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
http://www.mas.gov.sg/news_room/press_releases/2008/Actions_Taken_to_Protect_Interests_of_Noteholders_of_the_Lehman_Minibond_Notes_Programme.html
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.'
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
http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=M9PLL02UTS62&linkid=a2ab012b-27ad-4bc4-8fa5-6dae21f8a038&pdaffid=8HM4kDzWViwfc7AqkYlqIQ%3d%3d
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.
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.
J
REPLY
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.
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.
J
REPLY
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
http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=F7GHF78RW806&linkid=7d193dd3-7937-410d-8020-6bc03178e4f0&pdaffid=8HM4kDzWViwfc7AqkYlqIQ%3d%3d
12 Nov 2008
Chris Yeung is the Post’s editor-at-large. chris.yeung@scmp.com
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.
12 Nov 2008
Chris Yeung is the Post’s editor-at-large. chris.yeung@scmp.com
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
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?
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
REPLY
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.
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
REPLY
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”:
QUOTE
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.”
UNQUOTE
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:
QUOTE
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
System.
UNQUOTE
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:
QUOTE
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.”
UNQUOTE
7. Annex 2 contains an article written from the perspective of an investor.
8. Thank you.
Tan Kin Lian
RESPONSE FROM MAS
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.
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”:
QUOTE
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.”
UNQUOTE
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:
QUOTE
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
System.
UNQUOTE
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:
QUOTE
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.”
UNQUOTE
7. Annex 2 contains an article written from the perspective of an investor.
8. Thank you.
Tan Kin Lian
RESPONSE FROM MAS
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.
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.
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.
SB
REPLY
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.
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.
SB
REPLY
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
By OH BOON PING
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.
By OH BOON PING
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
http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=B9JBGSP78WP8&linkid=3e7f0a20-5c7e-451d-aff0-65d68033f226&pdaffid=8HM4kDzWViwfc7AqkYlqIQ%3d%3d
11 Nov 2008
Frank Ching is a Hong Kong-based writer and commentator. frank.ching@scmp.com
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.
11 Nov 2008
Frank Ching is a Hong Kong-based writer and commentator. frank.ching@scmp.com
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
http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=S33X9O24V0U1&linkid=7aac9ac7-b998-4329-ab61-9627f56aa246&pdaffid=8HM4kDzWViwfc7AqkYlqIQ%3d%3d
11 Nov 2008
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$1million worth of Lehman-related derivatives.
The Hong Kong Association of Banks’ taskforce on Lehman derivative products published full-page advertisements in several newspapers, restating that it would give priority to cases involving customers aged 65 or older.
“We will continue to file cases with the Small Claims Tribunal and District Courts,” said Democratic Party legislator Kam Nai-wai, who has been helping investors pursue their cases. The party will file up to 10 cases this week.
He said banks were too passive in reaching settlementsand legal action would speed up the process.
Democratic Sha Tin district councillor Michael Yung Ming-chau, who had assisted Mr Ting, said it would be a win-win situation for investors and banks if they could settle before facing each other in court. “ Banks shouldn’t deal with the cases only after they see [plaintiff’s] lawyers.”
11 Nov 2008
Amy Nip
Two investors in Lehman Brothers derivatives who filed a case seeking refunds reached settlements with Wing Lung Bank yesterday, saying they will dismiss their suit after they receive compensation.
They were among the five investors who filed lawsuits on Thursday with the Small Claims Tribunal against Wing Lung Bank, Citic Ka Wah Bank and Mevas Bank. The cases are to be heard on December 29.
One of the investors, a 71-year-old surnamed Ting, said he was satisfied with the settlement, but refused to reveal details. He said his confidence in banks had been restored and that he would continue to use Wing Lung Bank’s services.
In 2004, Mr Ting invested HK$ 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
http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=S33X9O24V0U1&linkid=992866db-c5c3-452b-8569-ab7277217713&pdaffid=8HM4kDzWViwfc7AqkYlqIQ%3d%3d
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.
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.
Costs
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.'
Risks
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.
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.
Costs
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.'
Risks
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)
http://www.cbsnews.com/video/watch/?id=4501762n
Video 2: Credit Default Swaps (Oct. 26, 2008)
http://www.cbsnews.com/video/watch/?id=4546583n
Video 3: Wall Street Shadow Markets (Oct. 5, 2008)
http://www.cbsnews.com/video/watch/?id=4502673n
Report 1: The Bet That Blew Up Wall Street http://www.cbsnews.com/stories/2008/10/26/60minutes/main4546199.shtml
Report 2: A Look At Wall Street's Shadow Market
http://www.cbsnews.com/stories/2008/10/05/60minutes/main4502454.shtml
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)
http://www.cbsnews.com/video/watch/?id=4501762n
Video 2: Credit Default Swaps (Oct. 26, 2008)
http://www.cbsnews.com/video/watch/?id=4546583n
Video 3: Wall Street Shadow Markets (Oct. 5, 2008)
http://www.cbsnews.com/video/watch/?id=4502673n
Report 1: The Bet That Blew Up Wall Street http://www.cbsnews.com/stories/2008/10/26/60minutes/main4546199.shtml
Report 2: A Look At Wall Street's Shadow Market
http://www.cbsnews.com/stories/2008/10/05/60minutes/main4502454.shtml
Obama's Speech at Election Night
Please click here to see President-elect Obama's
speech on Election Night:
http://my.barackobama.com/page/community/post/stateupdates/gGx3Kc
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.
speech on Election Night:
http://my.barackobama.com/page/community/post/stateupdates/gGx3Kc
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?
Regards,
REPLY
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.
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?
Regards,
REPLY
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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