry when his Board (if they dare) and his shareholders (if they are so concerned, like what some commentators say) ask him to resign.

Anonymous said...

Saving the industry must begin with cleaning up of toxic product and the sellers and eliminating the manufacturers .
It is also a good time to retrain the salesmen into advisers. Those salesmen like insurance agents and RMs cannot make it must be removed. The exercise must be ruthless to get rid of ruthless inusrance agents and advisers who sell at the expense of the customers.
Those freed up inusrance agents and RMs can be deployed to other industries. The inusrance agents can replace the old people at toilet cleaning jobs, the Mcdonald and other fast food outlets.
This is trimming off the excesses and smmoothing the kinks to get the financial industry back on its feet and at the same time to benefit other industries.

Anonymous said...

Wonder insurance agents cry when they
bring the small cheque to a funeral wake and knowing that it isn't enough
even to pay for the funeral bill let alone taking care of the deceased's family for many years to come.
At the point of selling I don't it occurred to the agents. It is likely the commission the agents are thinking and how to make the customers buy more whole life products. Never mind the small sum assured so long it is a whole life the commission is better than selling term. This is what the insurance agents think.
So this talk by insurance agents about the satisfaction of delivering a cheque to the deceased' widow is a bullshit and dishonest lie.They are cheats and would shamelessly say anything to the customers.Getting rid of these people make the industry cleaner and better.

Anonymous said...

"It is a the responsibility of RMs to properly explain what risk the customer have to take. At the same time, proper disclosure of commissions is important because it will affect price of the product directly. The product they are selling is afterall a "financial product" and not some product whereby price as important an issue."

Why keep shifting the blame to RM, isn't the system itself greatly to blame for it ? Where is the system of audit, monitoring and tracking of RM's demeanour and ethnics within the bank and MAS ?

Don't just distract the issue and blame it on RM entirely. If there one RM complain, it is the RM's fault, but when you have one large group of RMs that are at fault, it is no longer about RM, it is about the bank's system and its process. How can RM expect to sell the product when they don't even understand it ?

You sound to me like a person send from the government/bank to shift all the blame to just RMs.

Anonymous said...

Since mx is the one structuring this kind of product, kindly explain how you expect the layman investors to understand the complicated products that your kind came up with?

Do you think that this kind of product should be offered to the retail investors at all?

It is because of people in your profession who structured these products in the first place for the gains of the FI that cause the current distress faced by the investors.

The one who sell the poison deserve to be scolded, but not the person who came up with it?

Do not push the responsibility solely to the RMs, face the reality, you are partly at fault.

Take it in your stride and do not delude yourself

Have a nice day and sleep well.

Anonymous said...

I feel that RMs are not likely to be retrenched. Instead those who sold the most high notes likelihood is will be begged to stay. The truth is, they are the revenue generators of any banks and those who are going to be sacked are likely to be those in the backroom and the non-performing RMs who maybe did not sell any high notes.

C H Yak said...

The better true story is a commentary by Lydia Lim "Capitalism needs a new culture" Straits Times Nov 8, versus DBS CEO's article.


"The Wall Street culture that preached "greed is good" and celebrated individual profit at others' expense has been on the ascendant for over two decades"

"It was a culture that encouraged those who mastered the markets to believe they operated in an amoral realm, where old-fashioned notions of right and wrong simply did not apply' ...

Our DBS also joined this realm ???***???.

... Must read.

Anonymous said...

Great post RW.

There are still FAs who say that the investors are responsible for their loss and that they should have done their homework.

I don't deny that investors should do their part but sometimes it's the TRUST that they placed in the advisors that led them into trouble.

When times are good, advisors tell us to TRUST them, say that they studied the finance markets and use sugar coated words to make us buy products but when times are bad, they turn their backs and say they are not responsible.

Not just advisors but FIs and Banks which really should act faster.

I have lost my TRUST in institutions and their representatives. Yes, I will do my homework now and not depend on nor pay a cent to any advisor who will just turn around and say 'it's your own fault.'

Anonymous said...

I was at POSB to withdraw money when I overheard conversation of two elderly women in front of me. One lady was telling her friend to beware of the gentleman who was well-dressed, the RM as they like to cheat old people money. The trust level of our national bank is now at an all time low. I was shocked when the bank teller asked me if I want to diversify my money and I declined, after this mis-selling saga. Hello, you think I am illiterate? I now realised we just can't trust the bank as they sell these dubious products and RMs and personal bankers had admitted they don't understand the products they are selling.

Anonymous said...

Just to add on to my previous post, if I were go to a drugstore and ask for a prescription, I will trust the pharmacist (who claims to be certified) to hand me the right medication. I will be shocked if the pharmacist (who claims to be qualified) tells me to do my own homework.

I am disappointed in those in the financial business who are not truthful and yet turn around to say that we did not do our homework. That is not professional. Stop saying all those things to save your skin, be responsible by doing the right things in the first place.

jiante said...

Well to reply marc's rude and sacrastic remark... in my bank, the structurer would structure the deal with whatever the RM tells us of the requirement of the customer. I am in charge of corporate customers so I structure products so as to suit the demands and needs of corporates.

Naturally it would be on the onus of the RMs to properly assess whether the corporates really need this kind of product. I do not know of the nature of the corporate's industry and is really solely in charge of structuring and pricing. (And as you guys all know, derivative products are not simple to understand, so the RMs must be professional enough to disclose ALL risks to the customer)

When I structure the product, I will price a small buffer into the product so I will get a commission. The RM will do the same too. But because it is a corporate setting, the commission is definately NOT excessive and will still provide the corporates with a good deal.

I am currently unsure of what DBS/Standchart/Maybank/any other retail bank's internal procedures. But judging from the way the matter is dealt, it seems to me that the RMs did not do a proper fact-find and totally dump all the customer's cash into the same product! It is of course not the right way to go.

From what I have heard from other industry players, retail products are structured by many other banks. It does not include only 2 levels of commission (like I have mentioned above for corporates). It may even include a few bank's (inclusive of both struturers, RMs, managers... etc etc) level of commission. Hence, the crappy low interest rates for the end retail user.

I do agree with marc that the banks' internal policy should be reviewed. I just want to highlight that it is not the fault of either the RM would did a proper fact find/Structurer who made the product in the first place. The price and value may have been a good deal at first. But when it goes through so many rounds of commission taking, it simply becomes lousy.

Anonymous said...

The blame is on MAS for not enforcing the laws that it set up long ago.
The law to protect toxic products from being sold to public was NEVER enforced because MAS saw no necessity to judge the merits of the products.
The law to regulate the way advisers should approach the consumers' needs is NOT enforced since beginning of the year 2000 instead the advisers and RMs were encouraged to push products to churn out more sales. This has been happening in the banks and the insurance companies.
The consumers' interest was compromised as a result of this non enforcement.
Is MAS interested to protect the consumers?

zhummmeng said...

Consumers must understand that the RMs or other advisers must conduct a need analysis for you if you are buying insurance or investment. Analysis is a process to find out which product suits you. This must be done first and NOT pushing you a product. The minibomb debacle is an example where no need analysis was done and the RMs dumped the product on you.
MAS also must ban the product selling and remove 'product advice' from the fact find form. This is to prevent advisers, RMs and insurance agents from avoiding the fact find and cheat the customers.Product advice is so rampant and usually the greedy and unqualified salesmen and women will opt this and falsify the fact find report. Consumers must know their right and avoid this type of insurance agents and RMs.
Normally who avoid fact finding?
Usually they are salesmen or insurance agents who are not qualified. Also salesmen who want to sell high commission products like whole life and endowment products.Eg. NTUC agents who sell you anticipated endowment Revosave will NEVER conduct a fact find because if they do this product Revosave will NOT be recommended.They CANNOT JUSTIFY the recommendation. This is the reason why insurance agents or RMs don't want to conduct a fact find. They are afraid that they may not be able sell you anything.
Consumers must know this.
MAS must help to prevent this by banning product selling and pushing and strike off 'product advice ' from the fact find form.
MAS must conduct frequent audits on RMs, FAs and the insurance agents as preventive measures and not wait until something bad happens like the minibomb. This is MAS's duty to the consumers to ensure fair dealing and to prevent mis-selling and misrepresentation and conflict of interest.
MAS MUST understand that there is very small number of savvy consumers and it is NOT TRUE that people can make informed decision, not even the so called savvy ones.
By recognising that there are savvy consumers MAS is providing a loop hole for the advisers to make this claim. The current debacle testifies that even people with CFA, MBA or PhD are CLUELESS of what they are asked to buy.
MAS must NOT disavowed its responsibility and try to protect the FIs and their reps if it wants to restore public confidence.
MAS is the referee to ensure fair play.

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