Contributed by R Williams
Inflation keeps rising … 5 to 6%
Savings rate depressed … 1 to 2%.
Your fixed deposit has just matured, or you have some hard-earned life savings to put to work.
Like any prudent saver, you look for reasonable return, reasonable risk. You were not prepared to gamble with these savings.
You were attracted by promotional literature and bank employees touting " 5% Return ! , … Solid Foundations !, … Low Risks !, … Defensive !, …".
You signed the dotted line, "comforted" by employees from trusted institutions.
SURPRISE ! SURPRISE ! : you have just lost/risked your entire savings, buying insurance you did not know about, and placing bets against the failure of any one of 6 company names prominently marketed to you, but not explained to you that the actual probability of failure is, in fact, multiplied 6-fold, and not decreased 1/6th , or that the risks were compounded to include the failure of 10 of 150 other companies/securities you were never told or heard of. Did you suddenly change your mind and decide to gamble away your entire savings ?
Did the advertisements or anyone from the banks and FIs tell you before you signed on the dotted line that you have actually :
1) bought insurance from, and
2) swapped bets with, Lehman/Merrill Lynch/Morgan Stanley/DBS, and
3) underwrote extremely high risks with 150 companies/securities that were never revealed to you, as an owner of these products, even till today ?
Did you know that when you stepped into the bank or FI, you actually wandered into a CASINO and you unwittingly placed BETS with Lehman/Merrill Lynch/Morgan Stanley or DBS ?
Did you realize that you were not told of the REAL ODDS, unlike in a REAL CASINO ?
Did you know that you were actually buying INSURANCE protecting Lehman and the other banks manufacturing these poisonous products ?
Did you know that you were actually TRADING RISKS with Lehman and these banks ?
Were you blissfully thinking that you were just putting your hard-earned savings to work for a paltry 5% return over 5 long years ?
Were you were expected to be conversant with, let alone learn, esoteric terms like : "counter-party risks", "first-to-default", "credit-default swaps" , "collaterised debt obligations" etc , financial concepts which require deep understanding of complex mathematical models ? You had to be a mathematician, a financial engineer and an actuary ( with a real interest in probability, statistics, risks analysis ) to appreciate even a bit of what was offered, and run through complicated mathematical models to discover the full risks, not just the vigorously promoted false pretense of the "low" risk of 1 of 6 known companies collapsing. Does this not amount to deception ?
If this is the case, and the products were sold through advertisements not highlighting the actual risks of the products, and sales employees not qualified with the above skills, how can loyal and trusting customers be now ridiculed with taunts of "buyers beware" and be told that you are "not vulnerable" ?
If these products require so much specialized knowledge and skills to even begin to understand them properly, how can they be sold like a "commodity" ?
Whose responsibility is it if the mass market is sold "commodity" products which turn out to be cleverly disguised and harmful to consumers ? Should we expect the consumers to suffer the pain and anguish and "move on" ?
"Banks not out to cheat" ?
The housing bubble started to burst in 2006, yet the products were engineered and sold in 2006. In other words, when the products were first sold, they were already "destined to fail right from the start". Furthermore, by selling the products in different Series ( to give the appearance of overwhelming "success", and thereby, sucking in more and more and more victims ) and, to even continue selling in 2007 and late into 2008, with full knowledge of the rotting "underlying securities" ( "liar loans" in US mortgages which made up the CDOs are loans with no chance of repayment as they were given without any proof of income nor collateral ), does this not show intent to defraud ?
Yet, no visible action is being taken to punish wrong-doers, especially the discredited "investment" banks, whereas in the United States, State Regulators and the Courts have been UNIMPRESSED with, and REJECTED the banks' defence of "buyers beware" and " caveat emptor" . Instead, banks there have been fined heavily and forced to completely return billions to individual customers, Municipalities ( Town Councils ), School Districts, etc.
Perversely, over here, lower-level bank employees are now becoming the second wave of victims.
The original victims and their loved ones are the people ridiculed and labelled "greedy" ( for 5% return on savings locked in for 5 long years ? ), "not vulnerable" ( for being under 62 and educated ? ), "they deserve it for trusting people" ( for believing in the banks and FIs ? ), "hard luck" ( for not keeping tape-recorded evidence of conversations, for not disputing what was hurriedly written about them, for not doing due diligence on 85-page prospectuses, for not knowing they were in a betting game of trading risks with counter-parties, etc).
For being simple-minded human beings, the 10,000 victims are the ones punished, trying to be prudent savers. Now, we have a second wave of victims.
Is this fair ?
R Williams
Saturday, November 8, 2008
SCMP:Bank admits substandard tactics
http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=QFNVC9DS4FG6&linkid=bfabf212-c096-4704-8aeb-8fb450dc7661&pdaffid=8HM4kDzWViwfc7AqkYlqIQ%3d%3d
8 Nov 2008
Joyce Man
Standard Chartered Bank admitted yesterday it had used substandard methods to sell derivatives issued by bankrupt firm Lehman Brothers to some customers.
Benjamin Hung Pi-cheng, Standard Chartered executive director and chief executive officer, said the bank had concluded an initial investigation. Although it had not found any systemic problems, there were cases where sales methods had been below the bank’s internal standards.
“The bank is willing to bear full responsibility and will handle [the cases] accordingly,” he said.
Meanwhile, Bank of China (Hong Kong) settled with two customers yesterday.
Standard Chartered customers have been complaining since September along with thousands of investors who bought Lehman-related products from other banks.
The bank sold Lehman-issued derivatives, but not minibonds, to 2,200 customers, 10 per cent of whom were elderly, Mr Hung said. It is initially dealing with customers aged 65 and over with little investment experience. Some elderly customers were financially well-educated, he said.
The bank had formed an independent group covering sales issues and would conduct individual and thorough investigations of each case. Mr Hung did not disclose the total amount invested, or what compensation, if any, had been agreed.
Elsie Ho, representing a group of Standard Chartered complainants, said so far two investors out of about 150 who registered with the group had reported settling with the bank.
She was surprised to learn that more than 2,000 customers were involved, instead of the 300 she had estimated.
The Monetary Authority referred 24 more cases to the Securities and Futures Commission yesterday, bringing the total to 96.
BOCHK settled with two customers, named only as Mr Wong and Ms Tseng. Mr Wong was seen leaving the bank smiling yesterday.
The customers were satisfied with the arrangements, said the Democratic Alliance for the Betterment and Progress of Hong Kong, which had been helping them.
The group Allied Victims of Lehman Products will hold a candle-light vigil this evening.
8 Nov 2008
Joyce Man
Standard Chartered Bank admitted yesterday it had used substandard methods to sell derivatives issued by bankrupt firm Lehman Brothers to some customers.
Benjamin Hung Pi-cheng, Standard Chartered executive director and chief executive officer, said the bank had concluded an initial investigation. Although it had not found any systemic problems, there were cases where sales methods had been below the bank’s internal standards.
“The bank is willing to bear full responsibility and will handle [the cases] accordingly,” he said.
Meanwhile, Bank of China (Hong Kong) settled with two customers yesterday.
Standard Chartered customers have been complaining since September along with thousands of investors who bought Lehman-related products from other banks.
The bank sold Lehman-issued derivatives, but not minibonds, to 2,200 customers, 10 per cent of whom were elderly, Mr Hung said. It is initially dealing with customers aged 65 and over with little investment experience. Some elderly customers were financially well-educated, he said.
The bank had formed an independent group covering sales issues and would conduct individual and thorough investigations of each case. Mr Hung did not disclose the total amount invested, or what compensation, if any, had been agreed.
Elsie Ho, representing a group of Standard Chartered complainants, said so far two investors out of about 150 who registered with the group had reported settling with the bank.
She was surprised to learn that more than 2,000 customers were involved, instead of the 300 she had estimated.
The Monetary Authority referred 24 more cases to the Securities and Futures Commission yesterday, bringing the total to 96.
BOCHK settled with two customers, named only as Mr Wong and Ms Tseng. Mr Wong was seen leaving the bank smiling yesterday.
The customers were satisfied with the arrangements, said the Democratic Alliance for the Betterment and Progress of Hong Kong, which had been helping them.
The group Allied Victims of Lehman Products will hold a candle-light vigil this evening.
SCMP:Minibonds meeting ends in recriminations
http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=QFNVC9DS4FG6&linkid=9d8feb82-75fc-48b9-a551-9f7eb64f0243&pdaffid=8HM4kDzWViwfc7AqkYlqIQ%3d%3d
8 Nov 2008
Ambrose Leung
A meeting between bankers and lawmakers over how to resolve the Lehman Brothers minibonds saga ended with complaints on both sides yesterday, with some politicians saying “no sincerity” had been shown at the gathering.
Representatives of Hong Kong’s leading banks, who initiated the meeting, also complained about pressure on them to compensate affected investors ahead of next week’s vote, when lawmakers will decide on whether to invoke the Legislative Council (Powers and Privileges) Ordinance to investigate the issue.
The two-hour meeting at a private club in Central, which was organised by banking-sector lawmaker David Li Kwok-po, was attended by all major political parties and banks.
But several lawmakers, including Democrat Kam Nai- wai, Liberal Party chairwoman Miriam Lau Kinyee and Starry Lee Wai-king of the Democratic Alliance for the Betterment and Progress of Hong Kong, walked out after 20 minutes. “We cannot accept the bankers’ culture of chatting in a clubhouse,” Mr Kam said. “Unlike a social function, such an important issue must be discussed over a conference table.”
Financial services lawmaker Chim Pui-chung said he had hoped to discuss the steps banks would take to buy back the minibonds, but had been disappointed.
In the meeting, He Guangbei, chairman of the Hong Kong Association of Banks, said the banking sector was very concerned over the plight of small investors and had been working to resolve the issue.
“Everybody knows that the seriousness and wide-reaching effects of the financial tsunami are unprecedented and the banks were at the forefront of the wave when it hit. But even under these circumstances, the banks have still deployed huge resources and manpower to give priority to the Lehman Brothers incident,” Mr He said.
About 43,700 Hongkongers invested HK$15.7 billion in Lehmanlinked derivatives sold by local banks and stockbrokers. Most bought minibonds – which are not corporate bonds but high- risk investments deriving part of their value from the performance of underlying assets.
Civic Party leader Audrey Eu Yuetmee said: “During the entire meeting, not one banker stood up to say that if Legco invokes its special investigative powers it would affect their operations,” she said.
Lawmakers will vote on Wednesday to decide on whether a special subcommittee set up last month should be empowered to investigate the minibonds incident.
8 Nov 2008
Ambrose Leung
A meeting between bankers and lawmakers over how to resolve the Lehman Brothers minibonds saga ended with complaints on both sides yesterday, with some politicians saying “no sincerity” had been shown at the gathering.
Representatives of Hong Kong’s leading banks, who initiated the meeting, also complained about pressure on them to compensate affected investors ahead of next week’s vote, when lawmakers will decide on whether to invoke the Legislative Council (Powers and Privileges) Ordinance to investigate the issue.
The two-hour meeting at a private club in Central, which was organised by banking-sector lawmaker David Li Kwok-po, was attended by all major political parties and banks.
But several lawmakers, including Democrat Kam Nai- wai, Liberal Party chairwoman Miriam Lau Kinyee and Starry Lee Wai-king of the Democratic Alliance for the Betterment and Progress of Hong Kong, walked out after 20 minutes. “We cannot accept the bankers’ culture of chatting in a clubhouse,” Mr Kam said. “Unlike a social function, such an important issue must be discussed over a conference table.”
Financial services lawmaker Chim Pui-chung said he had hoped to discuss the steps banks would take to buy back the minibonds, but had been disappointed.
In the meeting, He Guangbei, chairman of the Hong Kong Association of Banks, said the banking sector was very concerned over the plight of small investors and had been working to resolve the issue.
“Everybody knows that the seriousness and wide-reaching effects of the financial tsunami are unprecedented and the banks were at the forefront of the wave when it hit. But even under these circumstances, the banks have still deployed huge resources and manpower to give priority to the Lehman Brothers incident,” Mr He said.
About 43,700 Hongkongers invested HK$15.7 billion in Lehmanlinked derivatives sold by local banks and stockbrokers. Most bought minibonds – which are not corporate bonds but high- risk investments deriving part of their value from the performance of underlying assets.
Civic Party leader Audrey Eu Yuetmee said: “During the entire meeting, not one banker stood up to say that if Legco invokes its special investigative powers it would affect their operations,” she said.
Lawmakers will vote on Wednesday to decide on whether a special subcommittee set up last month should be empowered to investigate the minibonds incident.
Exchange currency in a bank - an analogy
Posted at request of HS
Mr ABC is American currency expert. As there are a lot of counterfeit in the US currency, sometime money changers or even banks will ask Mr. ABC for verification.
Now, Mr ABC would like to tour Europe with his family and, being not the expert in the EURO, he decided to exchanged the EURO in the Big and reputable Bank, CAR Bank.
Soon after, Mr ABC discovered that some of the EURO are counterfeit. He went to CAR Bank and complain about it (the counterfiet EURO).
The Bank response :
1. You are a currency expert and you should know how to differentiate the counterfeit from the real !!
2. Buyer Beware - you should have checked all the pieces of the EURO before you leave the Bank, how can you just trust the bank teller.
3. No body asked you to come here and nobody put the knife over your neck to change the Euro.
Comments 2 and 3 are self explanatory, but I want to mention about comment No 1.
Being an expert in American currency does not equal to expert in currencies. So even though an investor is familiar with some financial product, no one should expect him, thus, to know all the financial product, in this case I refer to HN2, HN5, Minibond, Jubilee 3 etc.
HS
Mr ABC is American currency expert. As there are a lot of counterfeit in the US currency, sometime money changers or even banks will ask Mr. ABC for verification.
Now, Mr ABC would like to tour Europe with his family and, being not the expert in the EURO, he decided to exchanged the EURO in the Big and reputable Bank, CAR Bank.
Soon after, Mr ABC discovered that some of the EURO are counterfeit. He went to CAR Bank and complain about it (the counterfiet EURO).
The Bank response :
1. You are a currency expert and you should know how to differentiate the counterfeit from the real !!
2. Buyer Beware - you should have checked all the pieces of the EURO before you leave the Bank, how can you just trust the bank teller.
3. No body asked you to come here and nobody put the knife over your neck to change the Euro.
Comments 2 and 3 are self explanatory, but I want to mention about comment No 1.
Being an expert in American currency does not equal to expert in currencies. So even though an investor is familiar with some financial product, no one should expect him, thus, to know all the financial product, in this case I refer to HN2, HN5, Minibond, Jubilee 3 etc.
HS
Rejection letter by DBS
Hi Mr Tan Kin Lian
It's been a dismay after this long struggle for justice with DBS ending with yet another rejection letter from DBS on the appeal against their High Notes 5.
Even if we raised a number of direct and specific questions about the Mar and Jun letters from them urging and misleading investors into holding on to their Notes till the fateful day of 15 Sep, they simply refused to offer any replies on these questions.
The only thing that DBS keep referring to is that the investor has signed on the sales agreement, which we thought is the obvious otherwise how could the product be sold in the first place.
The appeal on mis-selling on the part of DBS and the many issues surrounding the complex product went totally unanswered.
What should we do now?
REPLY
You can sign a statutory declaration and bring it up to DBS again. The statutory declaration should state the grounds of mis-selling. If they still reject your complaint based on the statutory declaration, you can take it up to FiDREC. You can also join the collective legal action.
Read my blog:
http://tankinlian.blogspot.com/2008/10/general-advice-to-investors-of.html
It's been a dismay after this long struggle for justice with DBS ending with yet another rejection letter from DBS on the appeal against their High Notes 5.
Even if we raised a number of direct and specific questions about the Mar and Jun letters from them urging and misleading investors into holding on to their Notes till the fateful day of 15 Sep, they simply refused to offer any replies on these questions.
The only thing that DBS keep referring to is that the investor has signed on the sales agreement, which we thought is the obvious otherwise how could the product be sold in the first place.
The appeal on mis-selling on the part of DBS and the many issues surrounding the complex product went totally unanswered.
What should we do now?
REPLY
You can sign a statutory declaration and bring it up to DBS again. The statutory declaration should state the grounds of mis-selling. If they still reject your complaint based on the statutory declaration, you can take it up to FiDREC. You can also join the collective legal action.
Read my blog:
http://tankinlian.blogspot.com/2008/10/general-advice-to-investors-of.html
Has MAS responded to the 3 petitions?
Someone asked if MAS has responded to me on the three petitions. I will give an update at the next meeting in Hong Lim Park on 15 November 2008.
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