Wednesday, August 05, 2009

TODAY:Don't bet on FIs To follow GE's lead

5 August 2009

THE decision by Great Eastern Life to return the entire premium paid, less annual payouts, to those who bought its GreatLink Choice policies was nothing short of a public relations coup. The “goodwill gesture” has brought relief to some 18,000 people who bought these investment-linked insurance products. This virtually no-strings-attached gesture could cost GE Life in the ball park of $250 million. Money well spent, I say.

I’m sure that many among the nearly 10,000 investors here, who bought $665 million worth of toxic structured products including the Lehman Brothers Minibonds and the DBS High Notes 5, are hoping the 10 financial institutions (FIs) here involved in selling — or should I say, mis-selling — these products, might take a leaf out of the GE Life public relations manual and do the same — compensate all of them fully.

Don’t bet on it. I would be glad to be proven wrong, but the writing on the wall warns of more disappointment — for three reasons.

Let me remind you what the Trade and Industry Minister Lim Hng Kiang told Parliament a fortnight ago about the investigation by the Monetary Authority of Singapore (MAS). He said the “investigation findings do not support an across-the-board general settlement for all investors, irrespective of their individual circumstances”. For those familiar with Monopoly, that is virtually a “get-out-of-jail card” for the FIs.

Mr Lim noted “the nature and extent of failings identified and their potential impact on the sales process and customers differed for each institution and for each customer”. And while not all would accept the case-by-case approach, he said “this way we serve the interests of all parties, and also serve the wider public interest of growing Singapore’s reputation as a credible and reliable international financial centre”.

There is little pressure on FIs to settle in full. After all, an investigation by their regulator does not support an across-the-board settlement. As of May 31, the FIs have paid out $107.7 million in full or partial settlements to some 3,900 of the nearly 10,000 structured product investors.

The second reason offered: It’s an “apples and oranges” type of comparison. Well, that’s what the FIs will tell you. The product sold by GE Life was an “investment-linked insurance product”, whereas the now toxic structured product was an “investment product”. The GreatLink Choice policies were investment-linked products with underlying investments in CDO (collateralised debt obligations) instruments. The products were designed with built-in loss protection levels and wide diversification across various industries and geographical regions.

For the general investing public, and particularly for those who have lost money, the “apples and oranges” comparison is not so much about the type of products they were sold but about how the institutions that sold them the products have responded. Both products were adversely hit by the financial meltdown. GE Life has opted to bite the bullet and pay up. The FIs appear to be doing their best to ante up as little as they can.

The third reason that has been suggested: The FIs and GE Life are “very different entities” and their governance is different.

Being an insurer, actuaries at GE Life must have done a cost-benefit analysis and decided that in the long run the benefits of the repayment exercise would extend well beyond their policyholders, to the average man in the street, and also go a long way in restoring trust and confidence in the company, one of the largest local insurers. And I must agree. It is not easy to put a dollar value to public trust and confidence.

So what sort of cost-benefit analysis did the FIs do? With claims lodged, and lawsuits looming, they are going to see management time wasted, legal dollars spent and reputational cost incurred. I guess this must all add up to less than the $500 million the 10 FIs have not refunded.

11 comments:

Anonymous said...

I will put them together, no distinction between products sold by banks or insurance companies, they are financial products unknown and complicated to the man in the street. The same laws apply to them and therefore the same severity of punishment if they should break any of the laws.
In the case of GE the impact is heavier because it calls up questions about other products by GE and the conduct of the agents.What about other products? Do they have layers of complicated 'benefits' not explained to customers? Do the insurance agents also sell the same way they sold the GLC? It is no surprise if you check the way the agents sell , it is pushing for the highest commission products and short change the customers. GE agents are product peddlers. Salesmen at the best. They plan their own life by selling high commission products. They are NOT life planners who plan for their clients. If they really do these damned GLC product would not have been sold to their trusting customers.
So, this so called compensation is really to save their own skin and also the agents'.This saga reveals the wolves below the 'life planner'. MAS should be discerning and Not taken in by the ploy or PR ruse.
Come on , let's face it. GE and the agents are greedy and they never have intention of giving the best to their clients.Look at how much GE and agents benefit if the GLC didn't turn sour. You can check their other products. They are worse scam than others.
Think before you make the conclusion. $250 millions is cheap if you consider the damage and loss they will suffer in the future.Clawing back the agents' commission is another attempt to con the public. It is also as cheap as peanuts. These agents should be fined at least $25,000 for each case sold. according to the FAA.They have broken the fit and proper rule and section 27 of the FAA for not recommending on a reasonable basis.They have mis-sold the products..
MAS, do what is right and stop dragging your feet.

Chin Huat said...

Dear Mr. Tan

Conspiracy Theory

MSM lately has given wide exposure to the GE buyback announcement. Even ST and BT editorials. Makes the other FIs look bad. Knowing that MSM editors are proxy for we all know who, the wide exposure cannot be just a singular event.

I suspect that even the GE gesture was orchestrated. Invisible Hands are at work. GE has no choice. Do it, or face full investigation by MAS. The consequences will be more damaging as trust is the foundation of the insuance business. 100 years of hard earned trust and reputation will instantly disappear should MAS decide to investigate.

Is it any coincidence then that with the GE announcement, MAS makes no mention of investigating GE?

The Gods must have realised that they underestimated the political cost and fallout, and need to quickly change tack without losing face and ground support. The GE saga is a signal by Invisible Hands to the FIs that they are to follow GE's example.

Lets hope that my Conspiracy Theory is correct.

Anonymous said...

Don't dream on compensation in full.

But why the FIs and agents could take the "ill-gotten" commissions while many (esp from sec firms) still not compensate a single cents.
At a minimum, the commissions the agents and the FIs eraned must return fully to the poor souls who hv lost their entire principal.

Very unfair!
"Ill gotten gains" is no good for you. The sky got eyes. The eyes will open one day.

Anonymous said...

"People Power" toppled Marcos. Can we as consumers not also exercise "Consumer Power" to topple the banks for their lack of interity and fairness? At the end of the day, we may just have our justice if the banks find themselves losing more than $500 million. If each and every person and their families involved tell their friends, relatives etc to boycott the banks involved, DBS, RBS/ABN AMRO(now ANZ) etc, through the Facebook, blogs, word of mouth, I am sure the multiplier effect would be substantial. On a separate note, I will from now on buy all my insurance from Great Eastern. If the Government and the MAS does not want to do anything to get fair treatment for its citizens/investors, we should write them off & do something ourselves. I don't think Lim Hng Kiang and our government will want to make an U-turn on what they have announced so publicly & so surely. It will cause them to lose face even if it was the right thing to do. Die die also cannot lose face. Sad. Well it might cause them mightily in the long run. This event and the way the MAS & the Ministers have handled it could cause the PAP a lot of votes given the substantial loss of hard earned retirement savings by this big group of ordinary middle class citizens. Will this be their "Black Swan" event so to speak. We just have to wait and see at the next GE.

Anonymous said...

Do you think that Mr Goh Chok Tong, Lim Hng Kiang and MAS will risk losing face for $500 million of ordinary citizen's money? I think they value their face more than $500 million. For the Minibonds, the moment they ask the Singapore banks (including those who are involved in Hong Kong like ABN AMRO) to also justly compensate Singapore customers the same amount, they will lose face. They are admitting that the Hong Kong authorities and government are doing a better job than them since they are finally following Hong Hong. No way how can lose face like that. Face above fairness for Singaporeans. That is the way it is. Face is more important than $500 million of citizen's money.

Anonymous said...

Come next GE before year 2012 we shall see.

Anonymous said...

I am grateful to Today and writer for the article. People's voice need to be heard - compensate the investors !!!

Anonymous said...

They finally follow Hong Kong to raise the fixed deposit insurace amount last year.There is no face to lose if they want to do right thing.

Anonymous said...

GE and the agents must be investigated by MAS for mis-selling and cheating.
Is MAS sheiking from its duty?

Tan Kin Lian said...

Some people have been posting unfair comments to attack GE agents for selling the Great Link Choice.

I recall that the features of the GLC was properly disclosed to the investors. The agents had done their work. It is unfortunate that the credit crisis had caused the product to drop in value. The product was not suitable to be sold to the public, but this is NOT the fault of the agents.

Having done the work to sell the GLC, the agents now had to refund the commission that they earned. So, it is already tough for them. I do not think that they should be further criticised.

Anonymous said...

Agree with Mr Tan. The GE agent that sold me GreatLink Choice has been helpful since the product value tanked and my concerns. On other hand, UOB Kay Hian broker who sold me minibond avoided me and showed a couldn't care less attitude. Lesson from this - GE Life is definitely a much better company to put your investments.

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