Saturday, November 08, 2008

Has MAS responded to the 3 petitions?

Someone asked if MAS has responded to me on the three petitions. I will give an update at the next meeting in Hong Lim Park on 15 November 2008.

Friday, November 07, 2008

Proposed terms of settlement

Submitted by Richard Woo

Maybe the refund, in full, by distributors, can be made on the condition, and mutually agreed with the investors, that it is put back on fixed deposit with the distributor, for example:

Refund by ABN [RBS] to go back on fixed deposit with RBS, refund by Maybank to go back on fixed deposit with Maybank, and so on.

Since investors had agreed to a waiting period of about 5 years to get their principal back, under the original terms of the investment, it may not sound unreasonable for distributors to suggest that the term of the deposits should be somewhere from, say, 3 to 5 years. The rate of interest payable on such deposits can be something “reasonable” and mutually agreed between the investors and the distributor/bank concerned. Such an arrangement may be beneficial to some extent to both sides.

For the banks/financial institutions, no cash outlay is involved, at least not before the maturity date of the deposits [and this also does not mean the holders of the deposits will withdraw all the funds on maturity], and it should be borne in mind that perhaps a large part of the funds used by investors in the purchase of the product could have emanated from external sources, e.g. accounts maintained with other banks/institutions.

Litigation may end up with bigger losses for one side or the other and in such a scenario any goodwill there is will be lost, presumably, for good. Investors should be accorded a settlement that would restore confidence in the banking/financial industry; any proposal for settlement that leaves a bitter taste in the mouth is, obviously, not something to be considered. Banks and the other institutions have to think long term and their reputation and future business interests may largely depend on the actions they take now.

Maybe, as an exception, these banks/financial institutions deserve special treatment in accounting procedures; maybe they should be accorded, by the authorities concerned, the option as to how they intend to write off the losses, for example, whether in one fell swoop or over a period of several years, starting, say, from the time when these deposits start to mature or when funds from them are being released. As can be seen, and if I am not wrong, such an arrangement would entail mainly book entries and “cash” is involved only much later. Their balance sheets may in fact take on a healthy glow. But I have to admit I could be wrong. If so, please point out.

Richard Woo

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".


A favourable impression of Tunis

Tunis is the capital of Tunisia, a country in North Africa, next to Libya. It has a temperate, Mediterranean climate. It is cool and pleasant during my visit in November.

Tunis has a population of 2 million people. There is a large lake (actually part of the sea) that gives a shoreline to many parts of this charming city. Most of the houses or villas near the lake are low, less than four stories. The architecturial style is Mediterranean.

Tunisia was a French protectorate for 70 over years prior to independence in mid 1950s. The people speak Arabic and French.

I visited a beautiful town outside of Tunis called Sidi Bou Said. It is unusual, charming, picturesque and wonderful. Here are some pictures:

More about Tunisia

Impact of Obama's election on the future of Singapore

Read the views of Singaporeans:

Seminars on financial risks associated with financial instruments

Dear Mr. Tan Kin Lian,

There are opportunities for affected structured products investors to learn more about the financial risks associated with financial instruments sold by banks and securities institutions.

The Risk Management Institute of NUS is hosting a series of public seminars on "Enhancing Financial Risk Management Knowledge". These lectures are free of charge and are open to the general public.

These seminars are held in English and Mandarin between 10 to 22 Dec 2008. For more details, please click on the direct links below.

English Seminars:

Mandarin Seminars:

The events are held here:

Maybe, the investors can learn about what have not been told to us by the relationship managers, sales associates and securities brokers from consumer banks, independent advisory and securities institutions.

Alfred Tan

Minibond Saga in better explained form

Hi Mr. Tan,

The name "Minibonds" itself is a misleading word for investors. Whatever money you have invested in this "Minibonds" are not invested in bonds of the six reference banks or bonds issued by Lehman Brothers. This is how it works.

Lehman Brothers may or may not buy any bonds from the six reference banks but it is just using these banks as "reference entities", some sort as a "bet" with Minibonds holders. There are basically 5 entities involved in the Minibonds arrangement.

1) Lehman Brothers as the credit risk swap partner.

2) Lehman Brothers has created an empty shell company Minibond Ltd which will issue the Minibonds to investors.
3)The investors.
4) The money taken from investors will be invested in a basket of AA financial products from 150 companies which includes CDOs which is basically collateral debts obligations, some of them are related to SubPrime debts.
5) The reference entities which have nothing to do with investors' investment other than being a betting reference: i.e. if any one of them failed, it would be a credit event that make investors lose money to Lehman Brothers.

For simplicity to understand the whole arrangement, just take it that Lehman Brothers has bought some bonds from these six reference entities and it needs somebody to insure its risk of exposure to these banks. It did not insure its risks from insurance companies like AIG but instead, via this Minibonds arrangement, bought insurance from investors like you.

Through the Credit Risk Swap, you as an investor has agreed to sell insurance to Lehman Brothers with regards to the reference entities. In order to become an insurance agents of Lehman Brothers, you will need to come up with money as collateral. This money is collected from you via the financial institutions that you bought the Minibonds and given to Minibond Ltd to invest in a basket of CDOs issued by 150 companies.

Whatever returns from these CDOs issued by these 150 companies (variable returns) are given to Lehman Brothers. In return, Lehman Brothers will give Minibonds Ltd a FIXED premium (most probably higher than 5.1%) and Minibonds Ltd will give investors 5.1% returns for their investment. Now, the variable returns from the Collateral Assets may be higher or lower than 5.1% but investors will only get back 5.1%. It means that Lehman Brothers will take the risk of variable returns from these Collateral Assets in return for your risk taking on the reference entities. This complete the Credit Risks Swap, swapping your risks of variable returns for a fixed returns, while you in return, insured Lehman Brothers for their risk exposure to the Six reference entities.

The problem is that Minibonds Ltd, under the control of Lehman Brothers, may choose to invest in a higher risk instruments or CDOs because it would be very profitable if the returns from these investment is higher than 5.1% that Lehman Brothers promised you. Especially so, when they do not need to bear the risks of defaults these CDOs or any of the assets in the basket of Collateral Assets. The returns from these Collateral Assets, they take but you bear the risks of defaults from these assets. Under the contract, once a CREDIT EVENT happens, the whole arrangement will be liquidated. The Credit Event involves:

1) If any one of the reference banks failed, it is considered as a Credit Event and the investors will have to pay Lehman Brothers for the insurance it bought via the Credit Risks Swap. Meaning, investors will lose all money invested.

2) If more than 11 companies of the 150 companies listed in the Collateral Assets failed, or a certain percentage of the CDOs or credit-linked derivatives held as Collateral Assets go into default, the whole Minibonds will be liquidated and any loss from these defaults will be born by investors (not Lehman Brothers).

But the definition of Credit Event does not includes the failing of Lehman Brothers as the Credit Risks Swap partner. Thus, at this moment, investors do no face immediate liquidation of the Minibonds and suffer immediate losses. However, investors RISK losing a lot of money due to the fact that the value of the basket of CDOs and other credit-linked derivatives held as Collateral Assets has devalued tremendously due to the present financial crisis. The likelihood of a credit event triggered by the failing of a substantial number of companies within the list of 150 is very high at this moment.

Furthermore, as Lehman Brothers has gone into bankruptcy, it will no longer give you the 5.1% as it promised and in this financial crisis, the variable returns from the basket of CDOs and credit-linked derivatives would be nearly zero as most of them are linked to SubPrime products.
1) What was sold to the unsuspecting and gullible investors ? Is it a Credit Default Swap( CDS ). What is a CDS ?

Credit Default Swap, also commonly known as Credit Risk Swap, is a mechanism whereby two parties "exchange risk". In this case of Minibonds, it is totally an UNFAIR swapping. The "RISK" Minibonds Investors swapped with Lehman Brothers is the VARIABLE RETURNS from the basket of Collateral Assets they implicitly invested via Minibonds Ltd controlled by Lehman Brothers. However, the risk of the failing of the whole basket of Collateral Assets are not insured by Lehman Brothers. Thus, Lehman Brothers will not compensate investors if they lose money due to defaults of the CDOs and credit-linked assets held in the basket of collateral assets!

This is where the tricky part is. Lehman Brothers could use Minibonds Ltd to invest in many HIGH RISK financial derivatives to get very high variable returns and it will benefit from these returns while only giving back a fixed 5.1% to investors. But if these HIGH RISK derivatives failed, investors will have to bear the brunt. On the other hand, Lehman Brothers has used the Six Reference banks as a risk bet to Minibonds investors. It seems to me that using such reference entities of "Low Risk" nature as Credit Default Risk exchange is MISLEADING as it creates an impression of "LOW RISKS" while in fact, the amount of RISK investors born is very much higher as they are responsible for the risk of the Collateral Assets!

2) What is the purpose of REFERENCE ENTITIES ( REs ) ?

The REs are prominently displayed in the brochure and fooled us into thinking we are investing in their bonds. As explained, the Reference Entities are just a reference of "Risk" that Lehman Brothers is swapping with you. Your money invested did not invest in these banks but rather in a list of 150 companies' credit-linked derivatives which may be of HIGH RISKS nature. The main Risk that investors is taking lies in the basket of Collateral Assets.

3) The money collected from investors, what did they do with it.

The money collected from investors are invested in a basket of HIGH RISK derivatives issued by 150 companies. High risk derivatives may give high VARIABLE returns but the returns from these High Risk derivatives was swapped by the arrangement of CREDIT DEFAULT SWAP, to Lehman Brothers. That means that investors are bearing the HIGH RISKS of this basket of derivatives (not bonds, but CDOs and credit-linked derivatives) but Lehman Brothers has taken all the returns from these derivatives and in return, only promised to give you a FIXED return of 5.1%!

4) The REs have not defaulted,but the value of our investments have plumetted to almost zero. What is the rationale behind this incomprehensible senario?

Although the REs have not defaulted but the basket of HIGH RISK derivatives that your money actually invested in as a basket of Collateral Assets has actually diminished due to the financial crisis that we are facing. Although you as investors have not enjoyed the high returns from these high risk derivatives (which you have swap and given to Lehman Brothers for 5.1% return) but you bear the risks of defaults or devaluation from these financial derivative instruments.

5) Did the distributor
misrepresented this product and/or concealed the material fact ?

a) From the many descriptions given by investors with regards to the information they received from sales representatives, it is a CLEAR MIS-INFORMATION and MIS-REPRESENTATION of this product. The RISK you faced is not LOW as the failure of any one of the six reference entities. You, as an investor, also face risk of defaults or devaluation of the basket of HIGH RISK financial derivatives issued by the 150 companies and yet, you did not enjoy FULLY the potential high returns from these instruments but taking the risk of these instruments!

Basically it means that, somebody used your money to invest in HIGH RISKS products and keep all the potential HIGH RETURNS from your investment but in return, they only give you back a FIXED 5.1% and you bear all the risks of defaults and devaluation of these products. I believe if this is represented properly to you, many investors would not be investing in this product. I mean, who wants to bear all the HIGH RISK while taking back only a FIXED 5.1%?

b) I am not in the position to say whether "they knew but did not tell you" or they conceal any material facts because I am not vested and would not know whether those front line sales representatives actually know what they are selling in the very first place. I believe not many people really understand this Lehman Brothers Minibonds when it was first sold. If those financial elites at MAS actually study the whole structure carefully, they would realize that this Minibonds is DETRIMENTAL to consumers' interests and it is a totally UNFAIR Credit Default Risk Swap as Lehman Brothers controlled the Swap Party Minibond Ltd.

I hope this explanation is clear enough for you to better understand and appreciate the whole Minibond Saga.....


Thursday, November 06, 2008

SCMP:Investor cool-off pondered

6 Nov 2008
Joyce Man

The Securities and Futures Commission will consider imposing a cooling-off period for investment contracts in light of the minibond debacle.

The move comes after some investors in complicated financial products complained that agents only provided crucial documents – which would have changed their investment decisions – after they had signed investment agreements.

“The SFC will consider whether the relevant sales contracts should contain a ‘cooling-off period’, during which investors may unconditionally terminate the contracts,” Secretary for Financial Services and the Treasury Chan Ka-keung said yesterday.

It would investigate the feasibility, merits and shortcomings of implementing a cooling-off period for other investment products, he said, without elaborating.

He was responding to legislator Raymond Ho Chung-tai, chairman of a Legislative Council subcommittee on Lehman minibonds and structured financial products, who wanted to know how the commission was educating small investors.

Andrew Fung Wai-kwong, a district councillor who has been helping investors complain to banks and demand compensation, said a coolingoff period would help them in future. “There is nowhere to run,” he said of the current arrangement, “and this would provide them with a way out.”

The commission is also considering more provisions for educating investors during the 2008-09 financial year.

From October 2006 to September this year, the commission produced 12 television programme episodes, broadcast 108 radio segments, published 130 newspaper articles, and issued 69 videos for broadcast on 1,000 buses, all containing educational messages for investors. It also organised 127 seminars and several university courses.

It has issued leaflets and brochures on stocks, funds, bonds, structured instruments and other products, with advice on how to choose brokers and investment advisers.
Since 1997, it has also provided investment information on television and radio, and organised quizzes and competitions to inform investors.

SCMP: Democrats drop legal bid after deal on Lehman products

6 Nov 2008
Joyce Man

The Democratic Party has dropped plans to sue several banks over allegedly mis-sold derivative investments because the banks have settled with complainants.

Party chairman Albert Ho Chunyan had intended to file writs against the banks for six claimants, who had spent millions of dollars on investment products linked to collapsed investment bank Lehman Brothers. They reached settlements with the banks yesterday.

Standard Chartered said it had resolved “a few cases” since Tuesday, including at least one yesterday, and Bank of China (Hong Kong) resolved four new cases yesterday.

A 67-year-old woman with an 80year-old mother who needs money for surgery settled with Standard Chartered yesterday, Civic Party legislator Audrey Eu Yuet-mee said. The daughter had bought HK$500,000 in Lehman-related equity-linked notes.

A Standard Chartered spokeswoman said at least one case had been settled yesterday. She declined to disclose any details of the settlement or say whether the agreement was based on evidence of mis-selling, but said the bank was discussing settlements with elderly customers and those with little investment history.

Elsie Ho, a representative of the Standard Chartered complainants, said it was “ a positive step” and showed the bank was sincere. “Their senior management has always had a good attitude,” she said. “ They always responded to our requests, even if they sometimes were slow.”
Also yesterday, Bank of China (Hong Kong), which had earlier settled with two customers, reached settlements with four others. They were people in their 70s who had invested sums ranging from tens of thousands of dollars to more that HK$1 million in minibonds through the bank, a spokeswoman said.

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

DBS said payments to holders of two series of Constellation structured retail notes had been made on Friday.

The Hong Kong Monetary Authority said yesterday that banks should let customers who purchased Lehman investment products hear recordings of meetings with their agents. It said some banks had declined requests for the recordings from customers who purchased investment products from them.

“It is the view of the HKMA that as a matter of fair and responsible business practice, banks should allow customers to listen to the recordings of their telephone conversations with bank employees,” said the authority’s executive director of banking supervision, Nelson Man. He did not say, however, that customers had any right to the recordings.
The customers could be accompanied by a friend, relative or adviser or to take notes while listening to the recordings. Banks should provide investors and their advisers with information on the collateral underlying minibonds, he said.

The Securities and Futures Commission, which regulates brokerages, said investors had “no right to tape recordings unless through some compelled discovery process”, such as a lawsuit.
It said in a written reply to Ms Eu: “Usually firms that have tapes will play them for clients to resolve complaints, but this is a voluntary act and they do not always give the investors a copy of the relevant tape recording.”

Is mis-selling a market misconduct?

In a speech made in 2002, Mr. Lee Hsien Loong, who was then chairman of Monetary Authority of Singapore said,

"Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”

Someone commented in my blog as follows:

"Alamak this market discipline referred to is not referring to mis-selling to auntie uncle and ah poh and ah to prevent pple from insider trading leh...or market manipulation...but its a good step in the correct direction!! "

Is the mis-selling of mini-bonds and other credit linked notes considered a market misconduct? Was Mr Lee Hsien Loong referring only to market manipulation in 2002?

What do you think?

The New Paper: Latest structured product scandal

Tue, Nov 04, 2008
By Larry Haverkamp

SAY you have a persuasive friend named George. He promises a high return if you leave your money with him for five years.

Five years later, you get two shocks. First, your return is much less than promised. Then you learn George has been siphoning off your money, which explains the low returns.

You confront him. He is indignant. He won't even discuss the matter. Instead, he wants to talk about you. If you can prove you are old and uneducated, George will take pity and refund part of your money.

Hey! What does that have to do with anything?

You recall a similar story from America. Banks mis-sold auction-rate notes and were later required to repurchase a whopping $80 billion of them AND pay $750 million in fines.

Even the world's largest fund - Fidelity - agreed to buy back ALL the notes it sold to investors, regardless of their age or education.

Errors in auction-rate note sales were verbal. George's mis-selling can be backed up in black and white, or rather the lack of it.

Nowhere were his charges mentioned in the prospectus or any other documents. He simply took your money without telling you.

You guessed it. The story of George is about the latest banking scandal - a structured product, called credit and equity-linked notes or 'linked-notes' for short.

Over the past 10 years, sales of linked-notes have been in the billions. They have been in the news lately due to the 15 Sep bankruptcy of US investment banker Lehman Brothers.

Hardest hit have been High Notes 5 ($103m, a total loss), Jubilee 3 ($28m, a total loss) and Minibonds ($508m, a partial loss).

A feature common to ALL linked notes is that investors never see the charges. They include:
> costs embedded in the initial pricing;
> counter-party returns in the product's risk/return structure;
> commissions from buying and selling the options, swaps and underlying bonds;
> market-making and surrender fees; and
> annual management fees, including trailer fees kicked back to distributors.

They are deducted directly from the yield. Investors are likely to attribute the low return to market conditions rather than unseen costs.
Most importantly, unit trusts and investment-linked products (ILPs) routinely publish their charges. Linked notes never do.

The question of the day is: 'Should non-disclosure of embedded charges invalidate linked-note sales contracts and require a refund from issuers and distributors?'

Three remedies are possible.
1. THE BEST: Banks reimburse customers for the cost of the linked-notes plus accrued interest. It is similar to the remedy used in the case of auction-rate notes.
2. THE SECOND BEST: Banks limit reimbursement to money taken without customers' knowledge. It would amount to a refund of the undisclosed charges.
3. THE THIRD BEST: Banks simply reveal the undisclosed charges. It is a non-cash settlement, but at least investors would finally learn how much money was taken from their accounts.

Business Times: Kudos to CIMB-GK and UOB-Kay Hian

CIMB-GK and UOB-Kay Hian have broken ranks with the industry by offering to buy back in full the original Minibond investments from vulnerable investors, without deducting interest already earned.

By doing so, the two firms - one, Malaysian-owned, and the other, the broker arm of United Overseas Bank (UOB) - have done what just about every player in the financial services industry typically pays only lip service to and doesn't carry through: differentiating itself from the pack. CIMB-GK is owned by CIMB Group, Malaysia's second largest financial services group.

To recap, 10 distributors here sold failed Lehman Brothers-linked products worth a total of $639 million. They were ABN Amro Bank, DBS Bank, Maybank, Hong Leong Finance, CIMB-GK, DMG & Partners, Kim Eng, OCBC Securities, Phillip Securities and UOB-Kay Kian.

After some prodding from the regulator, DBS Bank, Maybank, Hong Leong Finance and four brokers said they would compensate vulnerable elderly investors (defined as those with not much education and little investment experience) the cost of their investments, minus the interest or coupons already paid. As for other investors, compensation would be decided on a case-by-case basis.

But CIMB-GK and UOB-Kay Hian said that, for vulnerable investors, they would buy back in full the original cost of their investment, irrespective of interest earned.
CIMB-GK chief executive Carol Fong explained the decision as 'appropriate, given the goodwill we have built among our customers'. A UOB-Kay Hian director told BT the company will also buy back the whole thing from the vulnerable group, with no deductions of interest already paid out.

Insiders said there had been quibbling among the distributors over the whole issue of compensation, such as who would qualify as vulnerable and the amount to be refunded.

The banks were said to have resisted going the full hog because they were the biggest parties in the whole affair.

But gouging back the interest paid seems rather petty, especially in view of the total amounts sold, and lost.

It is interesting that it is two brokers which are doing the right thing, rather than the big banks, which normally are seen as taking the lead.

Cynics will, of course, point to the fact that the amounts sold to vulnerable investors by these two brokers were small relative to the others. That could be because sales were done through their remisiers, who typically do have a more informed relationship with clients.

CIMB-GK disclosed that only less than 2 per cent of its total sales of $19 million of the Lehman-linked products or $380,000 were to vulnerable investors. UOB-KayHian said it sold less than $250,000 in value of these products to those considered vulnerable.

By contrast, DBS last month said that, based on the number of cases it reviewed, the bank estimates that total compensation in Singapore and Hong Kong is in the range of $70-80 million. This includes vulnerable customers and cases of mis-selling.
In all, DBS sold a total of $360 million of these failed products to 4,700 customers in Singapore and Hong Kong.

Matthew Wilson, a Morgan Stanley analyst, calculated that in basic financial terms, the amounts sold by DBS are immaterial to the bank's financials. Products sold amount to 13 per cent of its net profit for 2007, he said.

But the potential harm to the reputation of DBS is more serious and harder to calculate. As for Maybank and Hong Leong Finance - which are popular with locals here given that much of their branch networks are in the heartland areas - they too will have to work hard to rebuild trust.

On the other hand, CIMB-GK's gesture is not likely to be forgotten when its sister unit CIMB Islamic Bank launches Islamic banking in Singapore - targeting both the retail and business markets - over the next 12 months.

When the chips were down, and even though it may have been a small thing, CIMB-GK did it right. Ditto for UOB KayHian.

SCMP:Repairing the damage

5 Nov 2008
Joseph Wong Wing-ping, formerly secretary for the civil service, is an adjunct professor at Chinese University of Hong Kong

Last Friday, the Hong Kong Monetary Authority (HKMA) announced it had made available mediation and arbitration services to help resolve compensation issues between investors in Lehman-related products and distributing banks. The Hong Kong International Arbitration Centre will provide the service. The HKMA will co-ordinate referrals.

So far, the HKMA has referred 72 cases to the Securities and Futures Commission (SFC). This number is expected to rise, given that of some 14,000 complaints received by the authority, only 37 have so far been found to be unsubstantiated.

More than 40,000 investors purchased Lehman products involving a total sum of about HK$15.6 billion. Most feel that the banks misled them on these "low-risk" products. Political parties have united to demand compensation from the banks. The matter has become political dynamite and a serious threat to social harmony. Yet, given the complexity of the issue, there is no sign of an early resolution.

To the government's credit, it has taken action. Apart from the offer of mediation and arbitration services, it has secured the banks' agreement to buy back the defunct Lehman products based on the value of the related collateral. The government has also pledged to provide unlimited financial support to the Consumer Council's Consumer Legal Action Fund, so it can take action against the banks where complaints are justified. The council has already selected some 50 cases for further analysis. But more needs to be done if the government wants to demonstrate compassion and fairness in handling the matter.

First, it should draw some lessons from what is happening in Singapore in handling the same problem. Like in Hong Kong, the Singaporean government has urged the distributing banks to discuss and, where appropriate, reach a settlement with clients. But it has gone further, by advising the banks to repay the principal amount in full to those investors aged above 62 (the official retirement age in Singapore) and with less than secondary-school education, on the grounds that these complicated products should not have been sold to them. In Hong Kong, thousands of poorly educated elderly people have lost substantial savings in the Lehman products.

They deserve our compassion and extra help from a government that has pledged to care for the elderly and disadvantaged. If the banks continue to play it by the book, our government should ask the Consumer Council to proceed with the legal cases involving the disadvantaged elderly with the utmost speed.

Second, the government should complete its own review of the respective roles of the SFC and HKMA as soon as possible. Pertinent questions need to be answered. For example, why were these products allowed to be sold to small investors when similar products were only available to institutional investors in the US? Why were they allowed to be named " minibonds " when our chief executive has remarked openly that he did not think they were genuine bonds? Did the HKMA exercise due diligence to regulate the banks? If so, why did the banks sell these products to so many less-educated elderly?

If the government was at fault, it would be better for the chief executive to admit it and make amends, rather than for the Legislative Council to come to the same conclusion after a tortuous investigation. Many people say that taxpayers' money should not be used to bail out losing investors. But, if the government was negligent in its duties, it owes the aggrieved parties an apology or even compensation.

Third, despite the availability of the mediation and arbitration service, the government should encourage the Consumer Council to select a full spectrum of cases, to ensure that the judgments can have a binding or guiding effect on other, similar cases.

Fourth, it is right to use public funds to uphold social justice. The Legal Aid Department handles many cases where the government is the respondent or defendant. The government should, therefore, make it clear that any legal cases taken up by the Consumer Legal Action Fund should not be so limited in scope as to exclude the possible liability of the HKMA and the SFC.

The disputes surrounding the Lehman products have all the attributes of a political storm that may blow some officials away in the government. The recent announcement by one bank that most of its Lehman-linked products are now worthless has driven more investors onto the streets. I am not hopeful that, when banks eventually announce the buy-back value of the minibonds , they will reduce the tension. I fear the opposite.

Many of the elderly buyers of Lehman products are exhausted, desperate and vulnerable. It is important for the government to seize the initiative and take further action; it risks paying a high price if it fails to do more promptly.

US Presidential Election 2008

Lessons for Singapore:
respecting the will of the people and working together as one

Transcript Of Barack Obama's Victory Speech
Listen: Obama's Victory Speech

Transcript Of John McCain's Concession Speech
Listen: McCain's Concession Speech

Advancing the best interest of our people

Contributed by Ho Cheow Seng

My Fellow Countrymen,

We, the Citizens of Singapore, are the best judge of what system of governance suits our Nation best in terms of advancing the well-being of our people. And no, we should not be so arrogant as not to want to look closely at other successful systems of governance with a view to adapting aspects of those systems to our benefit. Only that we need to be well-informed about why such and such a system has worked so well for such and such a country or countries.

The observation has been made that it is those countries in the West, who were former colonisers of countries in Asia, and who robbed lands belonging to others, suppressing the native inhabitants of the lands they conquered, and stealing their valuable resources to fuel the industrialization of the 'Great White Lord's
motherland, who now condescendingly want to teach us how to govern ourselves following their model wholesale.

These were also the countries that once lorded over the great ancient civilization of India, and who also derided China [another great ancient civilization] as the 'sick man of Asia. And these were also the nations that, at the height of their imperialism, imposed, by sheer brute force, the 'right' of extra-territoriality upon the countries they had subjected. And now, lo and behold, they are crusading for Freedom and Human Rights in their former colonies as well as the other countries of Asia.

Have you ever wondered why no Asian countries have ever tried to preach to countries in the West about our Asian values and way of life? Do remember that it was the great Asian and Middle-Eastern nations that gave the world the first great inventions in the various fields of human activities? As the current Chinese Premier Wen Jie-Bao once said in his address to the Chinese People's Congress:"Why should the U.S. and the West be afraid of China's economic re-surgence?" He went on to say that history has shown that China had never harboured any imperialistic ambition and had not occupied an inch of anyone's territory.

And so the West, and in particular the U.S., want now to teach us how to run our countries according to their model of Democracy. Beware of their pulling cotton wool over our eyes. Do you seriously believe there is genuine Freedom and practice of Human Rights in America? May I refer you to Noam Chomsky's "Manufacturing Consent" commenting on the 'eponymous efforts' of the rival political factions in engineering support for their partisan and provincial causes in America where Chomsky is both a citizen and one of its most brilliant thinkers and incisive critics of the American Democracy as well as of the American obssession with Human Rights to the point of being ridiculous in not a few instances.

You know the term 'cultural bananas'? To give you some clue, a banana is yellow outside and white inside. And 'cultural bananas' is the term the great white lords used to pour scorn on the 'Westernized Asians' who were bold enough to speak up to them.

Why do we allow ourselves to be treated this way? Have we no self-respect or do we totally lack the ability to think for ourselves that we should sink so low as to be devotees of everything 'white' and Western? Given our colonial history, many of our citizens are anglophones. This is perfectly fine especially as we are a muti-racial society and we need a common language to facilitate transactions both social and economic among our various ethnic groups.

But please, please, don't ever fall into the trap of taking that one further step to become an 'anglophile' in the misguided believe that THAT would enhance your standing in the eyes of your countrymen and also of the 'great white lords'. If at all, you will in all likelihood be despised.

The late Mahatma Ghandhi once penned a few verses to show his disgust for the Indian worshippers of Western Western culture. He wrote about them in the following vein:

Discarded by the West
And despised by the East,
They stand as living monuments
Of Western adultery.

By 'Western adultery' the Mahatma may be referring to the adulteration of Indian [and likewise Asian] culture by the Western culture. So don't be sold on Western Democracy and Human Rights. Right up to the second half of the 20th Century, Afro-Americans were still fighting their white counterparts to be accorded equal rights. In 1964 [date stands to be corrected] the late Martin Luther King Jr. had this to say:

"I have a dream that the day will come when the children of black slaves and the children of former black-slave owners will sit together at the table of brotherhood."

ML King Jr. may well be more than surprized should he be alive today to witness the very real likelihood of an Afro-American, a coloured man [strange that they don't consider 'white' to be a colour. Perhaps to be white is to be colourless] ascending to the highest post in 'the Land of the brave and the free'; the post, that is to say, of the President of the United States of America.

For all Afro-Americans and all coloured peoples of the world, indeed the wheel has come full circle.

Maju-lah Singapura!

Ho Cheow Seng

"Apparently, a democracy is a place where numerous elections are held at great cost without issues and with interchangeable candidates." - Gore Vidal:

"There are times in politics when you must be on the right side and lose." - John Kenneth Galbraith:

Tuesday, November 04, 2008

Keep sadness and hatred to themselves

Dear Mr. Tan,

I refer to the plight of a small group of investors who uses their CPF funds, namely the SRS retirement fund, to purchase Lehman Brothers minibonds.

I am sure many of these investors were literate in stocks but not sophisticated
enough to understand the instruments used in a complex structure like minibonds especially back in early 2006. In those days when subprime and CDO problems have not surfaced, only Lehman Brothers and maybe the distributors knew how good a product Minibonds are.

And i know several of these investors keeping the sadness and hatred to themselves. Maybe they were literate and they believed in the brochure and had not read further. Some i heard are government servants and they dont want to voice their feelings. I wonder why citizens in First World countries should hide their feelings.

Back in the early launch of the minibonds I and II, retirement funds were allowed to be invested. Shortly thereafter all later series of minibonds were not
allowed to be invested with retirement funds.

Most of these investors receive mailers (like that attached) from the distributors in their letter box. Some of them receive it month after month . Looking at the brochure itself you can tell the strong powerful entities are in bold. The small prints if there is, will refer you to refer somewhere else (you got to get) from the distributors where they will elaborate on the "junk" CDO. The brochure also shows the investor sitting safely on the shoulder of a strong gaint. Isnt all these misleading.

One investor told me, after looking at the quality of the reference entities of the brochure and since he has not invested in bonds before(when most of his investments are in risker stocks), he decided to use his long term old age retirement funds (SRS) to buy some safe bonds. Yes altho he did this all on his own accord but knowing SRS is allowed for minibonds , he was more confident of the product and immediately sign up to purchase the bonds. His intention and objective of using retirement funds are definitely safe and security and long term.

This is definetely not appropriate to allow retirement SRS funds to be invested in something unsafe that can have $0 value. Something totally not right to call quality bonds when they are not bonds at all . A brochure that shows you sitting on the shoulder of a safe strong gaint. That is all totally misleading.

I think a caring government ought to debate on whether this group of investors who are educated but prefered something safe with retirement funds but was misled by the brochure and have kept quiet because they are afraid the government is not happy if they were to voice their opinion. I think we should ask why retirement funds was allowed for bonds I and II and why they were removed for subsequent minibonds and who should bear this responsibility.

Miss W

Tunis, 5 to 8 November

I will be in Tunis from 5 to 8 November. During this time, America will elect a new President. I may not be able to access internet conveniently.

Dr Lan Luh Luh – your further clarification is required.

Posted at request of Richard Woo

Firstly, it is heartening to note that Dr Lan is cognizant, from her own experience [she “talked to some of them on many previous occasions”], that “quite a number” of the financial managers [RMs?] had no understanding of the products they were selling. A good start for you, Dr Lan.

But we do not know how many RMs she had spoken to, on those “many previous occasions”, and whether they were the same persons or different persons. “Some” here can mean two or three only and if Dr Lan had spoken to only two or three people, it would not be accurate to say “quite a number of them did not even understand…” Furthermore, an extrapolation from the past may not be an accurate reflection of the present; the ones she spoke to may not be the ones who are doing the selling today; the latter may be more knowledgeable or better educated.

Secondly, Dr Lan commented: “Although I understand that many of these financial managers are required to go through related financial courses and tests (and that these tests are not necessary easy to clear), the fact that there can be so many alleged mis-selling incidents may indicate that some of these people themselves might not have been adequately trained.” There is no question that mis-selling has occurred, with regard to the so-called structured products linked to Lehman Brothers. Would Dr Lan agree with this statement, taking into account that several distributors have begun making restitution for having mis-sold?

Would Dr Lan also agree that when these products were being flogged to the public, the distributors made no distinction as to whom the products should be sold? In other words they were selling to every Tan, Lim and Chua, male or female, elderly or young, educated or illiterate? Would she agree that some of the sales measures, including promotion advertising material, adopted by some, if not all, distributors were clearly out of sync with the inherent risks of the products? Would she agree that these products were high-risk investments?

I refer now to the last paragraph of Dr Lan’s clarification: “Under these circumstances, the normal investors who are supposed to be savvy and understood the products they bought cannot complain subsequently when the products turn bad. In Lehman's case, actually many might know about the risk (i.e. they may stand to lose all if the banks collapse), but who would have heard of 6 months ago that any American bank, esp. one as strong as 158-year old Lehman, would go into liquidation? This is generally the worst risk -- almost like an unthinkable apocalypse -- and in this case, it materialized. So barring all the talks about misselling etc., people who knew the risk but just thought that it would never materialized cannot complain.”

The last sentence seems to be the lynchpin of the entire paragraph. So, am I right in saying that Dr Lan is not excluding the right of “normal investors” to seek restitution for mis-selling, provided they can prove that they had been mis-sold, through misleading adverts and other misrepresentations made by the RM? Would Dr Lan discount the possibility that any distributor having mis-sold to A could also have mis-sold to B, or X or Y?

Finally, Dr Lan, [1] how do you define “normal investors”? and [2] whether there is anything in law that distinguishes “normal investors” from other investors?

BTW, to all those who have mistakenly assumed Dr Lan as a male, Dr Lan is a “she”.

Richard Woo

SCMP: Regulators have let down investors badly

4 Nov 2008
Frank Ching is a Hong Kong-based writer and commentator.
Chief Executive Donald Tsang Yamkuen talked in his policy address of Hong Kong’s position as an international financial centre and spoke of “ optimising the supervisory framework” as though it were already very good. Alas, one can tell from the protests outside banks in recent weeks by investors complaining about being lured into unsound investments that the supervisory framework is far from satisfactory. In this connection, Premier Wen Jiabao
was much closer to the mark when he called on the Hong Kong government to “seriously learn the lessons” from the financial crisis and “analyse the problems with the structure of Hong Kong’s economy and regulation of its financial system”.

More than 43,000 people have lost money from investing in Lehman minibonds. Mr Tsang said that the Monetary Authority and the Securities and Futures Commission “will examine how to further strengthen the regulatory regime and enhance investor protection”. That is shutting the stable door after the horse has bolted. If banks had been under much tighter supervision, these tragedies could have been avoided.

The SFC, like its counterparts elsewhere, has a code of conduct for banks and other licensed or registered institutions. Its first general principle states that institutions should “act honestly, fairly, and in the best interests of its clients”. Can Hong Kong’s banks say, hand on heart, that they have acted in the best interests of their customers when persuading them to buy a risky product that investors did not understand?

One of the commonest complaints is that investors did not know what they were getting into because banks did not make adequate disclosure. This is in direct violation of General Principle Five, which says an institution “should make adequate disclosure of relevant material information in its dealings with its clients”.

Paragraph 5.3 is specifically about derivative products. This says that whoever provides “services to a client in derivative products” should make sure 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 the products”. Would Hong Kong be in this mess if the banks had abided by this provision?

General Principle Six warns against conflicts of interest. But in a system where banks pay their relationship officers bonuses for making a sale, these employees have a clear conflict between their own interests and those of their clients. What should be done?

According to General Principle Nine, “the senior management” should “bear primary responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper procedures”.

The minibonds issue shows that banks sell risky products to retail customers not meant for them. Under the code, sophisticated financial instruments should only be sold to “professional investors”, a term that is carefully defined. This is a problem the SFC doesn’t seem to be sufficiently aware of. Its chief executive, Martin Wheatley, has been quoted as saying that investors should have ensured they knew what they were buying. If the responsibility is on the investor, what is the point of having a regulatory body?

Under the SFC’s code, a bank needs first to satisfy itself as to whether a client’s financial situation, investment experience and investment objectives make it appropriate to recommend a particular product. Such requirements are waived in the case of a “professional investor”.
Mr Wheatley seems to assume that all bank clients are professional investors. That is not the case. It is why the SFC’s code says banks cannot treat anyone as a professional investor unless he or she agrees in writing to be treated that way, and the client can withdraw from that status at any time. It seems that no one is regulating our regulators.


Sent to me by RW

Is it worth sacrificing 10,000 loyal and trusting customers in order to remain in the good books of greedy Wall Street "investment" banks ?

Instead of fighting for the rights of 10,000 individuals with limited resources, why are we still defending the "mighty" investment banks shamefully bailed out with Billions, actually, Trillions of taxpayer funds all over the world, and yet, some commentators are saying these 10,000 victims should receive nothing ( except for a few "wayang" vulnerable cases ) ?

Is trying to compete to be THE financial hub, when the financial industry is in ruins, causing untold pain on individuals and pension funds, perpetrated by these discredited "investment" banks, holding back the authorities from acting, when in the US, law enforcement agencies have compelled these "investment" banks to COMPLETELY return all money to victims ?

Would moral hazard be NOT an issue anymore as no one in the right mind will touch any financial product ever again ?

Recipe for a toxic financial product ?

Buy cheap sub-prime mortagages. Chop them up. Toss in junk bonds. Blend together for 10 minutes. Chop the mess into smaller, digestable lots. Mix with some respectable names. Ask the Ratings Agencies to dress them up with AAA+ grade. Give them "high" sounding names, like mini-"Bonds" ( Lehman ), "Pinnacles" ( Morgan Stanley ), "High" Notes ( DBS ), "Jubilee" ( Merill Lynch ), etc from "trusted" institutions.

Why have US Law Enforcement Agencies ( FBI, SEC, US Attorneys for Manhattan, Brooklyn and New York State Attorney General , etc ) successfully prosecuted and are presently prosecuting Wall Street investment banks and their ex-top executives, and compel the COMPLETE return of all victims' money ?

By ERIC DASHPublished: August 21, 2008

Three major investment banks — Merrill Lynch, Goldman Sachs and Deutsche Bank — will soon buy back at least $12.5 billion in auction-rate securities and pay $162.5 million in fines as part of separate settlements reached Thursday with state regulators.

In earlier settlements, Citigroup, JPMorgan Chase, Morgan Stanley, UBS and Wachovia agreed to buy back $35 billion of the securities and pay more than $360 million in fines. Several other firms, including Bank of America, are negotiating deals.

Market Discipline and Caveat Emptor

Read the message

Address by Deputy Prime Minister Lee Hsien Loong,
Chairman, MAS
At MAS Staff Seminar
29 October 2002
Market Discipline and Caveat Emptor

22. Our efforts to promote market discipline and a caveat emptor regime have focussed on enhancing the amount, quality and timeliness of information disclosed by institutions. We have shifted from a merit-based supervisory approach to a disclosure-based approach that emphasises market discipline to incentivise financial institutions to conduct their business in a sound, efficient, and professional manner. The local banks in particular have significantly improved their disclosure practices.

23. We must continue to update our disclosure standards in line with industry developments and international best practice. Furthermore, the mindset change is not yet complete. The public still expects to be protected from downside risks, for example when playing the stock market, but more so when depositing their money in banks. Hence one major motivation for introducing deposit insurance is to change this mindset, and get people to understand that only a limited first tranche of their deposits with a bank is protected should the bank run into trouble.

24. But disclosure by itself is not enough. It must be accompanied by investor education. Investors have to understand and use the information provided to them. They must learn to make sense of this information and use it to look after their own interests. We also need a pool of knowledgeable analysts and journalists who will shine the spotlight on any obscure fine print that the lay investor fails to notice. A more informed and sophisticated investor base will reinforce market discipline and form the basis for a more vibrant and mature financial sector. In all these respects, we have a long way to go.

25. Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”

Open Forum with OCBC Bank/Securities


We would like to invite all investors who have invested in the Lehman Brothers Minibonds, Merrill Lynch Jubilee and Morgan Stanley Pinnacle Notes through OCBC Bank/Securities, to participate in an open forum with OCBC.

This invitation is open to investors regardless of whether you have or have not attended an interview with OCBC. We are going to request for Mr Hwang Soo Jin, the independent party appointed by the Monetary Authority of Singapore to oversee OCBC complaints process, to be present at the forum, as we are keen to share our concerns with him.

We have set an agenda for the forum and are extending this invitation to gather as many investors as possible. We believe that with more investors attending this forum, OCBC cannot ignore our request and will consider more seriously the appeal of all affected investors.

Please submit your name (with some proof that you have invested in one of the above-mentioned notes through OCBC Bank/Securities), your email address and contact number to Miss WM , by 7 November 2008.

The date for this forum is not yet confirmed, as we have to arrange this with OCBC. You will be advised when this arrangement is finalised.

On behalf of the
OCBC Bank/Securities Investors' Group

Should financial markets be more strongly regulated?

This debate is conducted by the Economist magazine. 59% of readers are in of stronger regulation. Read the arguments:

Prof Joseph Stiglitz of Columbia University (who obtained 59% support) said,

Part of a new regualtory system must be a financial products safety commission, to make sure that no products bought or sold by commercial banks or pension funds are "unsafe for human consumption". Ideally, such a commission would try to encourage the kind of innovation that would protect homeowners and make our economy more efficient.

Prof Stiglitz was referring to subprime mortgages. His remarks can also apply to mini-bonds and credit linked notes.

MAS has the power to investigate and bring a court action

Posting #68 in

Statement by Mr. Lee Hsien Loong in 2006

25. Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”

In the first Petition signed by 983 investors, there was a call for MAS or CAD to investigate into any wrong doing by the financial institutions that created or marketed the product. So far, there is no news on this matter.

I hope that they will "investigate and bring a court action for market misconduct".

Flaws in financial planning industry

Lehman-linked structured products tragedy exposes persistent flaws in our financial planning industry

Presence of disclaimers in prospectus

Presence of disclaimers on Lehman-linked structured products prospectuses are a poor excuse at absolving financial institutions from blame
Written by Ng E-Jay
03 November 2008

Some discussion has been going around that the disclaimers on the prospectuses of the Lehman-linked structured products legally protect the financial institutions from blame, since those disclaimers clearly state that there is a chance that investors might lose some or all of their money in the event that certain unfortunate circumstances materialize.

For example, a statement on first page of the DBS High Notes 5 pricing statement reads: "If a Credit Event or a Constellation Event occurs before the Maturity Date, investors may lose their entire investment and may not receive any principal amount on the Notes." This statement was printed in bold.

A similar warning was printed on the cover of the pricing statement of Lehman Minibond Series 3: "There will be no guarantee from any entity to you that you will recover any amount payable under the Notes and you could lose all or a substantial part of your investment in the Notes."

And on page three of the same document, it said: "… the Notes are not principal protected nor capital guaranteed".

Is it true that such statements legally protect the financial institutions from blame? Perhaps so. If a collective lawsuit by investors materialize, this point may be challenged in court, and who knows, the ruling might be made in favour of investors.

My contention is that those statements and disclaimers do not morally protect them from blame, even if they do so legally. In other words, the financial institutions have committed a breach of ethics even if they have not committed a breach of law. The presence of disclaimers on Lehman-linked structured products prospectuses are a poor excuse at absolving financial institutions from blame, especially moral blame.

First and foremost, how many investors took these disclaimers seriously, even if they had read them on the first few pages of the prospectuses and they were printed in bold? Most would assume that the financial institutions were merely stating worst case scenarios for the mere sake of legally protecting themselves should the unthinkable happen. It is likely that most investors thought that such extreme scenarios had negligible probability. Did the sales representatives take special effort to mention that such extreme scenarios were not in fact impossible, but could actually occur, and in fact did occur many times throughout financial markets history?

How many sales representatives took the effort to emphasize the potential risks and pitfalls of these products to investors? How many of them made sure that investors knew there was a chance that all their money could be lost, that in financial markets history many banks had indeed failed when a crisis hit? I suspect not many. Most of them were probably too caught up in trying to make the sale that they downplayed the potential risks. Some investors say that the risk of the worst case scenario happening was played down by relationship managers who genuinely believed at the point of sale that the possibility of a credit event was close to zero.
Many retirees were offered the Lehman products even although the products were clearly not suitable for their investment horizon and risk profile. Even if a disclaimer was present in the prospectus that the investor could lose all his/her money, that fact that the product was even offered in the first place to an inappropriate investor itself constitutes mis-selling. This is a violation of the Financial Adviser's Act. This mis-selling is further compounded by the fact that some investors put all their life savings into a single product, in stark contravention of the principle of diversification, which the sales representative should have clearly advised.

However, even if we were to ignore the Financial Adviser's Act, the fact remains that bank sales personnel and financial advisers' representatives are to a large extent held in esteem by retirees and people who are not very well educated, because they are often assumed to be conversant in and knowledgeable about financial products. Some investors have said that they trusted their relationships managers so much that they simply went with whatever was recommended and did not bother to read the documentation.

To offer such a high risk product to these groups of investors and at the same time pay inadequate attention to the potential risks therein constitutes a breach of faith and trust on the part of sales representatives. Worse still, it has been shown that many of the sales representatives themselves do not know the mechanics about how these products actually work, when people actually assume them to posses adequate knowledge and training.

Finally, the strongest reason I submit why the sales of these Lehman products constitute a breach of ethics and morality is because these products are manifestly not suitable for retail investors to begin with, regardless of the risk tolerance of the individual investor. Only institutions and hedge funds should dabble in such volatile instruments like Credit Default Swaps, or invest in such potentially toxic products like Collateralized Debt Obligations with investors' money using large amounts of leverage.

The Financial Adviser's Act does not really address the issue of when an investment product is unsuitable for a particular investor, or for all individual investors. It only covers aspects like proper documentation of a client's financial status and what constitutes due diligence. I call on MAS to expand the scope of the Financial Adviser's Act to address such issues concerning complex financial instruments and structured products, and to enforce much more stringent audits and checks on financial institutions to ensure that due diligence and fair selling occurs at all times.

Indicate price of Pinnacle Notes as at 20-10-08

Prices as of 20 OCT 08 - quoted by OCBC Securities

Pinnacle Series 1 5.60% 5.61%
Pinnacle Series 2 5.42% 5.95%
Pinnacle Series 3 16.24% 16.13%
Pinnacle Series 5 8.82% 8.86%
Pinnacle Series 6 5.90% 5.43%
Pinnacle Series 7 5.65% 5.59%

The prices are very low. Most of the notes (except series 3) have lost more than 90% of their value

Monday, November 03, 2008

Spain Lets Jobless Postpone Half of Mortgage Payments

Nov. 3 (Bloomberg) -- Spain will allow unemployed workers to put off paying half their monthly mortgage payments for two years, Prime Minister Jose Luis Rodriguez Zapatero said today, part of a series of measures aimed at softening the impact of a shrinking economy.

The postponed payments, up to a maximum of 500 euros ($640) a month, will be repaid from January 2011 in installments, Zapatero told a news conference in Madrid today. The measure, which applies to mortgages under 170,000 euros ($218,000), could be used by more than 500,000 people, he said.

While the government will guarantee the payments due from 2011, the banks will bear the cost of the two-year postponement, said a spokeswoman at the Finance Ministry, who declined to be identified in line with policy.

Mis-selling of Lehman structured notes

Lehman Good-for-Retirement Notes Worth Pennies for UBS Clients
By Bradley Keoun and David Scheer

Nov. 3 (Bloomberg) -- UBS AG, Switzerland's largest bank, faces dozens of claims in the U.S. from clients who bought ``100 percent principal protected notes'' issued by Lehman Brothers Holdings Inc. that are now almost worthless.

Six attorneys hired to represent clients in the cases say UBS brokers touted the so-called structured notes as low-risk investments and failed to emphasize they were unsecured obligations of Lehman, which filed for bankruptcy in September. State regulators are fielding so many calls about Lehman's notes they're considering a task force to investigate the sales, said Rex Staples, general counsel for the North American Securities Administrators Association Inc., a group of 67 state and provincial regulators based in Washington.

``The sales pitches were that it's good for retirement accounts, and good for the safe, fixed-income part of people's portfolios as an alternative to owning stocks, because it's less risky,'' said Seth Lipner, a lawyer in Garden City, New York, hired by two holders of Lehman notes sold by UBS, including a 65- year-old accountant who says he lost $1.4 million in retirement savings. ``Of course, it turned out to be more risky.''

Any awards for investors would add to the financial industry's burgeoning costs for compensating individuals who bought supposedly safe investments that crumbled in the credit crunch.

Banks and securities firms, including Zurich-based UBS, Citigroup Inc. and Merrill Lynch & Co., already have had to swallow more than $3.6 billion in fines and market losses on auction-rate securities they had to buy back from clients under orders from the U.S. Securities and Exchange Commission and regulators in New York, Massachusetts and other states.

Million Dollar Round Table (MDRT)

Dear Mr. Tan
I am JC from Malaysia. I am currently only doing Unit trust. Can my Unit trust sales performance be used to obtain the MDRT status?

I suggest that you ask the MDRT organisation. I think that the qualification is based on first year commission from the sale of any financial product. So, the answer is likely to be "yes".

But it does not matter if you are not MDRT status. It is more important for you to give good advice for the financial well-being of your clients, and still an adequate, though modest income.

Clarification from Dr Lan Luh Luh

Dear Mr Tan,

With regard to my comments on "Structured Products: Let's not forget about personal responsibility" in TODAY on 2008/10/30, I would like to clarify that I was asked to express my views on our PM's statement on the two approaches the government can take after the debacle on structured products and the general duty of investors themselves. I was not asked to comment on whether there was any alleged mis-sellings or misrepresentations by the banks or their agents nor whether the banks had covered themselves adequately, which are separate issues altogether.

In addition, for the investors, I was talking about the normal investors and not our senior citizens whom I even mentioned to the reporter that the government can consider imposing a total ban or at least some form of restriction on the selling of such complex structured products to them. These senior folks will never understand the complex intricacies of these products no matter how many times you explain to them. It was also in that context that I mentioned that I never invest in things I don't understand, because many of these structured products are really, really very complex and they vary from one to another and no two products are the same (well, this part was omitted from the report:-).

As for whether I agree with PM's statement on the two approaches our government can take after this debacle, one which is essentially going for more regulation and back to the paternalistic or merit-based regime or the other which is the current disclosure-based and less regulation regime, my comment was that I do not think that a general increase in regulations is the way to go and I would advocate for the current regime to remain as this is the only way we can move forward. More regulation will only make us less competitive in comparison to HK and other developed markets.

However, there can be regulation on a need basis esp. on the protection of the older folks who may not be financial literate. That said, in order for a disclosure-based regime to be effective, the government has the duty to ensure that there are more enforceable laws on disclosure such that there is increase transparency and more information flow to the public. In addition, banks and the financial industry have the duty to educate the general public as to the products they are selling. The key points I emphasised are disclosure and education.

I also mentioned that there should be more stringent requirements as to the qualifications of these financial managers -- from the Lehman episode, it can be seen that quite a number of them did not even understand the products that they were selling (which was what I found out as well when I talked to some of them on many previous occasions).

I told the reporter that for the selling of highly sophisticated engineering or medical equipments, we general require trained engineers or qualified medical personnel to sell them. It should therefore be the same for sophisticated financial products. Bank and financial institutions should only hire business or accounting graduates or at least graduates who have the requisite financial literacy rather than fresh graduates from disciples with no prior financial education to sell these products.

Although I understand that many of these financial managers are required to go through related financial courses and tests (and that these tests are not necessary easy to clear), the fact that there can be so many alleged mis-selling incidents may indicate that some of these people themselves might not have been adequately trained.

Under these circumstances, the normal investors who are supposed to be savvy and understood the products they bought cannot complain subsequently when the products turn bad. In Lehman's case, actually many might know about the risk (i.e. they may stand to lose all if the banks collapse), but who would have heard of 6 months ago that any American bank, esp. one as strong as 158-year old Lehman, would go into liquidation? This is generally the worst risk -- almost like an unthinkable apocalypse -- and in this case, it materialized. So barring all the talks about misselling etc., people who knew the risk but just thought that it would never materialized cannot complain.

Warmest regards,

Luh Luh

Bank claims to be "order executor"

Dear Mr Tan,

I have attended interviews with OCBC Securities( on Jubilee Notes) and ABN AMRO (on Minibond) and the interviewers are using the argument that they are acting as ”Order executor” for customer and thus exempted from giving financial advice as required by Financial Advisers Act. If FI who are distributors of these products can claim such immunity when the products they sold are more risky than insurance or unit trusts, then this is really an unregulated product and the FI are trying to push the responsibility back to MAS.

It is like allowing Chinese medical Hall to sell prescription drug without a licensed Pharmacist but the same drug when sold in Pharmacy must be supervised by Pharmacist. The consequence is disastrous!

I hope you can publish this in your Blog so we can have more reader input on this argument from FI and also confirmation from MAS.

Thank you,

Petitions on Structured Products

Petition #1 had 983 signatures
Petition #4 had 1,017 signatures.
What is the significance of both numbers?

Fortnightly Meetings at Speaker's Corner on Structured Products

The schedule of meetings will be:

Saturday 29 November, 5 to 7 p.m.
Saturday 13 December, 5 to 7 p.m.
Saturday 27 December, 5 to 7 p.m.

Apart from the structured products, there will be other speakers talking on other issues relating to life in Singapore.

Watch for further announcements.

Open Forum with UOB Kay Hian


We would like to invite all investors who have invested in the Lehman Brothers Minibonds, Merrill Lynch Jubilee and Morgan Stanley Pinnacle Notes through UOB Kay Hian (UOBKH), to participate in an open forum with UOBKH.

This invitation is open to investors regardless of whether you have or have not attended an interview with UOBKH. We are going to request for Mr Hwang Soo Jin, the independent party appointed by the Monetary Authority of Singapore to oversee UOBKH complaints process, to be present at the forum, as we are keen to share our concerns with him.

We have set an agenda for the forum and are extending this invitation to gather as many investors as possible. We believe that with more investors attending this forum, UOBKH cannot ignore our request and will consider more seriously the appeal of all affected investors.

Please submit your name (with some proof that you have invested in one of the above-mentioned notes through UOBKH), your email address and contact number to Mr Ang Soo Cheng at by 5 November 2008.

The date for this forum is not yet confirmed, as we have to arrange this with UOBKH. You will be advised when this arrangement is finalised.

Jimmy Liaw
On behalf of the
UOB Kay Hian Investors’ Group

Send your views directly to MAS

Mr Tan

I am the investor of both highnotes and minibonds. I strongly feel that we are the sacrified losers of these unethical financial products which are allowed to be named as "bonds". We are also misled by the rep of the financial institutions that these products were "approved by MAS" and hence they are "safe" and "low risk".

MAS should adopt a more critical view on these "rotten" products and insist on the followings:

1. All the products should label thier risk factors clearly, ie the consequences investors have to face in case there is a financial crisis occurs. In simple language ,investor will stand to loss how much at the end of the redemption.

2. All the products, like other stocks, should give periodical reports and reviews on the linked institutions. They should give proper advise or alarm to the investors so to let them understand the facts and make decision for early redemption or not. Other words, they should not cover up the facts and tell investors that the products are "safe".

3. MAS and the Banks have duties to look after the interest of the investors, not just to achieve the target of selling the products and make
profits out of the selling.

I suggest that you write directly to MAS. You can also get a few investors to sign a collective letter.


New swap counterparty to replace Lehman Brothers

Many investors asked for my view about the new swap counterparty that will be appointed to replace Lehman Brothers. Will they be able to get their money back on the maturity of the mini-bonds?

My reply: It depends on the series of mini-bonds.

The risk of the mini-bonds come from the following sources:

> failure of any one of the reference entities
> failure of the underlying assets (CDOs or other assets)
> failure of the swap counterparty

If you have invested in the earlier series of mini-bonds and many of the underlying assets have already failed, you may lose all of your money when more of the assets failed in the future. You will also lose your money when any one of the reference entities failed.

If none of these events happened, you may get back part or all of your investments (depending on the value of the underlying assets at that time). There is no guarantee that you can get back 100% of the invested sum, as the bonds are "capital protected" but not "capital guaranteed".

Read this:

For the newer series of the mini-bonds, the loss in value now is quite small. When the new swap counter-party is found, you can sell the mini-bonds at its current market value (hopefully, the loss is less than 20%). If you do not wish to take the risk, you can take the loss now.

If you have been mis-sold, you can ask the financial institution to buy back the mini-bonds at your original price

Adolf Hitller complains about the ERP and MRT

By courtesy of Loh Hon Chun:
Even Adolf Hitler complains about the ERP and MRT in Singapore.

Sunday, November 02, 2008

Buy a property that you can afford

How much should a person pay for a property? This is an important question. So far, there is no guide on this matter.

When property prices goes up, too many people spent too much money on buying a property thinking that it will go up forever. When the property prices reach a ridiculous level and falls from there, it can cause a lot of problem to the financial system.

I suggest that the limit should be:

> 7 years of the breadwinner's income
> 5 year of the combined family income

If one spouse is working with an annual income of $40,000, the limit should be $280,000. If both spouses are working with an annual income of $70,000, the limit should be $350,000.

In working out the guideline, I have taken into consideration the percentage of income that goes to service the housing loan, the repayment period of 30 years and the long term level of interest rate, and future increase in earnings.

I hope that this gudeline is useful for most people You should not exceed the limit. It is all right to buy a property below this limit.

How to manage a crisis

NTUC Income is different today

Dear Mr Tan,

I will not buy anymore structured products or anything sold by financial institutions after this lesson. I wished I had seek your advice two years ago.

But you also mentioned don't invest in whole life, endowment, policies, etc. I don't understand what you mean? I had total 8 policies with Income and all bought when you were CEO. Can you explain please?


I also had 15 whole life and endowment policies over the years from NTUC Income, covering me and my family members. These policies offered good bonuses and a fair return on maturity in the past years.

Today, things are different. Income is now run on different principles - quite similar to the other insurance companies. I have decided to cancel a whole life policy, where the bonus has been cut.

I will decide on the other policies later.

Upset investor share bad experience with bank

Mdm Ng speaks at Hong Lim:

How to track all comments on my blog

Mr Tan,

To track all comments on your blog, one could subscribe to this feed:

To track comments to a particular post in your blog, the feed url can be found at the bottom of that post.

Once you've the feed url, you can read it using any feed reader. The most popular feed reader is Google Reader:-

1. Go to
2. Create a Google account if you do not have one
3. Click "Add Subscription"
4. Enter the feed URL

On Internet Explorer, entering the feed url directly into the address bar will allow you to see the feed.


Political ambitions?

Some people commented that I have political ambitions. This question has been raised by journalists before. I have given my replies here:


Today paper

I am already 60 years old and have more than enought savings to take care of my future needs and my family. I do not need to have "political ambitions" for my personal benefit.

I will continue my efforts until the mis-selling of the structured products is resolved satisfactorily.

Intention to deceive?

Comment posted in my blog

Being a victim of Minibond, I can't help but to suspect:

(1) swap ctt, reference entities are just smoke screens to divert our attention from the underlying securities, CDO

(2) could the real purpose be: to get rid of the toxic CDO?

If above suspicions are true, then the intention to deceive starts from the product design stage! We will have a strong case to demand compensation, whether in FIDRec or Court.

Only the authorities have the rights to open the records/ correspondences in the arranger & issuer, & determine whether (1) & (2) are true or false.

If true, bring the culprits to Court on behalf of the investors! If false, at least the investors know the truth.

I'm pinning my hope on HKMA and MAS.

Key features of structured products

I want to thank Goh Meng Seng for helping me to translate my speech into Chinese at Speaker's Corner.

Meng Seng has also the key features of the structured products in English and in Chinese in his blog.

I invite you to read them:

Reply to "Risk listed in bold"

Dear Kin Lian,

This is in response to the article captioned “Risks listed in bold, but ….Investors went ahead despite clear warnings”, by Lorna Tan [The Straits Times, Oct 31].

The nub of the issue here, Lorna, is about misrepresentation of risks, not about the risks stated in the Pricing Statement [PE]. You appear to be someone with a fecund imagination; you imagined all these investors were given the PE in advance or at the point of sale and after reading the PE and despite understanding the risks involved they still went ahead and invested. Right, Lorna, that was what you were saying or trying to project? Have you researched in these areas?

1. How many of these investors are what is now being termed as “vulnerable people” [illiterate people who cannot read or understand English]?

2. How many of these investors are elderly people who may not be illiterate but who nevertheless cannot understand the complexity of the text given in the PE?

3. How many of these investors were actually presented with the PE and asked to read it before the decision to invest or not to invest was even considered?

4. How many of these investors, if any - assuming the PE was not produced during the discussion with the RM - were cautioned by the RM that they would risk losing all their principal?

5. Do you still seriously think that if investors had been specifically told that they would risk losing all their money they would still have parted with their money, which for many was their life’s savings, their retirement kitty?

6. Have you not heard talk that some investors visited their banks wholly ignorant of the sale of these supposedly high-yield structured products but they were persuaded nevertheless by the RM to uplift the funds from their fixed deposits and invest them in these products?

7. Have you considered the possibility of the RM putting the cart before the horse, by performing a risk-tolerance analysis after he and/or his distributor-organization had made misrepresentations about the nature of the product they were flogging, and after the investor had already been persuaded by such misrepresentations [or lies] to invest?

8. Have you wondered whether the risk-tolerance analysis undertaken by the RM can be taken at face value? Some investors can recall that in their case the assessment was done hastily and carelessly by the RM, and they can prove it.

9. And why, despite seeing the investor as having an aversion to risk of loss of capital, the RM still went ahead and closed the deal, instead of telling the investor: “This product is not suitable for you”?

10. Have you taken a look at the advertising materials of the distributors, particularly the one for Minibonds Series 3 with these enticing statements: “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.”

11. You pointed out the inherent risks of DBS Bank’s High Notes and Lehman’s Minibond series and it is obvious you are equipped with an imaginative mind for understanding such risks and would not have been caught with your pants [maybe, skirt is more appropriate] down through investing in either of these products – but would you argue that it was not irresponsible for any distributor to sell these products to illiterate, hence vulnerable people, let alone distribute misleading advertising materials? Or

12. Would you agree that it was a gross dereliction of responsibility on the part of the distributors or their RMs in failing to make clear to investors that by investing they would be assuming a big risk – of losing their entire principal?

13. Would you agree that the promotion gimmicks employed by distributors were profoundly at odds with the high risks inherent in these structured products? If your answer is yes, then it is regrettable that you have made no mention of this in your article.

14. Would you agree that your article is nothing but half-truths, prejudiced in a certain way, and jarring, and a hindrance to investors, numbering about ten thousand, who are now trying to recover from the distributors?

15. Would you agree that investors who have been mis-sold are now eminently reasonable in seeking restitution from the distributors?
Dear Lorna, please let us have your response to these questions, and without any equivocation, please?

Richard Woo

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