Saturday, November 15, 2008

New swap counter party to replace Lehman Brothers

Many people asked me if a new swap counter party is found to replace Lehman Brothers, will they get their principal back on maturity (i.e. the full sum invested in the minibond)?

The answer is "I don't know". The investor still has to face the following risks during the remaining term:

> default of the 6 reference entity
> default of the underlying assets
> default of the new swap counter-party

For example, Morgan Stanley is the swap counter party for Pinnacle Notes 9 and 10. They are still intact. The reference entities under these notes have not defaulted. However, 5 of the underlying assets of these notes have defaulted. These notes now have zero value.

The fate of these pinnacle notes show that the minibond still have many risks down the road, even if a new swap counterparty is found.

God help the righteous

Hi Mr Tan Kin Lian

Our family and friends are very appreciative of your good cause and perseverence to fight for justice for the oppressed. We thank God for your righteousness.

A few key things I would like to summarize here after a long episode of struggle since the fateful day of 15 Sep 08 of Lehman collapse for "a just and fair" resolution resulting in nothing but a fatal rejection. This case is "DBS" High Notes 5 mis-selling.

We feel so helpless and victimised because the product was a DBS product sold as a very safe and low risk product like a FD but later turned out to be such a complex product that we do not even understand, and how is it that we became the "insurer" of the bank?

I wrote letters to the CEO and MD of Consumer Banking, copied MAS and FIDReC. There was no reply to specific questions asked, including:

- The 31 Mar 08 letter to investors from Brandon Lam of DBS which "emphasise that none of the DBS High Notes has any direct exposure to US subprime mortgage-backed securities." Why did this contradict the event of Lehman Brothers.

- The 31 Mar 08 letter to investors from Brandon Lam of DBS stated that "it would take several underlying reference entities in the collateral to suffer Credit Events before investors suffer a loss to their principal amount." Why did a single event of Lehman Brothers lead to zero redemption when there are 8 reference entities?

- The 27 Jun 08 letter from Brandon Lam of DBS urging investors to hold "DBS" High Notes as he said "DBS High Notes are designed to be held to maturity". Why DBS did not uphold its due diligence to safeguard the investment of the people but misled us to hold the funds and later turned around and said that it's zero value? This is "DBS" High Notes, carried under its name.

- Why there is no explicit and clear explanation of the risks associated with this product during sales?

- Why pricing statement and prospectus were not given and explained during sales?

- Why did the RM still claim the product is low risk but the MD admitted that it is high risk in the scale of 8 out of 10?

- Why the product is so complex, yet the RM thought that it is a simple FD kind of investment?

MAS remains on the sideline without any comments. They said they cannot be involved in getting the bank to compensate for the loss or mis-representation. They said they can fine and warn the bank for wrong practice, but we lost our hard-earn money for them to correct their processes and practice?

We are not financially nor legally trained. We wish to know why the authority is also so helpless towards such mis-selling of a financial product that impact so many people.

God help us. For the eyes of the Lord are toward the righteous and His ears are open to their cry. When the righteous cry for help, the Lord hears and delivers them
from all their distresses and troubles.

You see, the Lord is close to those who have a broken heart, and saves such who are crushed with sorrow and are humbly penitent. We claim this promise. Amen.


High risk is not disclosed in Prospectus

Dear Mr Tan,

I am one of the Pinncle Note investors. As I am working in a Financial Institution, I can't be considered as a vunerable group. But honestly, I am not aware of the extremely high level of risk associated with such notes. The risk of default is way beyond the basket of blue-chip reference entities.

I received a letter from the bank that I bought the note, together with a letter from Pinncle Performance Limited informing that credit rating assigned by Fitch has been downgraded to "B-" (Rating Watch: Negative) due to the credit events occured in respect of Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Glitnir banki hg, Kaupthing banki hf and Landsbanki Islands hf.

When I bought the note, I was told that the note is credit-linked to these reference entities: Standard Chartered bank, HSBC Bank PLC, Bank of China Limited, The Korea Development Bank, Malayan Banking Berhard, DBS Bank, United Overseas Bank Ltd.

I am really surprised to see Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Glitnir banki hg, Kaupthing banki hf and Landsbanki Islands hf. appearing on the letter.

I looked through the Base Prospectus of the notes dated 7 Aug 2006 and I can't find the above toxic entities mentioned.

Is this sufficient ground to argue that the arranger or the FI has misold the product or have not fully disclosed the details of this products? Not sure how many other such toxic entities are associated with the notes. I would certainly have thought twice if the risk is beyond the 7 blue-chip banks as mentioned in the brochure.


I believe that you have sufficient grounds. I suggest that you prepare a statutory declaration to support your complaint. Read the instructions in my blog:

High risk of credit linked notes, inadequate return

Dear Mr. Tan,

Here are a few pointers you may want to use in your talk on Saturday about investors going in with their eyes open.

Any rational person if he is made aware of the risks in the Minibonds will never but it for the simple reason that the interest rate is only 5% compared with dual currency and equity Link investments which offers up to 22% with lower risks. In the worst scenario we just have to be converted to the foriegn currency or pick up the normally blue chips share. The risk is certainly less than that of minbond.

In short, we were hoodwink and MAS who is supposed to safeguard its citizens have allowed this toxic product to be sold through their negligence or ignorance. I have been told by unconfirmed sources that a certain rating agency refuses to rate the credit linked notes, but they received veiled threats.

I am quite sure the town councils who lost money did not understand what they were buying but are too embarassed to say so. After all it not their money but the taxpayers.

Keep up the good work


Retrenchment Loan

DBS Bank has announced that it will retrench 900 employees. More than half will come from its operations in Singapore.

Many companies in Singapore are expected to retrench their employees in the months ahead, following the slowdown in the global economy. Analysts expect that the number will exceed the 30,000 people retrenched during the Asian financial crisis in 1998.

Singapore does not have an unemployment insurance scheme. The retrenched employees will find it difficult to find alternative jobs. They are likely to be unemployed for several months or years.

I wish to suggest that the Government set up an Unemployment Loan scheme to provide a monthly payment to the retrenched employees. I propose this scheme to work as follows:

a) The amount of loan will be at 70% of the average earnings, subject to a cap of $2,000 a month
b) Interest will be charged at 2.5% per annum
c) The loan will apply to a worker who has been retrenched from a job that he has worked for more than 12 months.
d) The loan can be drawn for up to 24 months from the date of retrenchment.
e) Any retrenchment benefit received by the worker should be used first, before the worker is allowed to draw down on this retrenchment loan.

This loan will enable to retrenched worker to meet the mortgage repayments and family expenses. It has to be repaid in the future, when the retrenched worker has found a job. Any unpaid balance of the loan will be recovered from the Central Provident Fund savings of the worker.

This is similar to the Unemployment Benefit operated by many countries - with one key difference: the proposed scheme provides the monthly payment as a loan that is repayable at a modest rate of interest. The retrenched employee who needs money does not have to rely on credit cards and loan sharks that charge a high rate of interest.

Complexity of Credit Linked Notes

Dear Minister Mentor

An investor asked me to send this letter to you. I hope that you can find the time to read it. Thank you.

Dear Mr. Tan

I do not understand how MM Lee has come to conclusion that Minibond investors invested with their eyes open. Many financial experts have expressed their views that the minibond products are too complex for any ordinary investor to comprehend. The following are quotes from the financial experts:

1. Mr. R. Sivanthy, business times senior correspondent : (Straits Times 20/09/08) If you want a front-row lesson in first-class financial obfuscation for structured products, then look no further than the way the recently collapsed Minibond Series 3 notes were packaged and marketed.

Up to $200 million of these notes were sold to a gullible public who probably thought they were buying a five-year bond issued by six leading banks that paid a 5 per cent coupon per year, but were in reality not only exposed to the United States housing market but also to a complex credit default swap arrangement whose substantive party was the now-bankrupt Lehman Brothers.

Moreover, while it is possible to piece together the actual substance of these notes from the documents available, it is a tedious process and arguably not within the ability of the average retail investor.

Finally, if disclosure was weak, then so was knowledge among distributors. Some brokers did not understand the true nature of the instrument and sold it as a bond. Maybe the name had something to do with it, though as investors have now found out painfully, what they had bought was not a bond but a convoluted swap-based instrument.

2. Mr. Tan Kin Lian, former CEO of NTUC Income (Weekend Today, 04/10/08)
Mr. Tan interest in such credit-linked securities did not come about only now. It began when they first appeared on the market two years ago. With the help of another financial analyst, he had studied such products closely. The complex way in how these products were structured baffled him.

When financial experts who spent many hours to read the prospectus could not figure out what the structure was. How can you expect the general public who were sold these products to understand the risk that they were taking?

Even Mr. Tan was shocked with extent of the risks involved. “I became horrified to learn the true nature of the structure and the extent of the high risk”

3. Professor Ivan Png, National university of Singapore (Sunday times 26/10/08)
The Lehman bankers who designed this products were not only smart in finance, they were also geniuses in marketing. They gave the name “Minibond Limited” to the special purpose vehicle that issue the notes. So the shorthand name for the credit-linked notes issued by Minibond was simply “Minibond”. But of course, the notes were not bond at all. It took me quite a few hours to pieces together an understanding of the structure notes from the pricing statement.

I cannot guarantee that my understanding is complete and you may not rely on it as I am not a financial adviser.

The other condition is more difficult to understand. According to the pricing statement, the synthetic CDO was some how based on a portfolio of 150 securities and the value of the CDO depended on those securities.

The pricing statement did not disclose the identities of the 150 securities referenced by the synthetic CDO.

Complex? Absolutely.

4. Associate Professor Low Buen Sin, Finance at Nanyang Business School. (Sunday times 26/10/08)
Are structure products very complex instruments? Yes, they can be. Some structured products are not easy to comprehend even for very seasoned wealth managers. Let us use credit-linked structured products that are similar to Minibond and Jubilee Series 3 as an illustration of the level of complexity that it can get to.

5. David Gerald. SIAS’ president and CEO (Weekend Today 2/11/08)
While some of the conditions are straightforward, understanding the entire 54-page document requires advice from a professional.

It is clear that having considered the document in it totality, that the structured products in question are not suitable for ordinary small investors especially for the “vulnerable group” unless they have sought professional advice or understood the prospectus and the document.

6. Associate Professor Lan Luh Luh of the National University of Singapore’s Department of business policy. (Clarification from Dr Lan Luh Luh 03/11/08)
I mentioned that I never invest in things I don’t understand, because many of these structured products are really, really very complex.

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 I found out as well when I talked to some of them on many previous occasions).


Be careful if you wish to redeem your credit linked notes

Dear Mr Tan.

I brought $X pinacles note 15. I have complained to F1 for mispresentation , but received a negative reply.

Thinking of putting the all matter behind because I have seen little actions done postively, I decided to cut loss.

I went to direct to the bank. They give me the email price of 84.75% as pricing today at 2pm. Beside I have an sms from business manager with the same pricing. I signed the forms and they do not allow me to put the pricing. They give me the assurance that there will be little changes to it.

In the evening,they called and tell me nicely they have sold it at 76.76 % as a bad news. No explanation are given , they only sympathise with me.

Yes, the only alternative to complain again or sue. I wonder what the banker have become? I getting very tired.

Please be very careful if anyone wish to made redemptions. Dun trust banker 's words anymore. Make sure the pricing are written black and white.


A unit trust also adopt the same practice - they given an indicative price and calculate the actual price at the close of the market. The is called "forward pricing"

But tjhere is a big difference. The forward pricing adopted by the unit trust is based on the actual closing price of the underlying shares. It is possible to audit the forward price to be a fair price.

In the case of the forward pricing of the credit-linked notes, there is no such transparent process. We do not know how the bank calculate the forward price to redeem the contract. If there is a drop of 8%, it could be profit of the bank that bought the credit linked note from the investor. If so, this will be grossly unfair.

I suggest that the investor should make a written complaint to the bank and ask to receive a written explanation. You can bring the case to FIDREC.

Friday, November 14, 2008

Banker fill up complaint form, but did not disclose the content

Mr. Tan

I submitted a letter of complaint regarding my pinnacle notes and I was told to fill up a feedback form. As usual I ask the banker how to fill up the form the banker just told me to fill up my name and he will fill up the rest.

Honestly I do not know what is written in the form and he told me is just a routine and the bank will get in contact with me soon. He didnt bother to explain the details to me.This is the same scenenio when I signed those risks assessment forms during the sales of the structure products.

I was told that there will be an early redemption (not due to credit event of reference entities) of the pinnacle notes series 10 and the return of my investment will most likely to be zero.

I ask why and I told him I dont believe the basket of notes or secuities worth nothing. The explaination given to me was that when the notes went into liquidation, the money will first be paid to the reference entities and the remainder then to the investors.

I do not understand why should the reference entities get the money instead of the investors.The money come from the investors and the reference entities are getting the money instead.It is not logical and I do not believe anyone even a small kid will invest in this type of product if it was properly explained.

To me this type of product was meant to fail at a start as a failure will benefit the others except the investors. It was designed to cheat investors of their money!

I also had an interview with one of the FI recently and I bluntly told them do not threatened me with the risks disclosure form that I have signed. I told them the risks disclosure forms that I signed was according to the risks that was told to me by the RM and not those hidden risks that was unknown to me.

Saddened Victim.


I suggest that you should prepare a statutory declaration to support your complaint. This is explained here:

Structured products linked to Lehman Brothers

Contributed by Richard Woo

Let us recap the salient points and the parties involved, and issues/questions of relevance that appear vague and for which we need clarification and further information:

[1] Monetary Authority of Singapore [MAS]
MAS is the party at the top of the rung and it was MAS which gave approval, wittingly or unwittingly, for the sale of these toxic products to the public. And since MAS gave approval for their sale, MAS cannot now accuse the distributors for selling them.

The Prime Minister in an interview he gave to journalists on Oct 26 is reported to have said, inter alia, .. "In this case the Lehman Minibond Notes or DBS High Notes or ML Jubilee Notes were clearly not low-risk products." …

If they were not low-risk products, can they be considered as high-risk products, then, or, more appropriately, products with risks of robbing the investor of his capital, risks that were evidently sky-high and inappropriate, and absolutely incompatible with a meager return of a paltry 5% pa coupled with freezing of principal over a long period of five to six years?

MAS, it seems, can only point the finger at any distributor that has "mis-sold" or committed a legal breach. However, ten thousand investors have lost in total about half a billion dollars – and that's a lot of money; some of this money came from their retirement kitty, and for some it was their life-long savings.

In at least one product, there is clear evidence of mis-selling or making misrepresentations of the risks. If a distributor has misrepresented or lied to the investors, then there can be no justice in saying that investors did not enter with their eyes open; it would be an act of prejudice to blame investors by saying they should have invested with their eyes open; caveat emptor can in no way be introduced as a principle of fair play if one party has lied or misrepresented.

It is indeed strange that MAS has had no qualms telling investors poisoned by these toxic products: You were greedy. MAS is still investigating and exploring and that's laudable, but the comment about investors being greedy has no basis in fact and must be openly refuted or repeatedly refuted if necessary. If concerned MAS officials have a conscience, they would do well to examine it.

[2] "Vulnerable" group of investors – question for MAS/distributors
Would MAS or distributors please define the terms "vulnerable" and "non-vulnerable" and provide details of the criteria for distinguishing vulnerable from non-vulnerable?

Questions for MAS:
[a] Is it fair to leave it to each distributor to make the initial decision to compensate or not to compensate?
[b] Would it be fairer to consider, based on availability of evidence including but not limited to, advertising materials, internal procedures, risk-profiling of individual investors, as to whether any distributor was clearly guilty of mis-selling, or misrepresenting the risks involved?
[c] Would it be rational to think that distributors would admit liability to an investor who in their opinion is not among the group classified as "vulnerable"?

[d] Would it be unreasonable to say that if a distributor had mis-sold to Ms A or B it had in all probability also mis-sold to Mr X or Y?
[e] Would it be fairer to hold any distributor fully accountable to all their investors if they have mis-sold or misrepresented?

[3] Risk-profiling or analysis

Questions for distributors:
[a] What was the point of performing a risk-analysis?
[b] Was the risk-analysis performed in an objective manner?
[c] Would you agree that the risk-analysis was never used to determine whether an investor was suitable for the product concerned?
[d] Would you agree that you were selling a highly toxic product?
[e] Would you agree that any claim that you were merely acting as "order-executioner" cannot be meaningfully supported if you were uttering lies with abandon relative to the product, via print advert or otherwise?

[4] RMs
Can any of the RMs selling these structured products be said to be non-bilingual? To find out we need to see their CVs or ask their friends or family members. To be sure, many people in Singapore, especially the younger set, are bi-lingual.

Can it be rational to argue that an investor conversing in Mandarin, or in a vernacular other than English, with the RM is "vulnerable" but another investor discussing in English is not? But the crucial thing is: Did the RMs explain the risks of the product they were selling to the investor? Did they perform the risk-analysis diligently? Did they ask the questions concerning the risk-profile of the investor upfront, at the commencement of the discussion? Did they point out the risks spelt out in the so-called Pricing Statement?

Was a copy of the Pricing Statement handed out to the investor? Some investors have no hesitation making the claim they were not given a copy and that they did not even know what it was all about. According to some investors I spoke to, the RMs who attended to them spoke mainly about the merits of the product, for example, the interest yield, the quarterly interest payment, the link to highly rated financial institutions, the names of these institutions, and misrepresented by saying the investor would get all his/her money back if the investment were to be held to maturity.

Some investors have reviewed the risk-analysis form completed, in a hasty and careless manner, by their RM and noticed that although they were categorized as a low to mid-range risk investor, the RM did not tell them that the product was not suitable for them. I can see from the "tick-marks" completed for two investors that the information given in some areas was inconsistent or contradictory.

How many of the RMs, if any, really understood the contents of the Pricing Statement? It is obvious that people like MM are looking only at a small area of the picture. A complete analysis needs to take into account all the factors involved. Has any distributor or their RMs contravened a legal enactment, for example, the Financial Advisers Act? Any investigator seeking truth cannot avoid looking into this area. In the context of the scenario before us, would MM or MAS consider the use of the term "minibonds" as something innocuous, coincidental, or as something more than that, as part of a carefully hatched-up scheme, a scam perhaps, to fleece members of the public?

[5] Questions for Fidrec:
[a] What are your standards or criteria for making judgment on cases referred to you?
[b] The number of Fidrec staff involved in reviewing each case?

[6] Plausible entry of new swap counterparty to replace Lehman Brothers [Minibonds].
Distributors who have advertised "invest on solid foundations" and/or "invest with peace of mind" ought to take over as the new owner of the investment, with or without the new swap counterparty arrangement. Since they have misrepresented, through print advert and, plausibly, via verbal input from their RMs, they can be seen as having mis-sold or misrepresented, hence they should not shirk from their mistakes or responsibility; they should act honorably by returning investors their principal minus what the investors have received in terms of interest payment.

[7] Statistics – Request to MAS:
For the benefit of the investing public, please publish in the newspapers statistics covering data [in table form] linking information as follows:

Type or name of structured product, Name of Distributor, Total amount invested, Total number of investors, Number of "vulnerable" investors, Number of vulnerable investors if any who have been compensated and Number of "non-vulnerable" investors if any who have been compensated

[8] Future/present
It's all very well to think about the future by talking about revamping the industry, introducing tighter control measures, overhauling sales tactics etc but there is no future when the present is not taken care of. We all need to be mindful of the present; we need to be aware of the dire situation in front of us: an "explosion" has occurred and injured people are lying everywhere. Let's take care of all the injured before planning our next move.

Richard Woo

Why You Need to be at Hong Lim Park Tomorrow (15 November)

Message from betsybug

It's coming to five weeks after our first rally at Hong Lim Park. In that time, much has been achieved by us all - we have come together and we are now more organised as a group, and we know better some of the true nature of this perverse product DBS has sold us. Some have gotten a form of redress from DBS; the bank has been forced to make some grudging admissions, and they have relented by holding dialogue sessions with us.

But for the vast majority of us, we are no nearer a resolution. Much has been achieved, but much more needs to be done.

We must see this contest between us and the bank as a marathon race. We must see that it is a not dash of a hundred meters, for we cannot finish a marathon if we try to sustain the speed of a sprint race. So, we must learn to live our everyday lives, do our work, spend time with our families, take care of our minds and bodies, and go on with the framing of our plans even as we tussle with DBS. However painful the loss, despair must not debilitate us, slow our pace, or weaken our resolve.

Some of you will remember the actor Gregory Peck who carried very memorably the role of Atticus Finch in "To Kill a Mockingbird". He quotes Churchill to illustrate the code that Atticus lives by: "Withhold no sacrifice; grudge no toil; seek no sordid gain; fear no foe: all will be well".

We have asked all of you to be truthful in your letters and interviews. We must not claim what has not happened and what was not said. If the bank will not do the right thing, then we must be the ones who will set the example for them. Be truthful, not fearful. Be not afraid for it is not us who have carried out a wrongful deed - it is not us who must fear.

Some of us may weary from the fight when the end is not easily seen. But the end may be around the corner, and we could have stopped just short. Can we later justify our inactions to ourselves or to our families? DBS has said they are responsible to their shareholders for compensations they make, but are our families not our shareholders, and are we not answerable to our own stakeholders?

"All will be well". If each of us just do our little share, pull our small portion of the weight, push back our part of the wall, then together, big as DBS may be, and small as each one of us is, together we can shame even such a behemoth onto a proper and correct path of action. Because, in the end, we know that we are right, and on their side, they will know they have done wrong.

We hope to see you at Hong Lim Park tomorrow.


Retrenchment and its impact on Singaporeans

In bad times, businesses have to retrench their employers to cut costs and stop losses. This approach is adopted around the world. Singapore also follows this approach.

I hope that our government leaders realise that the impact of retrenchment on Singaporeans is greater, for the following reasons:

1. In the developed countries, there is unemployment benefit for one or two years to help the laid off workers to adjust to the new situation

2. Many Singaporeans have heavy mortgages and debts to pay. After being retrenched, they will be hounded by the lenders.

3. In the less developed countries, they can survive in the countryside with a lower cost of living. This option is not available in Singapore.

Our government leaders have been proud that Singapore does not have an unemployment insurance system, as it stops people from being lazy and living off the work of others. But this is only one side of the coin. The other side said that there are many hardworking people who lost their jobs due to no fault of their own, and now have to suffer the heavy penalty.

If the company is doing well, the retrenched workers are able to get a fairly generous retrenchment benefit that can tide them over for some time. If not, we need some other measures.

In the absence of unemployment benefit, our laid off workers should be allowed to make modest withdrawals from the Central Provident Fund savings, or have access to interest free loan provided by the government. This are just some suggestions.

SCMP:Divine intervention in Legco debate

13 Nov 2008

The light of heaven was shining in the legislature yesterday when those who opposed a move to empower a Legco subcommittee to probe whether officials and bankers were wrongdoers in the Lehman Brothers minibonds affair turned green on camera in a live broadcast of the meeting.

Immediately after Regina Ip Lau Suk-yee – the only directly elected lawmaker opposing the motion – started her speech, a strong ray of sunshine broke through the top window of the usually gloomy Legco chamber, directly falling on Mrs Ip’s position and engulfing her in an eerie greenish aura. The same happened to David Li Kwok-po, who strongly defended his banking sector’s interest by speaking to oppose the vote.

“Gosh, the light of heaven has revealed their true nature,” one observer said while watching the live broadcast in the Legco corridors of power.

Thursday, November 13, 2008

Adequate saving for retirement

Are you making adequate saving for your retirement? Are you investing the savings wisely?

Read the following tips:

Financial Advice for Young People

I wish to give some advice for young people, especially those who have just started work.

You should budget your monthly earnings for the following:
> repayment of study or other loan committed previously
> contribute towards the household expenses (if you are staying with your parents)
> your monthly expenses for travel, meals and clothes (be frugal)
> put aside 15% of your earnings as savings

If there is a balance, you can use it for travel, entertainment or other luxury.

Most importantly - set aside 15% for your savings. You may need to draw down on your savings if you lose your job, or you change your job, or you need cash to meet an emergency. Keep the savings in flexible form.

Avoid investing in a life insurance policy, as the savings are locked up and inflexible. If you need protection, buy term insurance.

Avoid borrowing on your credit card. The interest charges is very high. It can cost you a lot of money.

Read this FAQ:

Reuters: Financial crisis politically awakens Singapore investors

Fri Nov 7, 2008 6:01am EST
By Melanie Lee

SINGAPORE (Reuters) - Cancer patient Lim Qing Si was one of thousands of hard-working Singaporeans who lost their savings in the financial crisis, especially when Lehman Brothers collapsed and its secured products became virtually worthless.

"All this money is my husband and my retirement savings," said Lim, a 54-year-old retiree, who must now scramble together what's left of her savings to pay for cancer treatment after a malignant tumor was found in her leg.

In all, nearly 10,000 people in Singapore stand to lose over S$500 million ($338 million) due to the collapse of Lehman Brothers Holdings Inc, the central bank says.

The incident left many financially scarred but politically awakened in a city-state where protests are rare and street gatherings of five or more people require a permit.

Lim and others have taken advantage of a recent government move to create a forum for public protest, a "Speakers Corner," modeled on the Hyde Park bastion of free speech.

Since the financial crisis struck, hundreds of ordinary working-class people who have lost money have gathered each Saturday to air their grievances and call on the government to help recoup their losses.

"I hope the authorities, who are supposed to protect ordinary people, should be much more proactive," said Tan Kin Lian, the protest organizer and a former chief executive of a large Singapore insurer.

Following the weekly protests, the central bank said it would investigate alleged mis-selling of Lehman-linked products, such as DBS Group's "High Note 5" and Lehman Brothers mini-bonds sold by banks across the island state.

Singapore's biggest bank, the DBS Group, was among the banks that sold Lehman products to its customers, many of whom were simple, working-class people looking for safe investments for their retirement savings in a country without state pensions.

DBS has said it will pay up to S$80 million to compensate some investors. Maybank also said it has identified mini-bond investors for compensation, while smaller financial institution Hong Leong Finance said it will buy back Lehman-linked mini-bonds from elderly and less-educated customers.

These offers may ease public pressure, but the discontent Singaporeans feel has shaken their faith in a government that espoused a pro-investment culture, analysts said.

Singapore, which has been ruled by one party, the Peoples' Action Party, since its independence in 1965, has always been a promoter of investment, encouraging foreign firms to invest in the country and its compliant citizens to invest in their future by putting their savings in financial products.

Eugene Tan, a law lecturer at Singapore Management University, said the fiasco "puts the government's credibility at risk" and the government had to be seen to do more.

"The Lehman bonds incident affected a very vulnerable segment of Singapore's population," said Tan.

The involvement of the largest bank DBS "made the issue very germane and very alive," Tan added. DBS is partly owned by Temasek Holdings, which is a government linked company.


While the country's marginalized opposition parties hope to take inspiration from neighboring Malaysia, where a resurgent opposition says it can win power after slashing the government's majority in March elections, analysts said the chance this incident will snowball into a larger political rift is slim.

The turnout at the Lehman protests is a far cry from previous protests led by political opposition party leaders, such as a demonstration of about 20 people in March against rising prices, for which 19 people have been charged for illegal assembly.

"There is this very sharp contrast. When you have someone trying to draw Singaporeans attention to the politics of human rights, people are generally apathetic," said Alan Chong, political scientist at the National University of Singapore.

"Singapore's political culture tends toward pragmatism -- this is largely a material pragmatism," Chong said.

The government, which relies on domestic stability to help attract foreign direct investment and to develop high-value sectors such as financial services and biomedical engineering, has told the banks to resolve the matter fairly.

"Where there has been mis-selling, it has to be put right," Singapore's Prime Minister Lee Hsien Loong was quoted as saying in the Straits Times newspaper.

However, not everyone is satisfied by the response and the protests will continue, according to Tan's blog:

"Singaporeans are being treated like sheep," said Jojobeach, the online monikor of someone who posted comments on local discussion forum

Hear the voices of High Note 2 investors

Posted at request of LK and HNIGHN2WG

After attended the dialogue with DBS, we cannot accept the ‘case by case’ investigation recommended by DBS. A petition consists of 83 investors is on the way.

In order to beef up our case against DBS for Non-Disclosure of Material Fact & Misrepresentation/Mis-Selling, we are conducting a survey/questionnaire to identify trends/selling patterns of different RMs, branches, etc to make it easier for us to argue our case.

More people mean more muscles to engage DBS!

We urge other High Notes 2 investors who are not aware of this petition, please come down to Mr Tan Kin Lian speak at Hong Lim Park (next to Clarke Quay MRT station) this Sat 15th Nov, from 5.00~7.00pm evening to join us in this petition.

We can also meet & discuss on our follow-up action.

On behalf of HNIGHN2WG

Open letter to chairman of DBS Bank

Wednesday, November 12, 2008

Unexpected surge - 700,000 visitors to my blog

Two months ago, I projected that my blog will reach 500,000 visitors by the magic date of 11-11-2008. I did not forsee the crisis with the credit linked notes - which caused an unexpected surge in visitors to my blog. This magic date passed yesterday. The visitorships passed 700,000 (40% more than 500,000) today. This is just for historical record.

Trustees act to terminate the swaps

IN A move to protect Lehman Minibond investors, the trustee HSBC Institutional Trust Services has taken action to terminate the swaps for series 1 to 8 notes in the programme, said the Monetary Authority of Singapore (MAS) on Wednesday.

'This removes the risk of credit events in the underlying securities and helps to preserve the value of the underlying collateral,' said MAS in a statement.

'This action is not necessary for series 9 and 10 as the underlying securities for these notes are corporate bonds and have no swaps.'

MAS said it has been informed of the steps taken by HSBC 'in view of the current market conditions'.

The statement said the trustee has appointed three partners from PricewaterhouseCoopers

Singapore (PwC) as receivers for series 5 to 8 which have defaulted since the relevant coupon payments were not made by the due dates.

The other series would also default if the relevant coupon payments are not received by the due dates and the relevant grace periods have lapsed.

The trustee would then appoint the three PwC partners as receivers for these series.

The receivers' role is to take control of the assets of these notes and to work closely with the trustee towards a solution which is in the best interests of noteholders, said MAS.

The trustee and the receivers have assured MAS that they have not ruled out any restructuring proposals received from interested parties and that these will be explored for all series of the notes.

To provide noteholders with an independent opinion on the options that best serve their interests, MAS has appointed Deloitte & Touche Corporate Finance Pte Ltd (DTCF) as an independent financial adviser on the Lehman Minibond notes programme.

MAS cautioned that restructuring the Minibond notes programme is a complex exercise which entails the agreement of several parties and resolution of challenging legal issues.

It would also need noteholders' approval.

'These steps will take time. The receivers would also have to take into account the risks to noteholders, including the continued credit and market risk to the underlying collateral,' said MAS.

'Hence, whether a viable restructuring proposal will materialise depends on several factors which are not within the control of the trustee and the receivers.'

MAS added that it understands that noteholders are anxious to know what they should do and what to expect next.

'At the moment, there is no action required on their part. MAS and the trustee will continue to keep noteholders updated on all developments including any options for them to consider,' it advised.

'MAS has asked the trustee to work towards providing noteholders with an update on whether restructuring is still a viable option by the end of the month at the latest.'

Mr Heng Swee Keat, Managing Director, MAS, said: 'MAS has been in close consultation with the trustee and receivers.'

'We believe that these are reasonable and appropriate steps for the trustee to take to protect the interests of noteholders given current market conditions.'

He added that the appointment of the independent financial adviser is also an important step to ensure that noteholders' interests are served'.

Mr Heng added: 'Our work on other fronts, on the formal inquiries and in seeing to the serious and impartial process of handling investors' complaints, is progressing. We will provide updates at the relevant juncture.'

SCMP:Approval ratings of finance chiefs drop

12 Nov 2008

Financial Secretary John Tsang Chun-wah and Secretary for Financial Services and the Treasury Chan Ka-keung, key officials handling policies relating to the financial meltdown and the Lehman Brothers minibonds saga, have both suffered significant falls in their approval ratings. In the latest University of Hong Kong survey on the popularity of top government officials Professor Chan’s approval rate fell by 8 percentage points last week, down from 33 per cent early last month, the most significant drop in approval ratings when compared with the other 11 ministers. Mr Tsang’s approval rating dropped by 5 percentage points, down from 41per cent early last month.

Rebuttal to "invest with your eyes open"

Dear Mr. Tan

Thank you for your invitation and organizing the petition.

In case you are addressing the audience and making rebuttal to the statement by our leader on the remarks “with their eyes open” I would like to point out that if an investor is prepared to take such a risk, i.e. to lose their entire principal sum they would opt for so many other investment that pay much higher then 5%. I myself has been led to believe that my only risk is not getting the coupon if the said companies is in default.


It will be more effective if you write directly to the government leader who made the remark, or write to the newspaper who reported this remark.

SCMP:Legco probe best hope for minibond mess

12 Nov 2008
Chris Yeung is the Post’s editor-at-large.

Two days ago, before the scheduled Legislative Council vote today on whether to invoke special powers to investigate the Lehman Brothers minibonds saga, local banks mounted a counter-lobbying drive. In full-page newspaper advertisements on Monday, they stressed their commitment to “offering practical, transparent and fair solutions” to address the difficulties faced by more than 40,000 Hong Kong investors affected by Lehman’s demise.

It did not mention the Legco vote, but the writing is on the wall: the last thing they want is to be summoned to the legislature to give evidence on the Lehman case.

Also on Monday, finance functional constituency legislator David Li Kwok-po urged members to vote down the motion. He warned that, if it were passed, it would allow Legco to exercise “unlimited” powers over banks. It would set a bad precedent and might undermine the status of Hong Kong as an international financial centre, he added.

Banks, he said, would also have to stretch their resources for the Legco hearings at the expense of handling the buy-back efforts.

Privately, senior government officials have cautioned that a Legco inquiry would “put banks on public trial”.

If an inquiry goes ahead, banks might put the buy-back process on hold, according to one official. Banks fear they would be under pressure at the public hearings to divulge details of their business strategies and practices, the official said.

In view of the quasi-judicial nature of an independent inquiry and the style of Legco politics, their fears may be justified.

There is no denying that such an inquiry would further complicate matters and raise more uncertainties about the minibonds row. It may create tension that is not conducive to mediation and arbitration.

But, while the arguments against an inquiry carry some weight, the case for an investigation should not be dismissed lightly.

From a broader perspective, a full Legco probe could arguably help the banking industry, whose image has been tarnished by allegations of fraud, at worst, and misselling, at best, over the sale of Lehmanrelated products.

It would also allow the Monetary Authority and the Securities and Futures Commission, as well as the relevant policy bureau, to give detailed accounts of their respective roles and responsibilities.

Doing so would help set out a full picture for the affected investors and the general public so they could judge who, if anyone, should take the blame. More importantly, the investigation process would help identify faults in the regulatory system and make recommendations for improvement.

With their reputations at stake, there is no reason to believe banks would deliberately stall resolving this dispute because of a Legco inquiry.

Now that independent experts are tasked with assessing the value of the products, investors should feel assured that the findings would not be affected.

In view of the demise of Lehman and the plunge in the value of its investment products, a considerable number of the 40,000plus affected investors might not get what they want from the buy- back exercise. A feeling of injustice may prevail. If left unattended, their grievances could turn to anger and feelings of betrayal.

Undoubtedly, an early settlement between banks and investors is important. But, as the row has already damaged the authority and credibility of political and financial institutions, failing to seek a solution through a fair and open inquiry would be unjust.

The media and the public should ensure that Legco’s investigative powers do not go unchecked, to minimise any unintended consequences – such as probing too deeply into the operation of banks, or damaging business confidence.

Morgan Stanley hotline for Pinnacle notes

Dear Mr Tan,

I called my distributor OCBC secruities many times to check the reason about Pinnacle Note for the distressful price, but the only thing they can tell me is to wait for the Q& A, and I never get it until now after many weeks chasing.

I have to make many calls and finally I found Morgan Stantly has set up two hot lines for Pinnacle Note holders. I asked MS people why they didn't tell us the hot lines which can address our concerns. They should understand how flucstrated their holders are facing now, but they just to say they are waiting for us to find these hotlines. Is it make sense? If they did not publish it or inform their distributors the hot lines but wait the investors to find it by ourselves. What kind of service it is?

The hotlines for Pinnacle Note holders are : 68346510/68346512, and it only open from 9:00am to 12:00am.

A desperated investor

Accountabiliy, transparency and social justice

Mr. Goh Chok Tong gave the keynote address at the Asia Society Hong Kong Center's annual dinner. He listed four main attributes of a political system to enable a country to flourish:

1. accountability and transparency
2. long term planning and execution
3. social justice and harmony
4. a culture of identifying and glooming talent for public service.

Accountability and transparency
I wish to reflect on whether MAS has acted with accountability and transparency in the handling of the credit linked notes. I submitted three petitions to MAS signed by 2,300 people. I request for a meeting to discuss these petitions. They were declined.

MAS said that they cannot meet with representative groups. But I suspect that they must have met with the representatives of the financial institutions.

I do not know how MAS can find a solution without listening to the views of the many thousand of people who have lost their hard earned savings.

Social justice
10,000 people have lost their hard earned or lifetime savings. A small percentage of people identified as "vulnerable" are being compensated. The remainder are left to deal on their own, on a case by case basis, against the large financial institutions. These institutions have the moral support of our leaders who labelled the investors as "greedy" and invested "with their eyes open".

I wonder if this can be called social justice?

Your views
What are your views?

Reply from MAS on the 3 petitions

Dear Mr Tan,

I refer to your emails dated 7 November and 10 November to MAS, and your email to the Prime Minister dated 10 November.

MAS understands the anxiety that investors in structured notes are feeling. We have devoted substantial resources to looking into the issues, with teams of officers working on formal inquiries as well as on ensuring that there is a fair, serious and impartial resolution process for affected investors. Independent persons have also been appointed.

MAS takes feedback seriously, and reviews all feedback received. In deciding on the courses of action, we are guided by our regulatory approach and assessment of the situation. As MAS has to be fair and transparent to everyone, MAS has to communicate to all investors at the same time through public press statements. You would appreciate that MAS therefore cannot reply to particular groups of individuals or individuals writing to MAS on our intended course of action.

Our approach and our advice to investors are set out clearly in the various public comments and press statements. You may wish to refer to our earlier press statements dated 22 September, 10 October, 17 October and 20 October. We will continue to communicate with investors through public press statements when appropriate.

Dr. Andrew Khoo


Dear Dr. Andrew Khoo

Can you indicate where your press statements can be located, and if they have addressed the points contained in the three petitions that were signed by a total of more than 2,300 people. If there are outstanding points that have not been addressed, can you reply if they will be specifically covered in future press releases?

The mode of communication adopted by MAS has added to the concern and anxiety of several thousand people. I suggest that MAS review its approach and be ready to engage in a dialogue with representative groups of the investors.

Letter to Prime Minister on Credit Linked Notes

10 November 2008

Mr. Lee Hsien Loong
Prime Minister
Republic of Singapore

Dear Prime Minister

1. I appeal to you to look into the plight and financial losses suffered by about 10,000 investors from the Mini-bonds, High notes, Pinnacle Notes, Jubilee Notes and other credit-linked notes that have been sold to them by the financial institutions.

2. This appeal is made in accordance with the following statements made by you as chairman of the Monetary Authority of Singapore at a staff seminar held on 29 October 2002 on the topic of “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.”

3. On 10 October 2008, I submitted a Petition signed by 983 people addressed to the Singapore Government. It was handed over to Dr. Andrew Khoo, Executive Director of the Monetary Authority of Singapore, who received it on behalf of the chairman, Mr. Goh Chok Tong. This Petition said:

We, the undersigned, write to petition the Singapore Government, particularly the
Commercial Affairs Department (Singapore Police Force) and/or the Monetary
Authority of Singapore, to conduct a full and independent inquiry in relation to the
credit linked securities sold by various financial institutions in Singapore. These
structured products include the Lehman Minibonds, DBS High Notes, Morgan
Stanley Pinnacle Notes and Merrill Lynch Jubilee Notes.

Singaporeans, including the persons who have signed this petition, lost their hard-
earned savings by investing in these financial products. Such products clearly did not suit the risk profiles of these consumers. The consumers were not made aware of the high risks involved in the financial product when buying the product. They became innocent victims of misrepresentation by the financial institutions that distributed the structured products.

We now wish to be assured that those who invested in such financial products have
not been victims of negligent and/or dishonest conduct and/or fraud by these financial institutions.

The Government has a duty to ensure that investment products are marketed and sold
appropriately in our jurisdiction. Such products must be sold in a manner compliant
with the laws of Singapore. Financial institutions, including their respective key
management, that do not follow the laws or regulations applicable to them must be
held accountable for such breaches.

Please commence a full and independent inquiry into the sale of structured products
by various financial institutions in Singapore. If the inquiry deems necessary, the
Attorney-General of Singapore should act against these financial institutions.

We also ask the Government to help these investors to claim fair and adequate
compensation from these financial institutions for their losses which are caused by the misconduct of these financial institutions.

We ask the Government to act now and restore the peoples' faith in our financial

4. In a supporting letter to the Monetary Authority of Singapore, I have mentioned some of the possible areas where the laws of Singapore might have been breached. They are set out in annex 1.

5. I have received an acknowledgement from MAS of the Petition. Nearly one month has passed. I have not heard from MAS if they intend to act on the requests contained in the Petition, namely to commence a full and independent inquiry into the sale of structured products by various financial institutions in Singapore and, if the inquiry deems necessary, to act against these financial institutions.

6. I appeal to you, Prime Minister, to ask the MAS to act more swiftly and appropriately, in line with this vision:

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.”

7. Annex 2 contains an article written from the perspective of an investor.

8. Thank you.

Tan Kin Lian

MAS has replied to my letter to the Prime Minister. They said that MAS will give its reply in press statements. They are not able to talk to any individual investor or group of investors.

Speaker's Corner - 15 November 2008

I will be speaking at Speaker's Corner on Saturday 15 November at 5 p.m. I will give an update about the three petitions that have been lodged with the Monetary Authority of Singapore and also give a response to the remark by a Government leader that the investors went in with their "eyes open". Mr. Goh Meng Seng will translate my speech into Chinese.

I like to ask the investors to bring your family and friends to attend this meeting, so that we can have a larger crowd than before.

Sunday Times article on Petitions

Tan Dawn Wei of the Sunday Times asked the following questions about the use of petitions in Singapore. My reply to the journalist is set out below. She only used some replies that are more suitable for her purpose.

1. Why did you choose to use petitions to call for action?

Reply: I used the online petition as a convenient way to gather the signatures of the people who are affected by the credit linked notes to ask the Government to take the appropriate actions. I hope that a large number of signatures will make a difference in getting the Government to be aware about the strong support for the proposed actions. This is in contrast to writing a letter to be newspaper, as the letter reflects the view of one person, and is likely to be ignored. The letter may not be printed by the newspaper due to lack of space.

Another way to express the strong views is to organise a protest rally or demonstration. However, it is illegal in Singapore to organise such an activity without a police permit. It takes a lot of trouble to get a police permit and the applicaiton is likely to be rejected. It take a lot of effort to organise a rally anyway.

2. Did you think it would be the most effective method to push for action and that the authorities would take heed, given petitions have not typically figured in the Government's decision-making process?

Reply: It is disappointing that the Government ignore petitions that have been signed by a large number of people. I think that it is not proper for the recipient of a petition to behave in this manner, as this reflects arrogance. At the very least, the recipient should meet with the represenatives of the signatories to have a dialogue and discussion.

I am not deterred by the negative response. I will continue to gather signatures for future petitions to ask the Government to do "the right thing". The Government should realise that people in Singapore are generally afraid to sign a petition as they do not wish to be seen to be disagreeing with the Government on its decision. For the signatories to muster the courage to sign the petition and provide their name and other particulars (such as NRIC, address or contact number), it must reflect a strong grievance that should be addressed.

3. Do you think the petitions you initiated had any bearing on the decisions made by MAS?

Reply: I have not received any communication from the MAS on the three petitions that have been lodged with them. They also do not wish to meet with me to discuss the petitions or to seek clarification. I suspect that these petitions have also been ignored.

4. What do you think the seemingly increasing number of petitions (eg. Serangoon Gardens, repeal 377A) we're seeing says about the Singapore psyche?

Reply: It reflects that people feel strongly on several issues and the existing channels to express these views are not effective. The internet allows them to communicate and reach out to other people who feel strongly about these issues, so that they can get together to express their collective views. It reflects the power of the internet as a new medium for the affected people to come together to express their grievances and to seek solutions.

Call to the Government to be fair to the affected persons

Dear Mr. Tan,

I am writing to commend you, as many before me had, for the care and bravery you have displayed in giving a much-needed helping hand and direction to thousands of aggrieved investors. I personally have not invested in these investments but unfortunately my homemaker wife have in the above said notes. To be honest, we cannot be said to be in the vulnerable category as defined by the FIs. But neither are we high risk investors, never going beyond stocks, shares and properties.

We take responsibilty for a lapse of care and caution in not fully realising the extent of the risks and toxidity of these notes, partly because the returns do not commensurate these. We also were lulled into comfort of its officialdom and apparent similarity in process to the equity market by the fact that CDP is the official custodian for these notes.

We regretted for not receiving or asking for a risk review by the distributors or a copy of the Prospectus before we signed up for the purchase. For sure the implication of the most damaging and hitherto unfamiliar term of "first-to-default" credit event, in the nature of a total loss on the weakest link, was lost in us and had this been emphasised to us, I am quite certain that the risk-return will not be accepatble to me.

Under this situation, I had not lodged a complaint to the the FI or signed any petition, as I could not with clear conscience alleged no-responsibilty on my part. But I have been following closely what's going on through your website in particular.

I believe there are many aggrieved investors in a similar position as mine. Having absorbed all the comments and opinions by investors, MAS and the senior-level ministers (including the damning comments by MM), the first strong impression is that our authorities is taking us to task on the grounds that we signed the sales documents on our own will and "caveat emptor" applies. Case closed as far as our ministers are concerned.

By doing this, MAS and the authorities are without solid evidence taking sides, in the favour of the FIs. This is unaccepatble coming from a supposedly popularly-elected govt who should a fiduciary responsibilty for the care of its people.

In fact this riles me and spurs me now not to want to call it quits. Why? I don't expect the government to provide financial subsidy for our losses nor to take the sides with the investors just because they are citizens. If we have made a wrong and bad investment decision, we take what comes with it. But it doesn't absolve the FIs from any wrongs they might have committed. Then the most decent thing we should expect from our govt is to embark on an independent investigation to verify if there have been any wrongdoings by the FIs.

We the investors are not in the position in technical and financial capability and authority to conduct this on our own if we deal with the FIs on case by csae basis.

In this respect, an investigation should be addressed at the least the following:

1) design, structure, pricing and comission /fee income of these products,

2) the ill intent and motive of the originators in introducing these products, especially whether there is ill or even fraudulent intent in scheming to lay off to the unknowing public risks embedded in substantially subprime exposures which could be anticipated by the originators to deteriorate in credit quality in short time after the sales

3) the callousness and carelessness of the distributors in the marketing and selling of such complex and risky products to retail investors, and the use of unqualified and poorly trained sales staff to engage in mass selling on a brochure-based mode. A test is whether if the sales staff were in fact well equipped to counsel intending investors adequately on the complexities and high risk nature of the products.

4) whether the marketing brochure was designed with an intent to mislead the investing public on a "No Ask No Tell" approach and focuses on better returns and the strong rating of the reference companies while downplaying on the real toxidities.

Now if an investigation indeed reveals negative revelations against these FIs, then they ought to be taken to task, fined and penalised to compensate investors, as had happened in othe jurisdictions. As you had said before, sharing (rather than taking full) responsibilty and pain with the investors will be satisfying to most investors.

I wonder if you think you will re-focus or redirect the petitioning along this line and if so whether you will talk about it at this Saturday's session at the Speakers Corner.

If you wish to develop this approach further and want me to contact you, please let me know by return email.


The first Petition sent in early October asked the Government to carry out an independent investigation into the possible wrong doings by the financial institutions that created or marketed these credit linked securities, and to take the appropriate action against these financial institutions, including seeking fair compensation for the losses suffered by the affected persons.

I have been disappointed by the lack of information from the Government on this matter, although they appear to be taking some action on behalf of the "vulnerable" investors. The other investors are left to fend on their own to face the financial institutions who are now emboldened by the remarks by our Government leaders.

Tuesday, November 11, 2008

Business Times: Look at pricing structure, risk disclosure too

11 Nov 2008

LAST month, DBS Bank agreed to return up to $80 million to investors who were mis-sold the DBS High Notes 5 series - a welcome move by many. But as the saga continues, public attention should be paid not just to the way products were mis-sold, but also the pricing structure and risk disclosures involved.

To recap, the note is a 5.5 year credit-linked series that pays 5 per cent annual premium on the Singdollar tranche with an underlying 'default' basket of eight securities including the now collapsed Lehman Brothers. If either of the reference entities undergoes a credit event - such as bankruptcy, this means that investors who bought the notes will receive only the net market value of only the underlying securities tied to the defaulting entity.

In a sense, they have become insurers against the total credit risks of the underlying basket in exchange for 5 per cent premium each year on the Singdollar tranche.

And this raises the question: is the interest payment fair given the types of risks involved? Indeed, if we assume that the chances of entities hitting a 'credit' event are mutually independent and equal, this means that investors are paid 5 per cent annually to insure against a total credit risk that is eight times that of one reference entity - scant compensation by any measure.

Yes, all the entities had strong ratings of between BBB+ and AA- when the notes were structured, and the issuer can point to those ratings as evidence that a low interest payout is fair.

Identical insurance
However, it is conceivable that the long counterparty may have to cough out a lot more in premiums if he had bought an identical insurance from general insurance firms with diversified portfolios of insurance assets.

A second issue concerns the level of professionalism among the relationship managers. Not only was product structure not properly explained to some investors, but the investments were sometimes sold to clients who did not have the risk appetite for them.

This is clear from the several cases of mis-selling, where High Notes 5 were sold to 'low-risk tolerance' investors who should not have bought the product in the first place.

In some cases, even the relationship managers did not understand the products but continued to market them to clients, according to some reports.

This is a serious breach of professional conduct since industry best practices dictate that those providing client advisory services have a duty of ensuring that only suitable investment products are recommended to clients, and related information should be transmitted accurately.
What the episode illustrates is that financial advisory standards still leave much to be desired among some local banks and brokers.

A third issue relates to the disclosure of market information on those structured products. Unlike stocks, structured products are not openly traded in a liquid secondary market and investors have no means of getting the latest market data or information except by calling their relationship managers.

The result? Investors have no means of making timely investment decisions, and this may hurt them in volatile market conditions like now.

For example, a check on the Bloomberg showed that spreads on Lehman's five-year senior credit default swap in US dollars had risen rapidly to a few hundred basis points in recent months, while credit spreads widened steadily over the same horizon.

Amending the rules
However, as most investors did not have access to such information, they may end up holding on to a depreciating asset instead of cutting losses.

Therefore, financial regulators may wish to consider amending the rules to require issuers to release such vital market information.

Already, the push for more disclosure in gaining momentum elsewhere, like when the Depository Trust & Clearing Corp said it will now release weekly credit-default-swap data, and similar moves should also be made in Singapore.

Institutional issuers have a duty of ensuring greater transparency, as individual investors deserve no less.

SCMP:Time to reconsider class action lawsuits

11 Nov 2008
Frank Ching is a Hong Kong-based writer and commentator.

Hong Kong lacks a legal tool that is available to people in the US and Australia, as well as certain European jurisdictions – that of the class action lawsuit. A class action lawsuit is one where a large number of people collectively bring a claim to court. One advantage is that a single class action lawsuit aggregates a large number of individual claims into one representational lawsuit. It can save time and money.

The situation stemming from the bankruptcy of Lehman Brothers is a case in point. Some 43,000 local people have invested in Lehman products, mostly minibonds. The court system cannot possibly handle thousands, or even hundreds, of cases.

There are also many small investors who cannot afford to go to court, or the size of their investments simply does not justify the legal expenses involved in a court case.

Being able to take a class action lawsuit makes a huge difference. It enables individuals, who only stand to recover a small amount, to act together and assert their legal rights. Often, an individual cannot take legal action because the costs would be greater than the amount he or she could recover.

Hong Kong has never allowed class action lawsuits, primarily because it is almost always done on a contingency fee basis. That is to say, lawyers do not get paid if they lose and get a percentage if they win.

In principle, there is nothing wrong with this system. The fact that lawyers do not get paid if they lose means that even individuals without deep pockets can afford to be part of a class action lawsuit, because there is no outlay of money involved. If they lose the case, they haven’t lost any additional funds and, if they win, it is a windfall that they could not have expected otherwise.

Another criticism sometimes made is that class actions combined with conditional fees result in greater litigiousness. But this may simply reflect the fact that more people have access to legal justice as a result of this avenue being opened.

The fact that lawyers aren’t paid if they lose means that they are much more likely to pick only cases that they believe have merit. It should not result in many frivolous cases, because the lawyers themselves would stand to lose.

Critics also point to the fact that, in US style class action lawsuits, huge amounts of money is sometimes awarded by judges to the plaintiffs.

But this, like the contingency fee system, is something that can be governed by legislation. Surely, legal minds in Hong Kong’s Department of Justice, the Financial Services Bureau and the legislature are capable of devising legislation that will enable Hong Kong to benefit from class action lawsuits and, at the same time, minimise what are considered to be the unsatisfactory features of such actions.

While class action lawsuits have not been widely adopted in Europe, it is interesting to note that certain countries have found this a useful tool in the area of consumer protection. In Austria, for example, consumer organisations have in recent years brought claims on behalf of hundreds or even thousands of people, resulting in a significant reduction in overall costs.

In France, the law allows an association to represent the collective interests of consumers. But, in a lawsuit, each claimant must be individually named, which is not the case with class action cases in the US.

The bankruptcy of Lehman Brothers has already resulted in class action lawsuits in America, one by investors who purchased Lehman Preferred Series “J” stock shares and one by former employees who claim that – contrary to the law – they had not received payment for 60 days.

In Hong Kong, a class action lawsuit would most likely be against one of the banks that distributed Lehman products. There have been so many claims of “misselling” that thousands might benefit – if only such lawsuits were allowed here.

SCMP:Two investors reach settlement with bank before court case

11 Nov 2008 Italic
Amy Nip

Two investors in Lehman Brothers derivatives who filed a case seeking refunds reached settlements with Wing Lung Bank yesterday, saying they will dismiss their suit after they receive compensation.

They were among the five investors who filed lawsuits on Thursday with the Small Claims Tribunal against Wing Lung Bank, Citic Ka Wah Bank and Mevas Bank. The cases are to be heard on December 29.

One of the investors, a 71-year-old surnamed Ting, said he was satisfied with the settlement, but refused to reveal details. He said his confidence in banks had been restored and that he would continue to use Wing Lung Bank’s services.

In 2004, Mr Ting invested HK$ 40,000 in Lehman Brotherslinked minibonds. He said the bank’s staff had misled him into thinking minibonds were like fixed deposits, and were backed by “sound and famous companies in the world”.

Meanwhile, other investors reached settlements with the Bank of China. Most of them were more than 65 years old and had invested tens of thousands of dollars in more than HK$1million worth of Lehman-related derivatives.

The Hong Kong Association of Banks’ taskforce on Lehman derivative products published full-page advertisements in several newspapers, restating that it would give priority to cases involving customers aged 65 or older.

“We will continue to file cases with the Small Claims Tribunal and District Courts,” said Democratic Party legislator Kam Nai-wai, who has been helping investors pursue their cases. The party will file up to 10 cases this week.

He said banks were too passive in reaching settlementsand legal action would speed up the process.

Democratic Sha Tin district councillor Michael Yung Ming-chau, who had assisted Mr Ting, said it would be a win-win situation for investors and banks if they could settle before facing each other in court. “ Banks shouldn’t deal with the cases only after they see [plaintiff’s] lawyers.”

SCMP:Legco likely to pass bill on minibond investigation

11 Nov 2008
Ambrose Leung Fanny W. Y. Fung

Lawmakers look likely to pass a resolution tomorrow invoking their special powers to investigate the Lehman Brothers saga, as intense lobbying from small investors increased the pressure on them.

The marked softening of the Democratic Alliance for the Betterment and Progress of Hong Kong, whose support would ensure the resolution’s safe passage, seemed to increase the likelihood the step would be taken, with some officials privately admitting that the inquiry was a foregone conclusion.

But bankers – who would probably be summoned before a Legco subcommittee if lawmakers passed the resolution – made a last-ditch effort to prevent that step.

In a letter to his Legco colleagues, finance sector lawmaker David Li Kwok-po warned that banks’ efforts to buy back minibonds and other investment products from affected investors could be hindered if the Legco’s Powers and Privileges Ordinance were invoked.

“Bringing the wide powers of the ordinance to bear and subjecting the banks to what amounts to unlimited power to demand documents and the appearance of bank mangers before the subcommittee will only draw resources away,” Dr Li said.

Other bankers voiced similar concerns in a full-page advertisement posted in local newspapers yesterday.

Saying many minibond holders seeking compensation had actually “ entered into contracts with full knowledge of the risk involved”, Dr Li warned that Hong Kong’s status as an international financial centre could also be damaged if foreign banks’ confidential commercial information surfaced during a Legco inquiry.

But with a majority of directly elected lawmakers supporting the move, and the required margin of support from functional constituency legislators just one or two votes away, it appeared likely that bankers’ hopes would be dashed after what was expected to be a lengthy debate tomorrow.

At present, the pan-democrats and trade unionists, plus the three Liberal Party members and some independents support the resolution.

The decision by the DAB will be crucial.

DAB leaders conceded that most the investors wanted a special inquiry. That came after about 200 people who had bought Lehman Brothersrelated investment products protested at the party’s headquarters, urging the party to support the resolution.

They chanted slogans and displayed placards, with three women in the crowd kneeling in front of party vice- chairwoman Ann Chiang Lai-wan to beg for help.

After receiving 1,850 signatures from the investors, DAB chairman Tam Yiu-chung told them that the party had to handle the matter cautiously, taking into consideration the progress achieved in recent days and whether such an investigation would prolong the compensation process.

The party will decide how its nine lawmakers will vote tonight.

Some independent lawmakers who have yet to make up their minds have also shown signs of supporting the resolution.

“I am inclined to support the victims. They have lost all of their savings. What else can legislators do to help them?” said Heung Yee Kuk leader Lau Wong-fat, who declined to say how he would vote.

Meanwhile, a government source said “the battle has already been lost” and further lobbying would be pointless because the DAB was likely to back the resolution.

“It is not the end of the world. The government has nothing to hide.”

Civic Party leader Audrey Eu Yuet- mee, who launched a mass e-mail campaign for the investors to petition lawmakers in support of the resolution, dismissed bankers’ concerns that invoking Legco’s special investigative powers would slow down the compensation process.

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

New Paper: Structured Products: "What banks don't say about buybacks"

By Larry Haverkamp
BANKS sold us billions of dollars of risky structured products called 'linked notes' for short. They came with big risks, which have led to big losses.

For example:
DBS High Notes 5 are now worthless. Loss: $103 million.
Merrill Lynch Jubilee 3 are worthless. Loss: $28 million.
DBS High Notes 2 sell for 22 cents on the dollar. Loss: $55 million.
Lehman Brothers Minibonds are in limbo. Loss: unknown.
There are more.

Sales have been in the billions over the past 10 years. Banks admit to mis-selling to the elderly and uneducated. But the problem is bigger. Mis-selling extended to everyone since the prospectus mis-stated costs and risks.

Issuing banks have never disclosed their charges for linked notes. Is this serious enough to require a full refund to all investors?

A precedent exists. In the US and Europe, global banks were required to repurchase $80 billion of auction-rate notes and pay $750 million in fines. Even now, the issuing banks refuse to disclose their charges. They say the law doesn't require them to.

DBS told me: 'Pls understand that certain (pieces of) information, especially re remuneration payouts or the detailed breakdown of how a product is being calculated, are proprietary information. Where required under regulatory or statutory guidelines, we will disclose the necessary.'

Two risks are not disclosed in the prospectus.

First, default of a 'reference entity' causes the structured product to become worthless. Prospectuses show that risk is less than 1per cent for each entity. Linked notes' first-to-default structure, however, makes the risks additive. For DBS High Notes 5, it adds up to 8 per cent. No one knew the risk was so high. The prospectus never mentioned it.

Second, many linked notes are invested in AA-rated collateralised debt obligations (CDOs), which the prospectus describes as safe.

It says: 'A borrower rated 'AA' has very strong capacity to meet its financial commitments. It differs from the highest rated borrowers only in a small degree.'

While this is true for regular bonds, it is not for CDOs. Ratings are not comparable because CDOs are much riskier.

For example, the default rate of regular bonds ranked Baa by Moody's is only 2.2 per cent. CDO bonds with the same Baa ranking have a default rate of 24 per cent. Only now are we seeing effects of the high risks. Many CDOs have been downgraded. Some are near default.

It explains why banks repurchase structured products at a discount. DBS pays only 22 cents on the dollar to buy back its High Notes 2.

Is this fair? It is hard to say since investors have very little information about the underlying bonds and CDOs.

Hong Kong investors have been more aggressive. In a protest outside DBS headquarters on Oct 20, a sign in Chinese read: 'Product has poison. Asking and reprimanding DBS.' DBS gave in. It distributed a list of the CDOs for each structured product AND had a bank officer explain it.

Singapore investors also have a right to this data. DBS confirmed this when it told me: '...The list of CDOs for the respective Notes are available to clients if they asked for them.' The problem is most investors don't know what to ask for or how to interpret the list. If banks truly wanted investors to know, they could explain on their websites how they arrived at the structured product's value.

Otherwise, there is no way to know if banks are taking advantage of their information monopoly to buy back these investments at too steep a discount. Take High Notes 2. DBS buys them from investors at 22 cents on the dollar. Assuming no defaults, it can simply wait until maturity in 2011 and then redeem at 100 cents on the dollar. For the bank, it is a 350 per cent profit.

CBS Videos on derivatives, etc

Dear Mr. Tan,

Here are some links to CBS videos (10-15 mins) on derivatives, CDS, etc. They are eye openers to lay people. These derivatives are more like scams to defraud the investing public. We need to persist to get the authorities to get to the bottom of the matter. Hope you can help in this matter.

Video 1: Derivatives (July 1995)

Video 2: Credit Default Swaps (Oct. 26, 2008)

Video 3: Wall Street Shadow Markets (Oct. 5, 2008)

Report 1: The Bet That Blew Up Wall Street

Report 2: A Look At Wall Street's Shadow Market

Obama's Speech at Election Night

Please click here to see President-elect Obama's
speech on Election Night:

Barack Obama and Joe Biden are hopeful about the opportunities and
clear-eyed about the challenges our nation faces. They look forward to
working with all Americans, regardless of who they voted for, in the great
project of American renewal. Enlisting the energy and ingenuity of the
American people is the only way we will create the changes that so many
people want to see, so we hope you'll be involved.

Monday, November 10, 2008

Did the RM explain "first to default" ?

Dear Mr Tan,
Thank you for taking the time and effort to help the unfortunate minibond investors.

I am disheartened to find out that some of our banks have "thrown out" many cases. Perhaps the "vulnerable" investors could not effectively submit a proper case. Perhaps they could not effectively present the argument that they were misled by the Managers (Relationship) of the banks.

The argument I am presenting is based on the structure of the minibond product, not the companies (i.e, Lehman Brothers) underlying it.

In such cases whereby the minibond investors attempted to demostrate that they had been misled in buying high risk would likely be countered by bank's argument like "Have our sale staffs explain the risks to you?", "The rating of the companies behind minibonds has been AAA, AAB, therefore this is a very safe investment". Indeed, the staffs might have taken efforts to explain the risks but what were the exact risks explained? Who is to argue a rating of AAA and AAB is not safe? And who is to argue a 100+ year old investment bank has no firm foundation? As such, when banks present such facts, how can one not deduce that the minibond is a safe investment?

The case of the minibond is not a case on the companies behind the structured product sold. The high risk was the structure / architecture / design of the minibond itself. This is the risk: FIRST TO DEFAULT BASIS. This means any of the eight underlying entitles fails, the minibond will be terminated and investor receives zero payout in the worst case scenario. This is the reason why it is a risky investment.

So what can the minibond investors do now? Perhaps what they can do now is to answer these 2 questions:

> Had the Relationship Manager explained clearly the risks due to the structure / architecture / design of the minibond?

> Had the Relationship Manager fully and clearly explained the worst case scenario?

If the answers to both questions are "No", the investor may possibly have a better case. The "higher" risk came from the structure / architecture / design of the minibond and not the underlying companies.

Mr Tan, much has been discussed about the fate of the minibond and their investors, I do have a question. What happened to the $500 million dollars (cold hard cash) invested in the minibond?


The financial institutions are only interested to find any excuse to reject the claim, so as to avoid paying any compensation.

The Monetary Authority of Singapore has asked them to treat their customers fairly. Unfortunately, MAS has not provided specific guidelines and leave it to the discretion of the financial institutions. The outcome is to be expected.

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