Saturday, November 01, 2008

Compare toxic financial product with melamine

Dear Mr. Tan,

A hypothetical case:
A woman walked into a famous drug stall and asked for advice from the pharmacist to recommend a milk product for the new born baby. Due to the commission for various type of milk product, the pharmacyst introduced one brand with the milamine. When asked what is a milamine, the answered was it was some sort of vitamin that is very safe and will help your child grow more intellegent.

The baby consume the product and seriously ill and the reason for sickness is due to consumption of melamine. Now the mother take up the case with the drug stall to claim compensation.

Various things happened. The drug store says:

> The name melamine is clearly stated as component of the milk. If you do not know what is the melamine, find out first before you bought. It is the life of the baby you know, how can you just trust the word of the pharmacist? So it is your faults for not doing the research, rather than the pharmacist who uttered nonsense.

> What if your child really grow up without any problem and grow more intelligent, will you complain? So common, be sporting, it is your faults for buying the milk. By the way, did anybody put the knife on your neck to buy the milk? you do it on your free will right, even though you know melamine is one of the substance used for the milk. It is your faults and you donot have the right to claim.

> Any proof that the pharmacist tell you that melamine is a vitamin? If you could prove it, we will definitely compensate you.

Obviously, the story refers to the current situation and you should be able to link them to the toxic financial product. After this fact, will anybody argue that the mother will not be eligible for compensation because of the unrecorded wrong advice given??

What do you think will happen to the drug store ??


Why are banks allowed to sell structured products that give poor value?

Mr Tan,

If there is a silver lining that comes out of this minibond/high note/jubilee fiasco, I would hope that its some serious soul searching by all stakeholders, investors, FIs & the government.

Investors have to ask themselves, what is their investment objective, really.
Structure deposits have been around for some time. I have never purchased any but each time I am at any bank, without fail, bank staff would try to promote them to me.
Over the years, I've seen the way they are structured becoming more and more complex & arcane.

My point is, if the general public has been losing money or making unsatisfactory returns, why have the banks been able to launch series after series of the same products ?

Regulators, are they really out to build a "world class" financial centre in Singapore ?

Efforts to develop a vibrant corporate bond market has fizzled out. Look at the corporate bonds listed on SGX, lacking both depth, breath & also market liquidity.

If the recently launched OCBC NCPS preference shares can yield 5 percent, then any good quality corporate can float coporate bonds at around 5 percent, which at 150 basis point spread to 15 year SGS govt bonds, seems about right.

So, if these alternatives are available, would investors need to even consider the structured deposit nonsense the FIs are putting out ??

Lastly, correct me if I am wrong. SGX, along with the KLSE, I think are the only 2 exchanges left in the whole wide world that allow contra trades, ie. allowing investors to sell shares that they have purchased within 3 days, before they are settled, without paying up first. All other exchanges require some sort of margin or deposit. Is this prudent risk management ? I rest my case.


Trace the IP address of SiewKhim

Dear Mr. Tan,
I suggest that you block the rubbish that is being posted by SiewKhim. This person is really terrible. He writes defamatory, malicious statements.

I posted his comments so that his IP address can be traced. He is probably on the payroll of an organisation, and is paid to harrass me in my blog. I believe that this is a criminal act and can implicate his paymaster as well.

Some can help me to locate his IP address. You can check the time of his posting and check against the log of the site meter (recent visitors - details) to get the following page:

Happy detective work!

Scuffle in HK Protest Over Lehman-Linked Products

By THE ASSOCIATED PRESS Published: October 31, 2008

HONG KONG (AP) --Investors in financial products linked to collapsed U.S. investment bank Lehman Brothers Holdings Inc. scuffled with security guards at a bank in Hong Kong on Friday, as some 200 people protested in the financial district against institutions that sold the now worthless products.

The incident highlights anger among the thousands of Hong Kong investors who've been burnt by the Lehman collapse. The outstanding amount of the products is 20.2 billion Hong Kong dollars ($2.6 billion), according to the Hong Kong Monetary Authority, the territory's defacto central bank.

Several of the protesters got into a scuffle with security guards at a Hong Kong branch of Singapore bank DBS Group Holdings. No one was injured, according to an Associated Press photographer who witnessed the incident.

They were part of a larger group of 200 protesters who marched through the financial district, stopping at several banks that sold Lehman-related products holding signs that said ''major bank fraud'' and ''My money gone, I don't want to live.''

Bank spokeswoman Glendy Chu said none of the DBS security guards were injured.

Investors have complained that bank sales staff were misleading and didn't fully explain the product or connection to Lehman Brothers.

Jonathan Li, a spokesman for the Securities and Futures Commission in Hong Kong, said the body is still investigating the complaints against the banks.

DBS said recently that most of the 360 million Singapore dollars ($243 million) in Lehman-linked structured notes sold to clients in Singapore and Hong Kong are now worthless. It has offered to pay compensation to clients.

Billions of dollars in souring debt forced Lehman Brothers Holdings Inc., once the fourth-largest investment bank in the U.S., to file for bankruptcy last month amid the world's worst financial crisis in decades.

Speaker's Corner - 1 Nov 2008 5 to 7 pm

Saturday 1 November 2008
Time: 5 - 7 pm
Nearest MRT station: Clarke Quay (NE Line)

1. Update on Petition #4
2. Help to complete complaint form
3. Dialogue with senior management of distributor
4. Collective legal action (as a last resort)
5. Meeting of investors (according to distributor)
6. Translation into Mandarin

Ask your friends and family to attend. Let us aim for a large gathering!

Speaker’s Corner 1 November 2008 - Speech

1. Petition #4
I have received 1,017 signatures for Petition #4 which is addressed to the Chairman of the Monetary Authority of Singapore.

The Petition asks the MAS to:
a) appoint or set up an independent unit to receive the complaints and to provide assistance to the complainants to write their statement.
b) encourage the financial institutions to adopt a collective approach in offering fair compensation to investors who have been misled into investing in these unsuitable investments.

I have lodged the Petition with MAS on Saturday. I have asked to meet the chairman of a senior official of MAS next week.

2. Complaint form
MAS has issued a statement that 2,500 investors have lodged a complaint about mis-selling of the structured products. Another 7,500 investors have not lodged their complaint.

We will continue to help these investors to lodge their complaint. I have printed the complaint form to help the investors to gather the required information.

This form will be distributed to investors at Speaker’s Corner. You can get a form from a volunteer, who can help to explain the required information to you.

The complaint form can also be downloaded from my blog,

For investors who wish to get a lawyer to help to prepare a statutory declaration, the telephone number of the lawyer is stated in the form. Call Ms Ivy Goh (Tel: 68999888). Fee: $120 plus GST

3. Dialogue with senior management
I suggest that investors in each group (based on the distributor that sold the product) should get together to sign a collective letter to the senior management of the distributor.

You should ask the senior management to:

a) Obtain from the trustees a detailed statement of account for each series of the credit linked securities sold to us, from the inception until the latest available date, together with a valuation of each series of the securities at the latest available date.

b) To hold a meeting of the investors to give an explanation on the performance of each series of the securities and to allow the investors to ask questions and seek clarification. You should also ask for the independent, well-regarded person to be present at the meeting.

c) Discuss how the investors were misled into investing in the structured product, and how the distributor can compensate the investors for their loss.

4. Collective legal action
The collective legal action will be considered as the last resort, if it is not possible for the investors and distributor to agree on a fair settlement.

The possible actions that can be taken are:
a) Misleading information in the prospectus and sales materials
b) Mis-representation and inappropriate recommendation given by the sales representatives

5. Meeting of investors
The purpose of the weekly meeting at Speaker’s Corner is for the investors to meet other investors according to the distributor that sold the product to you.

You can share information abow how you were mis-sold and the appropriate steps to make your claim. You can also discuss about the collective legal action (at the last resort).

Some investors have come forward to be leaders of the group. You should contact your group leaders for advice and for collective action.

Please give your full support to your group leaders.

6. Tan Kin Lian’s Blog
Please refer to my blog for the appropriate information and the latest update:

If you are not able to access the blog, ask your family member or friend to help you.

During this time, I am very busy. Please avoid asking me to spend time on individual matters, as I do not have the time to attend to it.

Tan Kin Lian

Use your real name

Please use your real name when you post your comments in this forum. You can give your name as the last sentence of the comment.

Tan Kin Lian

Educate the public about the structured products

Hi Mr Tan,

I am a HN2 investor and had attended the HN2 dialogue arranged by DBS. A lot of investors brought out their cases of how they were misled by the RM and bought the product. The DBS VP gave the standard answers in different forms by asking the individuals to sending in complaint and they will investigate case by case. Cases with evidence will be compensated with different amount.

Obviously this is "divide and conquer". Everyone complaint about their RM. Nobody complainted about DBS, the creator of the product. As a whole, this dialogue is just a SHOW put up by DBS. I think the VP is very happy that the focus is on the RMs and not DBS. I am very angry and disappointed.

I have brought out the question of whether it is a leverage product and whether it is a suitable product for general public. But no answer from him.

I feel that not many of the investors have realized that this is the DBS fault of creating such a toxic product and well packaged to be sold to investors who do not have much knowledge in the derivatives. (In fact even the university lecturer in Business got trapped.) It is regardless of whether you are educated or not, above age 62 or not, speaking only Chinese or not!

I have a suggestion here that shall we revealed to the public via media WHAT HN5 AND HN2 ARE. Show them what an expert had analyzed both in the technical and layman terms. Only in this way that we can make everyone understand how toxic the products are. Only in this way that we can tell those people who are un-empathized, and obviously not directly involved to shut their mouth.

We must not only be united within us, we must reveal everything to all Singaporeans and get all Singaporeans who have conscience to be united and don't get bullied by such an entrusted business giant.

Mr Tan, hope that you can advise us what we should do next so that DBS and MAS would face the problem and return to us, thousands of Singaporeans, a justice.

Many thanks again to what you have done for us!


Invest in transparent and fair products

I advocate straight forward products - equity, bond, currency, deposits - that are transparent and fair to consumers.

It is all right to take risk, such as investing in equity or foreign currency, provided that you get both the upside and downside of the investment.

Here are the methods to reduce risk:
> diversify, i.e. invest in a fund containing many investments
> invest for the long term, to average out the good and bad years

You can reduce the risk (through diversification and long term averaging) and get the higher return from equity or foreign currency.

I advise investors to avoid all types of structured products (e.g. capital guaranteed, credit linked notes, dual currency investments), as they are structured to hide high expenses and profit margins and give a poor return to the investor.

I also advise investors to avoid investing in most types of life insurance products (i.e. whole life, endowment, investment linked policies) for the same reasons (i.e. high charges, poor return to policyholders).

You should avoid all types of investment products (i.e. bank or insurance products) that are marketed to you by sales representatives, as they have high charges to pay the distributor and to make profit for the product creator.

Friday, October 31, 2008

Petition #4 - Review Complaint Handling Process

This Petition is addressed to the chairman of the Monetary Authority of Singapore and ask MAS to review the complaint handling process. Specifically, it ask:

1. That the Monetary Authority of Singapore appoints or sets up an independent unit to receive the complaints and to provide assistance to the complainants to write their statement.

2. That the Monetary Authority of Singapore encourage the financial institutions to adopt a collective approach in offering fair compensation to investors who have been misled into investing in these unsuitable investments, according to the category that the investors fall under. These categories could, for example, be determined by the manner in which the investors were advised or approached by the sales representative, or the alleged mis-information given to the investors.

You can click here to read the full Petition and sign it, if you agree with it:

High Notes Investor Group - Press release 30 Oct 08

HNIG Press Release 31st Oct 2008

1. On Thursday 30th October 2008, in response to a petition by the High Notes Investor Group (HNIG), DBS met up with approximately 400 investors of their DBS High Notes 5 (HN5) product in two separate sessions. Session 1 started at 2.00pm and Session 2 was at 5.00pm.

2. Both sessions were originally scheduled to last one hour, but eventually ran for more than two and a half hours each time.

3. Many attendees urged DBS to treat all investorsas a group rather than go through a case-by-case process on the subject of compensation.

4. To buttress the above argument, the HNIG revealed at the forum that they had requested an industry insider who has experience structuring such products to go through the HN5 pricing statement. After a six-hour preliminary analysis of both the document as well as the real-life experiences of investors, it would seem that in HN5, there appears to be SYSTEMIC Failure on three fronts:

a) Failure in the PRODUCT
i) Product was arranged, issued and sold by DBS
ii) Product was leveraged on Credit Default Swaps
iii) Product was secured on CDOs

b) Failure in the SALES PROCESS
i) Product was sold through a large sales force who were inadequately trained, and
ii) Relationship managers who were and are still not familiar with HN5 and customer’s suitability

i) HN5 was sold to inappropriate customers
ii) HN5 was targeted at customers with little or no knowledge of financial concepts like CDS, CDOs, and Leverage

Because of the failures in the product itself, we are asking DBS to undertake compensation in a blanket or collective manner, and not on a case-by-case basis.

5. DBS was also questioned on the issue of RISK MANAGEMENT – there appears to have been serious lapses in this area that has resulted in a detrimental impact on the customers of HN5.

6. In response to questioning, Mr Rajan Raju, Head of Consumer Banking admitted that the HN5 is “NOT a low risk product”. Further, in response to a pointed question on the actual risks inherent in HN5, Ms Frances Chan, Senior Vice-President revealed that, on a scale of 1 to 10, the HN5 product was a “8 to 9”. We feel that a risk factor as high as this is in no way commensurate with the relatively low returns from HN5 and a locked-in period of 5.5 years. This bolsters our argument of the presence of a Systemic Failure in HN5.

Other Highlights

7. One attendee questioned the rationale for GIC to pump billions of dollars of government reserves into UBS and Citigroup to bail out foreigners while a government-linked bank like DBS is being parsimonious in compensating its customers in a cut-and-dried case of mis-selling and misrepresentation.

8. Many attendees highlighted their long-standing relationships with POSB/DBS, some stretching over a period of more than 30 years. They expressed a deeply felt sense of betrayal by DBS which they said violated their trust in the bank. Many also spoke of their past willingness to buy products from DBS because they saw it as “the national bank” they could have complete trust in.

9. There were detailed questioning on DBS’s ability and competence in giving timely advice on the status of HN5. Attendees referred specifically to a letter dated 31 March 2008 which had actually advised DBS customers to hold HN5 to maturity.

10. At least one attendee made the point that the overall mishandling by DBS of its affected customers will result in an eventual pulling-out of funds from DBS to its competitor banks, with a concomitant negative impact on its share price. The latter had already fallen drastically in recent weeks, a phenomenon which most analysts attributed partly to the fallout from its High Notes 5 debacle.

11. The immediate post-forum reaction of most attendees is that the Thursday sessions have not moved the complaint nor the compensation processes forward in any significant manner. In comments to HNIG, many people expressed the doubt that if DBS had sold HN5 in an irresponsible manner to make money, how seriously could they be taken when they are now in a damage control mode. The basis for such comments arises from bruising encounters customers have had with DBS’s Investor Care personnel in interview sessions where sometimes three to four staffers question a lone customer.

Others felt that DBS in referring Relationship Managers to the Monetary Authority of Singapore (MAS) is missing an important point - in the words of one DBS customer, “If the RM doesn’t know what he is doing, if he is set impossible targets, and if he is rewarded based on commissions, whose fault is it? DBS must teach RMs first”.

12. HNIG is a group of DBS High Notes (HN) investors that has been formed to communicate with DBS and undertake relevant collective actions where and when necessary.

13. HNIG currently has about 300 investors in our contact list and these consist of investors of various HNs. More joined during the dialogue sessions yesterday. HNIG handed out leaflets to request HN investors to turn up at 4.30pm on Saturday 1 November 2008 at Hong Lim Park (Clarke Quay MRT station).

14. For any clarifications, please contact Our blog can be found at

Buy Government Bonds through ATM

This information is preliminary. It has not been verified.

Hi Mr Tan,

UOB, DBS & OCBC are working closely with MAS to launch this project in Mar/Apr 2009 (delayed from earlier schedule to launch in Nov 2008).

Under current system, individual investors must go to selected banks to submit paper document to buy Singapore Government Bills & Bonds (SGBB).

The new system will allow individual investors with UOB/DBS/OCBC’s ATM to bid for SGBB through ATM machines.

Investors can bid for minimum face value of $1,000 SGBB, up to $1 mil for Bill and up to $2 mil for Bond for each issue.

The maturity period for Bills are 3 months or 1 year.

The maturity period for Bonds (both zero-coupon or with-coupon bonds) are available for 2, 3, 5, 7, 10, 15 and 20 year-term-maturity period.

MAS will announce the winners of the bidding process and all SGBB will be credited to investors’ CDP account.

(name removed)

Undergraduate reply to Prof Lan

Hi Professor Lan Luh Luh,

I refer to your comments published in the article titled “Structured Products: Let’s not forget about personal responsibility” in TODAY on 2008/10/30.

I read your comments with a heavy heart and really hoped that the reporter has taken your comments out of context. I believe you are the first academic in Singapore to speak out and at the same time advocate caveat emptor.

I do not agree with what you said at all. I disagree with what you said on factual and moral grounds.

1) The returns on the structured products are certainly not double digits. The reporter may have asked you to comment on the wrong structured investment product. From what I have read, the returns on the structured products average about 5%. The returns on this product certainly does not match the risk the investor is undertaking.

I once commented to a friend that if the returns on these products are more than 10%, then the investors have no one to blame but themselves, as the returns would have match the risks.

In this case, the returns clearly do not match the risk. In equities, there is the risk of losing. But the investors have the opportunity to make big gains too. Here, the investors bear the risk of losing everything, but their returns are capped at ~5% no matter how well the market did. Is this fair?

2) "When people make money, nobody complains,” I think it is wrong to state this as an argument. When nothing happens, and the investors receive their ~5% returns every year, is it correct to fault them for not making any noise? I think this is normal human behavior. As the saying goes, when there is nothing wrong, why fix it?

They brought the investment product based on the relationship manager’s (RM) recommendation and trusted their RM’s explanation on how the product should work. And when the product is providing returns, is it correct to fault the investors for assuming that the product is working as it should and that they did not question further how the product should work?

For example, would a child check what are the specific hardware in a computer he just brought (assuming the child does not have the ability to check the hardware himself, and that the child has the power to purchase a computer himself), other than to just use it as it is and trust what the sales people told him? In this case, he will only find out that he has been sold a different hardware configuration only after the computer broke down and the repairman tells him that.

3) The third is on the general investor profile. When I first heard of this, I wanted to find out about the investors themselves before I make a judgment. Hence I went down to Speaker’s Corner personally on the first Saturday gathering to see for myself. I was stunned. The majority of the people I see there are people in their 50-60s who speak little or no English. The moment anyone sees this, statistics nor any scientific measures matter.

It is common sense that the people in the crowd certainly do not fit the risk profile of the investors the structure products should be targeting. If professor Lan has not seen the investors personally, I suggest professor Lan to visit the Speakers Corner this Saturday and see for yourself. More information about the gathering can be found here, I stopped visiting the gathering after the first one as it really hurts to see and hear them.

4) I would like to stress that, from what I heard, the investors “thought” they “know” what they are investing. The risks and downsides were not clearly explained to them. I am almost certain that if the downsides and the true natural of the product was clearly explained, no one would buy them.

5) On caveat emptor. I think this idea is wrong and should not be encouraged at all. Caveat emptor encourage businesses to be irresponsible. I do not think that this is a desirable outcome for our economy or society. Our economy would just cease functioning normally. Everyone would have to spend lots and lots of time double checking and double check again before they buy something. Common goods that are purchased everyday on the basis of trust would have double checked, as the consumers know they have no one to turn to if something goes wrong, and that they are on their own. Is this desirable?

Our society would become one engulfed in suspicion, of anything and anyone. No one would help one another and no one is interested in one another. Everyone for themselves. Is this sort of society a desirable one to live in?

The examples I used are extremes, as I am trying to illustrate a point here. Let’s not assume caveat emptor is “correct” and just use it as it is. The question to ask should be, is it right and desirable in the first place to “advocate” something like caveat emptor even if it is an accepted reality that buyers should check their purchases? Who coined it anyway and under what circumstances was it invented?

Just imagine if the Chinese told the affected “too bad, you brought the milk yourself, no one forced you to buy my milk. It’s your business that your babies are being poisoned”, what will happen? And isn’t the melamine milk incident a perfect platform of advocating caveat emptor too? Think about it, why didn’t the Chinese do that?

To me, the MAS is equivalent to AVA. Its role is not there to check if the food taste good or not. Its role is to check whether if there are harmful substances in the food. I believe the AVA scientists do not have a easy time trying to determine whether something is harmful or not too. But they do their best, and when things happen, the products get redrawn, an apology issued and people get treated. A person financially ruin is akin to getting poisoned. Especially if what taken away from them are lifetime savings they intend to live on when they are old.

6) I know that the banks got themselves covered legally. Even a disclaimer from a local broker’s analyst report is longer than the actual report itself. However, it is a moral issue here, and not a legal issue. I believe if the banks were to buy back the products at cost right now, which many has the ability to do so without hurting their bottom-line, the amount of goodwill this action generated will last for multiple generations. This beats years and any amount of advertising. It’s like the 1982 Chicago Tylenol murders, and the banks are in the shoes of J&J now.

I believe professor Lan’s viewpoint may be slightly legalistic, considering your legal background. However, I urge professor Lan to be empathic to investors who have lost their savings.

I would like to stress that these are my personal opinions, and is not an attempt to show any form of disrespect. I am not personally involved any of the affected structured products.

Yours sincerely,

Morgan Wu Min-han
Undergraduate, SMU

News about Jubilee Notes arranger

Jubilee note holders and distributors and the authorities may be interested to know these reports about the Jubilee Note arranger

Thursday, October 30, 2008

Conflict of interest between bank and customer

Mr. Tan

I started my career as an investment consultant which requires formulating advice from client's interest point of view. I had done some work with banks on asset allocation models and fund selection (thinking from customers' interests point of view).

Two and a half year ago, I decided to join a bank to carry on this work.

It is an uphill task to convince people within the bank to embrace the investment approach of diversifying investment risks for the interests of customers. This directly clashes with corporate interest of meeting sales target and paying high bonuses, via selling high margin high risk products.

To be more specific, areas of conflicts include:

1. Most products are high risks in nature. Recommending broadly diversified products will lead to cannibalising the business of those narrowly focused products (including structured products). Killing these high risk products mean threatening the jobs of those people making profits out of these.

2. People are generally excited by new products and not old products. So, there is an IPO mentality - new products are better than old. As broadly diversified products are considered old products, it is obvious that no bank will run a promotion on the newly launched global stock funds or global bond funds because they aren't any. As the room for innovating structured products is unlimited, excitement and hype can be easily created around these products to boost profits.

3. The compensation structure of people selling investment products is commission based, and it is difficult to drive sales on products with lower commission. Unfortunately, products that work for customers (e.g. Term Policy, ETFs, global diversified funds) are usually low in commissions.

I also sympathise with the sales people, who are not talented enough to be promoted out of their hot seats of having to sell highly risky products to vulnerable customers just to meet the forever increasing sales target. I suspect some of the sales people succumb to the lifestyle of closing deals that are not in the best interests of customers and enjoying high bonuses, while others with conscience are trying their very best to get promoted to become product managers or some other roles in the bank, or even consider moving out of the job of selling investment products to selling other safer thing like house, car etc.

I believe no sales person is happy with the consequences of causing losses on monies of customers with no intention to take any investment risks. I am sure sales people are also suffering significant degree of guilt.

The conflict of interests between banks and customers remain unresolved until today.

Unless this conflict is resolved totally, I remain uncomfortable working for a bank. And I believe most people who have worked in a bank will agree with me, while others who do not, may have numbed their conscience due to helplessness.

May be the banks now seriously need regulators to set specific governance framework, to help them counter the unsurmountable vested interests that are in direct conflict with customers.

(name deleted)

Old news that may be useful

1. Leading Case of Negligence by an Investment Adviser Sets Standard of Care

2. Guided by Greed

3. SFC Suspends Andrew Nicholas Barber for Unsuitable Investment Advice

"The SFAT's Reasons for Determination confirm that express warnings on the face of the investment product documentation do not absolve an investment adviser from their duty to properly explain the risks involved to the client. Although the SFAT accepted that Barber had gone over the documentation with the client, the Code of Conduct for Persons Licensed by or Registered with the SFC requires an investment adviser, when providing services to a client in derivative products, including futures contracts or options, or any leveraged transaction, to assure themselves that the client understands the nature and risks of the products and has sufficient net worth to be able to assume the risks and bear the potential losses of trading in such products."

NTUC Bonus Cut was a bad idea

Hi Mr. Tan

When NTUC cut the bonus last year, the reason was to allow NTUC to invest the surplus into the stockmarket to get a higher return. Many policyholders opposed this move, as it would increase the risk. These policyholders are now proven correct, as the stockmarket dropped by 50%. It now appears that the cut in bonus is gone and cannot be recovered.

Earlier this year, you organised a collective protest against the bonus cut but did not lodge it at the AGM due to the assurance given by former NTUC boss Lim Boon Heng and the chairman Ng Kee Choe. The chairman also gave some assurance at the AGM. Are the assurances being kept and honoured?

As the bonus cut turns out to be a disaster, can the policyholders organise another protest to restore the old bonus rates? Can you take this matter to Speakers' Corner?

Let me sort out the problem with the minibonds and other structured products over the next few months. We can review this matter in early 2009.

Financial Services Authority fines Lloyds Bank in 2002

From Business Times

Lloyds TSB was fined GBP 1 million (S$2.35 million) in 2002 by the Financial Services Authority (FSA) of the UK and had to set aside GBP 165 million to compensate claims relating to mis-sold endowment policies, involving 45,000 policyholders.

In 2003, Lloyds TSB was further fined GBP 1.9 million and had to compensate GBP 98 million to 22,500 investors, many of them pensioners. This was related to the mis-selling of high-income 'precipice' bonds touted as an 'Extra Income and Growth Plan'. These bonds promised a return of 9.75-10.25 per cent over three years (twice the bank deposit rates then) and were linked to 30 stocks. They were called 'precipice' bonds because the investors' capital returns could 'fall off a cliff' if the markets fell below a pre-set trigger point.

The markets linked to the 30 stocks did indeed fall. These high-risk bonds, which were highly leveraged, were sold to inexperienced investors. Some 16,500 investors had never purchased equity-related investment products before.

22,500 sales out of 51,000 (that is, 44 per cent) of the total sold were deemed to have been mis-sold. Howard Davies, outgoing chairman of FSA, said that the products sold by Lloyds were 'inherently wicked' (because they were highly leveraged) and they were sold to unsuitable people.

Andrew Proctor, FSA director of enforcement, said: 'There was nothing wrong with the product itself. The problem was that too much of it was sold to the wrong people.'

Reply to Today Paper - "Structured Products ....."

Today paper

Dear Sir,

I refer to the article by Christie Loh entitled "Structured Products: Let's not forget about personal responsibility" in today's TODAY.

The writer appeared to be supporting the banks in shifting the blame to the investor much as the rich and powerful people like Prof. Lan Luh Luh of the NUS in that regardless of situation, product or organisation, consumers must be at the receiving end of caveat emptor.

I can agree if the consumer is an experienced investor, but certainly not with the average man in the street who have been assured by these bank relationship managers that Lehman Brothers, et al, are infallible, and with Singapore's biggest and most trusted bank, DBS, selling the products nothing can go wrong.

It is the element of TRUST that even the fairly experienced investor would be persuaded to trade in for the caveat and when things go wrong, the bank, and sadly, the influential academics and the politicians are singing a different tune: it is still caveat emptor, serve you right!

The manner in which these structured deposits and minibonds are sold have mislead most consumers to believe, and were actually told by the relationship managers, to be another form of time deposits with a fixed interest rate and a maturity period. Unless one is a CPA or trained financial analyst, one would not have associated such instruments as a form of investment with the accompanying risks.

Given this scenario, even fixed deposits and current account balances are no longer safe although the government has temporarily given its warranty during the current financial crisis. Does this mean that once the warranty expires, depositors would have to revert to the caveat emptor principle and keep less than $20,000 with any one bank?

If that is the case, then we should all shop for a safe and keep the excess cash at home once the warranty period expires: better safe than sorry.

James Tan

Be empathic to investors who lost their savings

Dear Mr. Tan,
I am a victim of the structured product. I get the impression that many people who are not directly involved said that "the investor should be blamed for buying the product. They should check carefully before they buy the product.

Even our Prime Minister has the same view. Can you help us to pass the message to the PM about why and how we were deceived?

I will be happy to meet with the Prime Minister, if he is free to see me. I have spoken to some of the people who held this view - that the investors should not be compensated for their loss, as they wanted a higher return.

In the conversation, it was clear that they were not aware about the nature and risk of the product, and how the investors were deceived. After I told them about the product, they become sympathetic to the investors.

I like to ask other people who hold an unsympathetic view, to watch this video:


Christie Loh, Today paper

WHILE much public focus has been on the calls for compensation from distributors of Lehman Brothers-linked structured products, observers of the financial scene say that — while sales staff must act responsibly — investors should not forget their personal responsibilities.

The point was recently made by Prime Minister Lee Hsien Loong. "Ultimately, each person has to take responsibility for his or her own financial decisions," said Mr Lee last week during a media interview, where he set the controversy within the larger context of Singapore as a financial centre, and examined the Government's role.

The implications may be hard for the 10,000 people in Singapore whose investments plunged in value overnight when United States investment bank Lehman filed for bankruptcy last month.

Many investors, some of whom are elderly and fearful of losing their retirement savings, have accused the distributors of failing to reveal the riskiness of products, including Lehman Mini-Bonds and DBS High Notes.

Analysts, however, say the individual is not fault-free, especially not in a market that runs on theprinciple of caveat emptor, meaning buyer beware.

"When people make money, nobody complains," Associate Professor Lan Luh Luh of the National University of Singapore's department of business policy told Today.

Having read a flyer promoting one of the affected products, Assoc Prof Lan said the potential double-digit investment return advertised certainly looked attractive. But the academic has thus far avoided buying structured products because "I invest only in the things I understand".

She said: "If you want your money to work for you, you have to work hard for it, too. There's no free lunch in this world."

There was a similar message from Securities Investors Association of Singapore (Sias) chief executive David Gerald, who feels people should ask some basic questions before ploughing hard-earned savings into complex products. The controversy over structured products has led Sias to work on producing an investment handbook, which is slated to be out within six months.

"Don't get excited only by the upside. You need to also ask about the downside," said Mr Gerald, citing a check-list including questions like whether the product is suitable for you and whether you have the "stamina" to withstand losses until you recoup them.

It is this financial system of free will and flexibility that PM Lee espouses, instead of a paternalistic one where the government decides for the consumer what's risky and what's not, Mr Gerald indicated.

"I think this is the better approach. Let people make their own choices and decisions, but within a proper system, and with appropriate safeguards. We have progressively shifted towards this over the last decade," Mr Lee had said. "It cannot be that if I invested and it turned out well, then I am happy, but if I invested and it turned out badly, then I am entitled to compensation."

The Prime Minister added it would be a "moral hazard" for the Government to intervene due to political pressure in a situation where the banks had acted within the rules. In a major financial centre like Singapore, Mr Lee said, regulations must be "fair, consistent and transparent", not arbitrary.

Prof Lan said: "The Government's role is to make sure there's as much disclosure as possible. No company or institution should block any information."

There's a second thing that pundits feel the authorities must do: Punish those who breached the rules on financial selling.

An independent check into the internal processes of product distributors would settle the question of whether there was indeed mis-selling, said one industry observer familiar with the ongoing mediation process.

Echoing the view, Mr Gerald said that while he agreed the Government would be setting a bad precedent if it bailed-out troubled investors, he added the authorities must ensure that the financial institutions have been "doing the right thing".

Said the small-investor champion: "I expect the financial institutions to be fair to investors because they're going to them with trust. The way we have been doing business for a long time now is based on trust."

Misleading Prospectus

The strategy committee will be getting legal advice to see if the prospectus breach the disclosure standard expected under the Securities & Futures Act.

If the case is strong, we will be able to take the following actions:

a) Lodge a Police report on the breach of the law, leading to investors being cheated
b) Take collective legal action against the distributor.

Thomas Jefferson's views on the banking system

"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs." -- Thomas Jefferson (1743-1826), US Founding Father, drafted the Declaration of Independence, 3rd US President

"The system of banking [is] a blot left in all our Constitutions, which, if not covered, will end in their destruction... I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity... is but swindling futurity on a large scale." -- Thomas Jefferson - Source: stated in 1811 when President Jefferson refused to renew the charter for the First Bank of the United States (the 2nd central bank chartered by Congress in 1791

Ho Cheow Seng

Talking point - minibonds and structured products

Watch this video:

Videos about speeches in Speaker's Corner

Dear Mr. Tan,
Do you have video recording of your speech in Speaker's Corner. Where can I find it?

You can go to Search for Tan Kin Lian. It gives you a list of all the speeches in Speaker's Corner. It also shows some TV programs about the minibond crisis.

It also contains my speech in Chinese delivered by Goh Meng Seng.

Wednesday, October 29, 2008

US Attorney General recovers for investors in auction rate secruties

Dear Mr. Tan
Can Singapore learn from New York?


NEW YORK, NY (October 8, 2008) - Attorney General Andrew M. Cuomo today announced two more agreements to provide liquidity to consumers who purchased auction-rate securities. Banc of America Securities LLC and Banc of America Investment Services, Inc. ("Bank of America") will return over $4.5 billion to investors across New York State and the nation. RBC Capital Markets Corporation ("RBC") will return over $850 million to investors across New York State and the nation. These agreements settle allegations that Bank of America and RBC made misrepresentations in its marketing and sales of auction-rate securities. Bank of America and RBC marketed and sold auction-rate securities as safe, cash-equivalent products, when in fact they faced increasing liquidity risk.

"In today's economic climate, it's more important than ever for investors to be able to access their money. Returning billions of dollars back to investors not only protects their interests but also increases confidence in the entire market," said Attorney General Andrew Cuomo. "Since the beginning of our investigation into the auction-rate securities market, our objective has been to provide relief to investors who have been unable to sell auction-rate securities as a result of widespread auction failures in February 2008. With these settlements, we've returned over $50 billion back into investors' hands, providing relief to the overwhelming majority of individual investors who were fraudulently sold auction-rate securities."

Similar to prior settlements in the industry-wide investigation, Bank of America and RBC have agreed to buyback auction-rate securities from certain customers. Bank of America has agreed to offer to buy back all illiquid auction-rate securities from all of Bank of America's retail customers, small businesses with less than $15 million on deposit and charities with less than $25 million on deposit. RBC has agreed to offer to buy back all illiquid auction-rate securities from all of RBC's individual customers; charities, non-profits and government entities with less than $25 million on deposit; and all other entities with less than $10 million on deposit.

High risk from inception

Dear Mr. Tan

One of the crucial issues that MAS has to consider is whether all these structured products that have come to grief can be categorized as high risk products from the time they were rolled out to the public. If Lehman Brothers has not become insolvent, would it make the scenario any different, with regard to the question of the underlying risks of the products?

Surely, the answer must be No. If an evaluation of these products [with Lehman being Arranger and Counter-swap Party etc] were to show that they were highly risky to investors, then the risks would remain unaltered regardless of the financial status of Lehman for much of the term of the investment, or until the investors were repaid their principal.

If the consensus is that these structured products were highly risky investments, then it was grossly irresponsible for any distributor to sell them to retail investors without making clear the risks involved, or by making misrepresentations of the risks involved, or closing the deal with the investor despite knowing, from risk-analysis, that this was against the risk-profile of the investor - let alone adopting a marketing strategy promoting them as safe or sound investments through the use of such terms like “Invest on solid foundations” and “With our Minibond Series 3 credit-linked to six major financial institutions, you can enjoy the returns you deserve with peace of mind.”

Any misrepresentations made by the RMs would of course constitute a legit ground for seeking restitution from the institution[s] they were representing. MAS should come down hard on the distributors who had mis-sold or misrepresented, instead of blurting out "This group should have understood the risks of investing in these products and take responsibilities for their actions”, clearly a prejudicial or arbitrary comment.

Richard Woo

Do you hear the people sing - version #4

Les Miserables

Do you hear our voices sing?
Singing songs of agony?
It is the wailing of the people
Who’s been cheated of our money!
When the banks claim innocence,
and the authority's voiceless
There is a fight about to start,
for what is ours!

Will you join in our crusade?
Who will be strong and stand with me?
Beyond the disclaimers
Is there justice you long to see?
Then join in the fight
That will give you the right to be free!


Will you give all you can give
So that our banner may advance
Against the institutions,
Will you stand and take your chance?
The despair of our people
Can all be seen at a glance!


Mini-bond investor gives his view

Dear Mr. Tan

I would like to response to some misconceptions and unfair criticisms to the minibond holders from the general public (and probably including some of our leaders). They are :

1) W
hen Lehman brothers did not fail, these minibond holders collected their quarterly payout and kept quiet. Now they got burned, they want MAS to bail them out ?

We did not asked MAS to bail us out. What we are asking is: MAS please carry out your duty , i.e. to investigate into any mis-selling and mis-representations.

2) Since you have make a wrong decision in investment , you have to take responsibility and accept the consequences.

Many of us were misled into believing that the product we bought is a bond issued by the six leading banks (or the investment is to buy into bond issued by the six banks) namely, DBS, Citibank, Merrill lynch. Goldman Sachs, HSBC, and Standard Chartered bank. Now then we discovered that the bond is actually not issued by the six banks and worse it is not a bond, instead, it is a very complex product which even the sales people from the Financial institutions are unable to explain clearly.

3) The risks are explained in the prospectus in bold print that you can lose everything. Therefore minibond holders cannot claim that they do not know the risks

We understand that the principal amount is not guaranteed. But we are misled into believing that the bond is issued by the six leading banks(or the investment is to buy into bond issued by the six banks) and therefore if one of the six bank fail, the maximum loss is only 1/6 (16.7%) of the principal amount. We will lose everything only when all the six leading banks go bankrupt. Since Lehman brothers is not one of the six banks, we should not suffer any loss.

4) it is greed that drive them to invest in minibond.

Many of us bought the bond during last year when the market is good, if it is greed, then we should invested in stocks, because the return is easily 20% to 30% within weeks. But instead we chose to part our money in minibond for five full years just to earn a total return of 25.5% ( 5 x 5.1%).

5) high return high risk, since you get 5.1%, the risk should be high.

Comparing 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 interest offered by the bond is not very attractive because we have to part the money for 5 years just for 5.1% interest. But the bond is issued by the six leading banks, the risk should be much lower than OCBC preference shares(six bank against one).

Thank you.

Savings of retired workers

My friend who works in the NTUC group told me that she was misled into investing in the structured product. Being financially trained, she was quite careful and asked about the product, before she made the investment. She was mis-informed about the product by the relationship manager.

I suggested to her that she should bring it to the attention of the leaders in NTUC, specially the ministers and members of parliament. So many people have been misled. Many of them are the retired workers who invested all of their life time savings. She agreed.

Collective legal action (1)

Approach recommended by Mr. Glenn Knight

1. I have met with several investors and found that a collective action is difficult.

2. I proposed that the investors should come forward and to say how they have been ‘misled’ and by which party meaning the banks or the other financial institution. I will then these people according to the financial institution who sold them the product.

3. For each group, I will choose one client who will sue alone but who will be backed financially by the others of the same group. My estimate is about S$80,000 for each client for the suit. The case will be heard in the District Court.

4. If the client wins the case, it will be a crucial victory. I will then use this case to settle with that financial institution on behalf of the other investors, provided of course that this is agreed by the financial institution. In that way, all similar cases can be settled.

5. If I am not able to act against any financial institution due to conflict, I can arrange for another lawyer to act (e.g. Mr. Raymond Loo).

6. If I should lose the case, the amount involved would be on a scale basis (provided in the books) of S$40,000 say for a trial that would last 4 days.

7. In the event that there would be an appeal to a High Court Judge in chambers, then I will have to charge another S$30,000. But if I should lose the appeal the party would have to bear costs of S$15,000

Glenn Knight
Bernard & Rada Law Corporation
50 Robinson Road
#08-00 VTB Building
Singapore 068882
DID: (65) 63947 852
Main: (65) 68999 888
Fax: (65) 6338 5377

Buying Government Securities

Many people have asked how they can buy Government Securities. I asked Adrian Tan to do some research. Here are his findings.


To summarise, you have to open an account with a primary dealer (these include ABN AMBRO, DBS, OCBC and UOB) or a secondary dealer. “Banks, merchant banks and stockbroking firms are among the approved Secondary Dealers”.

“With this account, you can purchase SGS over the counter with these banks.”

If you follow this route, make sure you ask about the commissions and other charges that are applicable.

If you face difficulties, say finding the right people in the bank to talk to, I suggest you tell MAS about your experiences.

ELECTRONICALLY (fundsupermat)

If you have have an investment account with fundsupermart, you may invest in SGS bonds using this existing account. If you have never opened an investment account, you will be required to open one before you can invest in SGS bonds

You are only allowed to purchase SGS Bonds via this platform using cash

'For SGS Bond, the charges that you will incur is 0.1% processing fee and 0.1% annual custody fee. The 0.1% processing fee will be deducted from your nominal value upon purchasing and the remaining 0.1% annual custody fee will be deducted yearly from your coupon payment i.e. 0.05% semi annually as the coupon payment will be paid out every 6 months. Please be noted that no charges will be incurred when you sell the SGS Bonds.

Please refer to FAQ over the website:

Author's note -- You have to be personally satisfied that you are comfortable dealing with or its related entities. Mr Tan Kin Lian or Adrian Tan are not making any representations about or its related entities.

Regulator should disallow the sale of bad products

The CEO of a large government owned organisation told me,

"Kin Lian, you are opening a pandora's box. By speaking for the investors who were misled into buying the structured products, you allow other sophisticated investors to claim that they were also misled and to claim compensation. How can you differentiate between the two group?"

I showed this blog to him on my notebook computer:

After reading it, he changed his mind. He did not realise that the product could be so toxic and was surprised that it was allowed to be sold. Nobody would have bought the product, if it was properly described to them.

I showed to him another potential time bomb, concerning the leveraged dual currency investment:

He was again surprised. He wanted to check if his wife also invested in these dual currency investment. It is so easy for the unsavvy to be fooled.

He suggested to me on how the message of these bad products could be disseminated more widely to inform the investors. I replied that, by naming the products, I stand the risk of being sued by the creators of these products. In my view, it is the job of the regulator to ensure that bad products cannot be sold.

Tuesday, October 28, 2008

Singapore Kopitiam Forum

Dear Mr. Tan:

I would like to commend you for your selfless effort in helping the investors to get back some of their investments in Minibonds, DBS High Notes 5, Jubilee Notes, and Pinnacle Notes, etc.

I realize that you have to block some of the comments left by visitors to your blog in order to keep your blog clean.

In an effort to assist you to achieve your goal, I have set aside a "Finance/Str_Products/Stock" discussion board at "Singapore Kopitiam" Forum for investors to air their views, exchange ideas, and coordinate a common approach to financial institutions:

Any visitor can register a free account at "Singapore Kopitiam" Forum and start posting without time delay or moderation. "Singapore Kopitiam" Forum has already carried some of the reposted messages from your blog and other news concerning Minibonds, DBS High Notes 5, Jubilee Notes, and Pinnacle Notes, etc.

I would appreciate it very much if you would publicize it on your blog and encourage investors to make use of the facilities to achieve their goals.

God bless you!

Victor Sun
Singapore Kopitiam

Nature and risk of the structured product

Hi Mr. Tan,

You said, on many occasions, that the investors have been mis-informed about the "nature and risk" of the structured product. Can you explain what you mean and what actually happened?

If you invest in a bond of a company, you stand the risk of losing your investment if this company goes bankrupt. To reduce this risk, you can spread your investment over 6 bonds. If any one company goes bankrupt, you only lose 1/6 of your investment. This is called diversification and is a sound investment strategy.

If you invest in a structured product with 6 "first to default" swaps, you stand to lose all of your capital if any one of these 6 swaps failed. You stand the chance of losing your capital 6 times. Instead of reducing your risk to 1/6, you are multiplying your risk 6 times. It is highly risky. It is madness.

Many people were misled into thinking that they are reducing their risk by diversifying their investment into 6 entities. The actual situation is that they are increasing their risk 6 fold by the "first to default" swaps on these 6 entities.

This actual "nature and risk" of the structured product has not been properly explained in the prospectus and in the explanation given by the sales representative.

Make Government Bonds easily available

26 October, 2008

Forum Page
Straits Times

Make Government Bonds easily available to the public

The Singapore Government has decided to guarantee all deposits with banks in Singapore. This move is intended to maintain the depositors' confidence in Singapore banks and to prevent the flight of deposits to financial jurisdiction covered by a state guarantee.

I wonder why Singapore taxpayers should be bearing the cost of this guarantee? The Singapore banks now offer a low interest rate of less than 1% per annum and earn a high spread on the loans that they make out. They are able to lend out the money on loans and overdrafts at the prime rate of 4% plus a margin. Are the taxpayers subsidising the shareholders of these banks?

I like to suggest an alternative approach. The Singapore Government should issue more government bonds for durations of 1 to 30 years. This should be made easily available to the public to buy through ATMs or other channels. The money collected from these bonds can be lent out to the financial institutions based on the cost of funds plus a credit spread, for the financial institutions to make loans and overdraft.

This approach will allow the working people and retirees in Singapore to earn a market rate of interest on the government bonds, which is higher than interest paid on bank deposits. This higher interest rate will help to cushion the temporary high inflation rate in Singapore.

The banks should not be allowed to earn a high margin on their lending operations and benefit from the guarantee provided by the Government. The high margin increases the profits of the banks and benefits their shareholders, but comes at the expense of the deposits who are given a low interest rate.

Tan Kin Lian

Not a happy time for me

26 October, 2008

Today Paper

I refer to your article entitled “Finally, a Change on Friday” (Today, 25 October 2008).

I thank your editorial director P N Balji for an excellent article in tracing the developments in Singapore on the structured products affected by the collapse of Lehman Brothers.

I also welcome the decision by the Monetary Authority of Singapore to help resolve the complaints of the investors in these structured products. Like the saying goes, “better late than never”.

The MAS has asked the financial institutions to give priority to the “vulnerable” investors, who are defined to be elderly and lowly educated. Many investors who fall outside of this category are worried that their claims may be ignored. MAS has since clarified that their complaints will also be attended to.

You made the following statement which I need to correct, “… they should not have maintained silence …. thus creating a vacuum which people like Mr.Tan filled happily”. I wish to say that it was not a happy time for me.

For the past one over year, I have advised visitors to my blog to avoid these structured products. I was horrified to learn, following the collapse of Lehman Brothers, about the extent of the losses incurred by the investors and how they were misled into investing in the structured products.

I decided to organise a Petition to ask the Government to investigate if there were breaches of the law and if so, could the relevant authority take relevant action to help the investors to seek fair compensation. I decided to hold a meeting at Speaker’s Corner to give an update of the Petition.

The past three weeks have been very stressful for me. I have to deal with more than 50 e-mails and postings to my blog each day. Many of the investors were lost and needed guidance. I am grateful for the large number of volunteers who came forward to help, but the main burden fell on my shoulders.

I wished that there was no vacuum that needed to be filled. In an earlier statement to the media, I express the wish that MAS could provide the appropriate assistance to the investors so that I do not have to “work so hard”. I hope that it is possible for me to step back soon to attend to my normal routine.

Tan Kin Lian

Misleading advertisements

Dear Kin Lian,

Mr. Heng Swee Kiat, the Managing Director for the Monetary Authority of Singapore, is reported to have said, inter alia, ... "This group should have understood the risks of investing in these products and take responsibilities for their actions" [Sunday Times, Oct 26] when he expressed assurance that all investors’ complaints of mis-selling would be reviewed, with regard to their investment in structured products linked to bankrupt Lehman Brothers. Was it fair of Mr. Heng to pass such a comment? If mis-selling is considered a legitimate ground for seeking restitution, then it would have been more constructive if Mr. Heng had said: "Any bank or institution that has mis-sold or misrepresented must bear the loss suffered by the investor."

Some examples of mis-selling are clear-cut, and have been discussed in the local newspapers. An advertising pamphlet [M-pamphlet] produced for public consumption, for Minibonds Series 3, is a case in point. This M-pamphlet was produced with these enticing statements:

"Invest on solid foundations and earn 5% pa paid every 3 months for 53/4 years" and
"With our Minibond Series 3 credit-linked to six major financial institutions, you can enjoy the returns you deserve with peace of mind"

As a marketing ploy, these adverts make the product look attractive, but M-pamphlet was designed with deception in mind nevertheless, notwithstanding a disclaimer clause, in almost illegible fine print, placed at the bottom of the pamphlet. When the institution responsible for this M-pamphlet instructed the investor to sign on a modified version of M-pamphlet, the investor was probably not aware of the slight but crucial disparity between this modified version and M-pamphlet. And one cannot be faulted for saying that many, if not all, investors could have seen M-pamphlet and relied on the enticing statements mentioned above. And what is this disparity?

The disparity is that this encouraging and enticing statement "With our Minibond Series 3 credit-linked to six major financial institutions, you can enjoy the returns you deserve with peace of mind" and the disclaimer clause do not appear on the modified version. Any investors must still be given credit if they had noticed this disparity but had thought nothing of it. But if no one had noticed it they could not be faulted. It is clear that the advertising pamphlet was designed with a preconceived intention of misleading the public.

If MAS is serious in holding distributors responsible for mis-selling, MAS should ask for specimens of advertising materials/other documentation used by distributors when they were flogging these products, and critically examine them. The verbal input given to investors by relationship managers is no doubt an area of equal importance, if not more so, as a source of evidence for mis-selling or misrepresentation.

If any risk analysis completed for an investor shows the investor was NOT a high-risk taker, then the distributor was prima facie irresponsible for selling the product to the investor concerned and must now reimburse the investor for the loss. Should any distributor be found to be clearly at fault for mis-selling or misrepresenting a particular product, then MAS would do well to tell the distributor to reimburse all investors to whom they sold the product.

Richard Woo

Why does the stock market fall?

I recall a story. British Prime Minister Winston Churchill was asked, "Sir, why is the stock market falling every day?"

His answer, "There are more sellers than buyers".

This is what is happening now to the global stock markets. Everybody (except Warren Buffett) is so negative. Nobody is buying. They expect the stock markets to fall.

The hedge funds have to liquidate their position due to withdrawals by the investors. They sell their holdings at any price. Some may be selling short. The wave after wave of selling will continue, until the value become $0. (Just joking. It will not reach this extreme point).

This is our wonderful global financial system, that has now totally collapsed.

Unconditional help from volunteers

Many people thanked me for spending time and effort to help the investors of the structured products.

I wish to acknowledge the unconditional help given by many volunteers who came forward to assist me. I shall not mention their names, but tell you what they have been doing:

> volunteers who provide guidance and deal with specific issues of investors
> volunteers who help at Speaker's Corner
> contact persons for the various groups (by distributor or product)
> strategy team who understakes various types of tasks
> volunteers who monitor the internet for news and contribute updates for me
> volunteers who translate my article into Chinese.

These volunteers came forward without being asked. Some are investors, others are not. They do what they consider to be useful. This is called UNCONDITIONAL HELP.

NUS dean also exposed to loss

Today Weekend, October 25, 2008, By Lin Yanqin

HE HAD built his career on his expertise and knowledge in the field of finance, but like thousands of others, he too fell victim to the collapse of Lehman-backed structured products after the American investment bank folded.

Professor Bernard Yeung, the new dean of NUS Business School, recalled the moment when he received the bad news from his broker.

“She said ‘Bernard, you’re exposed to Lehman Brothers’. I won’t tell you how much I lost, I basically feel like I’m working for free right now,” said Prof Yeung.

The Lehman fiasco prompted Prof Yeung to pull together the business school’s academics to share their knowledge and expertise on the issue.

“We said, ‘This is our social responsibility’... So we asked the faculty to write about this crisis, to help society understand what has happened,” said the 55-year-old Hong Kong-born Canadian, who met the media on Friday.

This culminated in a 13-part series in The Straits Times, as well as various articles in Today (picture) and The Business Times.

Such, Prof Yeung says, is how he envisions Singapore’s oldest business school spreading its knowledge beyond the ivory tower — drawing from its “peaks of excellence” to make a social impact.

Not only does he want to create a culture of intellectual curiosity and integrity in the school, Prof Yeung wants the knowledge created to be shared through teaching, journals and books, as well as the mass media.

Apart from the articles in the newspapers, the school also organised a panel discussion with industry leaders, faculty and alumni to educate its students about the impact of the ongoing financial crisis.

A special module on the crisis will be taught next month for the whole university, with lectures on topics like moral hazards, governance and government policy.

Prof Yeung, who came to NUS after nine years at New York University’s Stern School of Business, said NUS would play to its strengths and “focus on the basics”.

“The whole industry needs to train people back to the basics. We need to understand risk management better, we need to understand finance even better, and we need to think about this concept of responsibility,” he said.

“There’s a lot of self-reflection going on in the industry.”

Prof Yeung also spoke about the importance of rankings. These measures matter because they reflect what a school is about. Hence it is important to create a culture of learning and impart this to students — a hallmark of well-ranked schools. “If they deliver, we’ll always be the best,” he said.

His appointment at NUS — a three-year renewable term — allows him to be immersed in what he sees as the “Asian Renaissance,” with Asia becoming central to the world’s economy.

“It’s very exciting to be here,” said Prof Yeung, who intends to retire here.

Enforce the law

Sent by e-mail to me:

Minister Lim Hng Kiang (Deputy Chairman of MAS) said that it is not up to MAS to judge the merit of the investment product, yet MAS endorses the standard of clarity in the prospectus of the investment products.

He said that two legal laws, i.e. Financial Advisors Act and The Securities and Futures Act, are already in place, yet MAS, being the regulator empowered to enforce these laws, chooses not to exercise its power.

Full posting:

Well regarded persons oversee the financial institutions

The well regarded persons appointed to oversee the complaint handling of the financial institutions are:

Gerard Ee – DBS Bank
Law Song Keng – ABN Amro, Hong Leong Finance, Maybank
Hwang Soo Jin – CIMB GK Securities, DMG & Partners Securities, Kim Eng Securities, OCBC Securities, Phillips Securities, UOB Kay Hian, AMEX Bank.

Standard Chartered - try Hwang Soo Jin or write to MAS.

If you wish to contact these three people, you can write to their name, c/o Monetary Authority of Singapore.

10 Shenton Way MAS Building
Singapore 079117
Tel : (65)-6225-5577
Fax : (65)-6229-9229
Website :

Town Council invest in Minibond

Mr Tan,

Even Town Council use the resident sink fund to invest in Minibond , sorry can't tell you the name of the TC.

Invest around 300k, ....... many more MCST too have invest in it, So just simply write off public fund, it is legal?

Hope more people can surface more related info, to add on the pressure.


Jump on bandwagon

Someone sent an e-mail to me, arguing that some of the investors are knowledgeable and wanted to jump on the bandwagon to claim for compensation.

I asked him to call me by telephone. He did, and we had a chat. I realise that he was not aware about the details of the structured product. He was arguing from a "thereotical" angle.

I explained that there is no way for any knowledgeable person to invest in the structured product, if he has been properly informed about the risk. The return of 5% is not worth the risk.
He still did not accept my point.

I hope that other people who claimed that the investors were "greedy" should meet and talk to them, before forming this opinion.

Malaysia act against land banking

Hi Tan,

On the subject about land banking, how come the relevant authorities here not taking action whereas our neighbouring country is taking action.

I believe that Malaysia is not exposed to Lehman Brothers Minibonds but doing something as a watch dog!


Monday, October 27, 2008

Can investors understand CDO?

Dear Mr. Tan,

Financial Times interviewd Dr. Tony Tan in Feb 2008. Dr. Tan said,

"We believe that one of the reasons why we have, for example, weathered these CDO difficulties well is because we have always put risk management as a very high priority. We studied CDOs on many occasions in the past several years. We could not understand who was bearing the risk there. We looked at this many times and we decided several years ago, as a policy, that we will not invest in CDOs, so we have no direct exposure to CDOs at all. Of course, we also invest in funds and they invest in CDOs, so indirectly we do have some exposure, but as far as direct exposure is concerned I think our risk management framework works quite well."

If GIC admits it does not understand CDO risks, how can MAS MD said, "There will also be a group he described as 'knowledgeable and experienced. This group should have understood the risks of investing in these products and take responsibility for their actions."

Biggest loss in the the structured products

I met a couple at Speakers' Corner on 25 October. They invested a total of $1,775,000 in Jubilee Notes 3, Minibonds 3, Pinnacles 3 and 6. The investments were made in their personal name and in their company's name during February to June 2007.

They asked me to look into their faces. Were they greedy people? Were they people willing to take risk?

I felt so sorry to learn about their devastating loss. I told them that I will try my best ot help them to recover some of their loss.

CLSA Asks 500 Staff to Take Pay Cuts of Up to 25%

Oct. 27 (Bloomberg) -- CLSA Asia-Pacific Markets, the regional brokerage unit of Credit Agricole SA, asked 500 senior bankers and executives to accept pay cuts of as much as 25 percent next year to avoid getting rid of jobs.

The voluntary salary reduction program that was proposed for one-third of the staff last week would reduce basic pay by 15 percent to 25 percent starting in January, according to Chief Executive Officer Jonathan Slone. The participating employees would be paid the salary they forgo and may also receive a bonus payment when profit meets certain targets, he said.

``We think it's the right way to keep our team intact, maintain client service and allow us to expand our offering during a difficult time,'' Slone said in an interview. ``We face challenges like this crisis as a team and when conditions turn, we all share in the benefits as well.''


This is an excellent way to deal with the recession. It is different from the American approach of retrenching employees.

Collapse of the global financial system

The global financial system has collapsed. This has been acknowledged by the leaders of Asia and Europe at their meeting in Beijing. In their statement after the meeting, they pledged to rebuild the global financial system. President Sarkosky of France is providing the leadership.

The pillars of the collapsed system are:

> free market
> minimal regulation
> excessive leverage
> financial engineering
> non-regulated derivatives and swaps
> excessive reliance on private capital
> unsound banking system
> excessive rewards for corporate leaders

What will the new global financial system be based on? The leaders did not provide sufficient details. We must be ready to think of a new paradigm.

Lehman Brother bond

My friend invested $100,000 in the mini-bond, introduced to him by his stockbroker. He thought that he was investing in the Lehman Brother bond (which was A-rated at that time).

He said, "If I have actually bought the Lehman Brother bond, I would have lost my entire investment anyway. It is not fair for me to lodge a complaint about the mini-bond. It is just my bad luck".

I salute him for his honorable decision.

A fair compensation

Dear Mr. Tan,
Why should the investors in the mini-bonds and other notes expect to get full compensation for the investments? Surely, they know that there must be some risk, when they expect to get interest rate of 5%, when FD is only 1% or less.

Do you know that the people who invested in stocks are suffering losses of 50% or more. Can we ask for compensation? Even A-rated bonds can fail. Can the investor than ask for compensation from the distributor?

Surly all kind of investments have risk. Why should the mini-bond holders expect full compensation? Why are you supporting this unreasonable claim?

I believe that these structured products should not be sold in the first place. If the distributor had properly described the product, it is likely that nobody would have bought them.

In my personal view, the loss should be shared equally between the distributor and the investor (i.e. noteholder). It will not be fair for the investor to shoulder the loss entirely. It is also not fair for the distributor to make a full compensation. I hope that both parties will make a compromise and agree to share the loss equally. Many investors have told me that they will accept such an offer.

Prospectus needed

Will the co-ordinator of Pinnacle Notes, and the co-ordinators of investors that bought minibonds etc from UOB Kay Hian and Phillips, please contact Adrian Tan at

Volunteers are willing to analyse the prospectuses, pricing supplements, promotional materials and advertisements of Pinnacle notes, and minibonds etc that Phillips Secs and UOB Kay Hian clients bought. Copies of these materials are needed.

A fair rate of return

Hi Mr. Tan,

Investors in Singapore have no real safe alternatives to park their money and get a fair return if they don't want any risk. So, what is a fair return for keeping money safe? My feel is that, the return should at the very least offset inflation.

However, for far too long, savings/fixed deposit rates at banks here are ridiculously low. The last time I checked, POSB/DBS, fixed deposit is at around 0.45 percent to 0.75 percent, for most people, of course, depending on amount & tenure. This can hardly offset inflation that is much higher, 5 to 6 percent.

The Singapore government has long pursued a strong SGD to fight inflation. The trinity of inflation, interest rates & foreign exchange is supposedly linked by the PPP, purchasing power parity. However, for the short term PPP may not hold and distortions can persist for years. So, with our recent SGD weakening, we would see higher SGD interest rates instead ?

Some of my friends even suggest that the the Singapore government providing long running subsidy for local banks. Just consider this, local banks take in funds from depositors at less than 1 percent rate, and then invest in Singapore Government Securites, which depending on tenure, can yield up to 3.6 percent. Banks have to hold a certain amount of SGS anyway, as stipulated under MLA requirement from the central bank, MAS.

So, assuming 3 percent spread on say, 300mil, that's 15mil, almost risk free for the banks!


Electricity prices: 82% higher her than in Hong Kong

Paul Chan wrote to the Straits Times Forum about our electricity charges. Hong Kong residence pasy 17 cents per nit. Singaporeans pay 31 cents - 82% higher. Electricity in Singapore is more expensive than in USA or France.

What is happening? I recall these events but cannot remember the details:

1. Our power plants sold by Temasek to foreign shareholders?
2. Singapore hedged the price of oil, and are now stuck with the higher contracted prices?

I like to invite the knowledgeable people to put some details into what is happening here. You can also help to search Google for the facts.

Profit margin in creating the structured product

Comment posted in my blog

I am greatly sadden by the losses sufered by the HN5 investors. As an insider, I understand that the sale of high notes products was a highly profitable business for the bank. The product is doubly leveraged - the first-to-default risk and the underlying collaterialsed debt obligation.

Even in early 2007 where credit risk is severely underpriced, the return for the risk undertaken that is passed to HN5 investors borders on ridiculous. The bank keeps a fat margin.

I would suggest HN5 investors ask the bank to oepn its book on the structuring profit for high notes products.

Even if the bank refuses to compensate the 'non-vulnerable' investors, the bank should not be allowed to make money from them.

It also seems that the bank is not so truthful when they said that they were caught unaware by the collapse of Lehman Brothers. i understand that bank had bought CDS protection to hedge the bank's own exposure to Lehman, and have avoided trading with Lehman to reduce counterparty exposure as early as 1Q2008

I know this would drag DBS profit and shares price down further, but my guilt does not allow me to keep quiet.

The Petition #1 ask the Government to investigate the creation and marketing of the products. In my supporting document, I asked the Government to look into the accounts for the structured products to see how much money is taken away by the product issuer and the marketeer.

I hope that MAS will pursue this matter. If not, I will ask a Member of Parliament to raise this matter in Parliament.

BBC radio documentary on structured products

Commemt posted in my blog

It is terrifying to hear from this bbc documentary that you have published on your site about reputable banks resorting to dirty tricks. I urge that this radio documentary to be heard by the public as it reveal many disturbing discovery.

Call to MAS - pass general guideline for compenstion

Comment posted in my blog

The only solution of this SAGA is to ask MAS pass the message down to ALL distributors to set general guideline for compensation.those are not happy can continue to take legal action later.Some buy from broker firms, the firms can argue that we send the brochure to you and you can decide not to buy. firms are only the distributer.We , singaporean always have this in mind, the FI dares to send such brochure to customers,the product must have been approved by MAS and safe. The product advertisement on newspaper is so BIG. It should be safe , espectially ,series by series continously, it should be safe.

Husband's objection

Dear Mr Tan,
It is really kind of you to spend so much time and energy to help the unfortunate people who bought Mini Bonds and High Notes. My relationship manager from ABM Ambro too approached me many times to buy the Lehman minibond.

Do not let nasty comments discourage you and just focus on the truth. Many of us are greedy and I escaped the noose only because of my husband's objection.


You are fortunate to have a husband who is knowledgeable. Many people were badly advised by the sales representative and did not have a family member to advised them on the risk.

Sunday, October 26, 2008

Blog for High Note investors

Hi Mr Tan,

We have created our blog to coordinate our HN group's activities. The blog is at:

We will be grateful if you can help us publicise the blog in your respective websites.

Complaint Form

Several investors have asked me for the complaint form. I will make them available at Speaker's Corner on Saturdays 5 to 7 pm, over the next few weeks.

You can download the form here:

Please come to collect the form there and also to meet other investors in your group (based on distributor). You can get assistance from the other investors.

I urge all investors to seek assistance from the other investors in your group. Please do not approach me on your individual cases, as I am not able to handle so many people. Be considerate for my health.

If you are not sure about how to present your statement, you can see a lawyer to write a statutory declaration and pay a fee of $120. It may be worth spending.

It will be handled 'fairly'

XI'AN (China) - SINGAPOREANS aggrieved by their investment in Lehman Minibonds and DBS High Notes 5 will have their complaints handled 'fairly and properly', Prime Minister Lee Hsien Loong assured on Sunday in his first remarks on the issue. He said it was understandable that some investors had reacted emotionally as they lost their money in a sudden and unexpected manner, while others felt that the risks had not been adequately explained to them.

But ultimately, the banks do realise that it is in their interest to resolve the matter quickly and not let it drag on, he told reporters in the western Chinese city of Xi'an where he wrapped up his five-day visit to China.

'The banks have what they call reputational risk,' said PM Lee. 'In other words, if you do the right thing, your customers will remember you for a long time.
'If you do the wrong thing, customers and potential customers will remember you for a long time. The banks and financial institutions know this and have every interest in sorting this out expeditiously and fairly.'

In Singapore, about 10,000 retail investors have invested over $500 million into structured products linked to now-bankrupt Lehman Brothers. DBS Bank, Hong Leong Finance and Maybank said last week that they would look into complaints and fast-track vulnerable cases, prompting some investors to worry that they would be left out.

The Prime Minister repeatedly stressed the notion of fairness during his lengthy remarks on the issue yesterday, and added that instances of mis-selling would be investigated.

Mis-selling, at its simplest, means giving the wrong advice to potential investors. Beyond that, it can also mean a failure to help clients diversify their assets, non-disclosure of risks or not completing a proper fact-find to ensure the product being sold suits the customer.

Said PM Lee: 'Where there has been mis-selling, it has to be put right.

'Where there has been less than professional behaviour by the relationship managers, or where things don't measure up to the standards that the Monetary Authority of Singapore (MAS) expects when you promote the financial products, then the banks have to do the right thing.'

The MAS said on Friday that it would look into complaints of mis-selling, and added that an imminent review of the structured products industry would address such issues as better descriptions and labelling of products, as well as more professionally trained relationship managers.

It is encouraging for the Prime Minister to emphasise on fairness. I hope that fairness has to be seen in the eyes of the aggrieved person. It will be difficult for the aggrieved person to feel that he (or she) has been fairly treated, unless the matter is settled through mutual agreement or by a fair, independent adjudication.

Some businesses hold the view that there are 4 million customers and if a few of them gets angry, there are other customers for them to tap. They also think that customers have short memories.

Interviews with Financial Institutions

Many investors have reported unsatisfactory experiences when they attend the interviews called by the financial institutions. I suggest that they write to the independent "well regarded" persons appointed by the financial institution.

As you do not have the address of these persons, you can write to their specific name (i.e Mr. Gerard Ee, Mr. Law Song Keng or Mr. Hwang Soo Jin, c/o the Monetary Authority of Singapore).

If you attend an interview, as a fellow investor to attend with you. In turn, you can accompany the interview with the fellow investors.

This is unsatisfactory, but it is MAS way. Let us follow it as best as we can.

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