Wednesday, July 1, 2009

SCMP:Minibond victims try to storm bank in protest

2 July 2009

Thousands of investors who lost money on Lehman Brothers minibonds held a noisy and sometimes emotional rally yesterday, calling on the chief executive to step down, and saying the fiasco had yet to be resolved.

Waving black banners with the slogans "Lehman [saga] unresolved" and "[Chief Executive Donald] Tsang Yam-kuen step down", the group marched from Victoria Park to the Bank of China tower in Central.

However, protesters became emotional outside the bank, and several tried to storm it. "Give me back the money, Bank of China!" shouted protester Peter Lee as he tried to break through the police line and pull away metal barriers. The 47-year-old had bought more than HK$1 million of minibonds from the bank, the biggest seller of Lehman Brothers-linked investment products in Hong Kong.

"A 100 per cent buy-back!" shouted another protester.

Trying to calm protesters, Peter Chan Kwong-yue, chairman of the Alliance of Lehman Brothers Victims, organiser of the rally, called on them to gather at the building again on National Day, October 1, if the bank had failed to settle the dispute.

Organisers said 25,000 took part in the march, but police said about 4,000 left Victoria Park for Central.

About 48,000 Hongkongers lost most of the HK$20 billion they invested in credit-linked derivatives, such as minibonds, issued or guaranteed by Lehman Brothers, when the American investment bank collapsed in September. Minibonds are not corporate bonds, but consist of high-risk credit-linked derivatives. They are marketed as a proxy investment in well-known companies.

The protesters said they took to the streets because Mr Tsang and the regulators failed to force financial institutions to offer a 100 per cent buy-back of the minibonds. "I'm here today because the bank has cheated me of all my money. I want my money back," Yu Shing, 79, said. Mr Yu insisted on joining the march even though he had difficulty walking after a stroke in November.

Sandra Chow, 45, said she wanted to show her support for other victims although she had already settled her case with the bank.

A government spokesman said that the administration recognised the difficult circumstances faced by minibond investors, and expressed the hope "that the institutions involved will expedite the proper handling of the matter".

He said banks and trustees had been urged to safeguard the interests of holders.

MRT train lines to come under a single operator

There are advantages for all the MRT train lines to come under a single operator. However, there is a snag. How can this be overcomed? Read my suggestion here.

Cheating and negligence

What is cheating? What is negligence? Why are these points relevant to the investors of the credit linked notes? What can be done to address these weaknesses? I am writing on these matters over the next four days. Tell your friends to visit this blog.

Vista Plan (from Zurich)

Only 3 policyholders replied to my survey on the Vista plan. I have given the contact details to these respondents to contact each other, and decide on their action.

Administration of Justice (2)

On the issue of the credit linked notes, someone made a comment in my blog that, under the law, if you agree to a disclaimer to absolve the distributor from liability, you do not have any case - even if the distributor is negligent or fraudalent. He quoted with a purported knowledge of the law, as applied in Singapore.

I disagree with his comment. I believe that fraudalent acts, including the intent to cheat, cannot be covered by such disclaimers. I also believe that negligent acts, cannot be covered by such disclaimer, if they cover matters that the distributor, as a financial adviser, ought to know.

For example, if I see a doctor, I expect that the doctor ought to know that certain drugs are dangerous and unsuitable to be prescribed to a patient. The doctor cannot get away by asking the patient to agree a general disclaimer to absolve the doctor from liability.

The challenge to the consumer, in the case of the credit linked notes, is in finding the money to take a legal case against the distributor who gave wrong advice. The consumer does not have the means to challenge a financial institution, who has access to the top lawyers in town.

In many countries, the consumers can depend on the following avenues to uphold justice:
a) The regulator - who has the duty to enforce the law
b) The consumer association - who takes up the matter to protect the interest of consumers.
c) The politicians - who speak and act for the ordinary people to win their votes
d) Lawyers - who takes the risk under a contingency fee system

Take a look at what happens to similar cases in America or Hong Kong. Action has been taken by some of these parties.

Unfortunately, these channels are not available to consumers in Singapore. It is a sad state of affairs here.

Tan Kin Lian

Gathering in Speakers Corner

So far, only 14 people replied to the survey mentioned in this blog. Each person indicated that they will ask a small number of people to attend. None are willing to speak. If you like the gatehring to be organised, please give your reply here.

Compensation should not solely be based on vulnerability

Dear Mr Tan:

1 I fully agree with you that compensation for loss in relation to the defaulted high risk structured product to retail investors should not be solely based on consideration on "vulnerability", standard of education, age or other factors at the expense of the principle of fairness and justice.

2 In their 3-steps guide for investors, MAS clearly state that FIs should take responsibility for cases where (a) there are sufficient indications that the product was mis-sold, or (b) it was clearly inappropriate given the investor's profile and circumstances. It is clear that investor's profile and circumstances (i.e. vulnerability, standard of education, age or other factors) should be taken into consideration only for cases where there is no clear evidence of mis-selling. This is to help the vulnerable and needy group of customers and should be given the priority.

3 The approach adopted by the FIs on consideration merely based on investor's profile and circumstances is against and not abiding by the MAS's guiding principles. Instead, we can see how smart the FIs are in turning these guiding principles into their favor. These principles were actually meant for fairness and justice to be given to all retail investors but utilized by the FIs to reject complaints from probably all the non-vulnerable group of customers, and this non-vulnerable group of investors have the major portion of the total investment

4 The existing Financial Adviser Act (FAA), though incomplete, are rather stringent for the sale of financial products to customers. Section 27 of the FAA requires FIs to pay damage or loss for inappropriate sale of high risk financial product to vulnerable customers. Under Section 25 of the FAA, it is an offence for not disclosing the complete product material information to customer during the process of sale and the contravener is liable to a fine and imprisonment. We all know that the true nature and risks of the product were not or fully disclosed to retail investors. As such, ones can see that mis-selling of financial product mainly occurred as a result of breach of laws by the FIs. The mis-selling of financial products here is not much different from that in Hong Kong but the Hong Kong SFC has taken the pro-active approach in the administration of fairness and justice to be given to their citizens and this has been seen by majority of the Hong Kong people and our Singaporeans as well.

5 It is timely that you have called upon MAS, who is the regulator, to exercise their authority to maintain the principle of fairness and justice in the spirit of law. MAS has the responsibility to ensure that laws are adhered to by the FIs. MAS play a decisive role on this matter.

RK

SCMP:Policy chief expects march to reflect increasing civil discontent

1 July 2009

The government's top adviser expects the turnout for today's march to surpass last year's 47,000 because of the economic downturn and growing discontent with the administration's handling of controversial issues.

Lau Siu-kai, head of the Central Policy Unit, yesterday said that regardless of the turnout, the government should strive to improve its governance and restore people's confidence in the economic outlook.

Professor Lau said it was not sensible to use the turnout for a single march as the only yardstick to gauge changes in the political climate. He said economic indicators such as the jobless rate and the number of personal bankruptcy petitions should also be taken into account.

Professor Lau, who predicted shortly before the July 1 march in 2003 that only 30,000 would join the protest, declined to give an exact estimate for today's rally. Half a million turned out for the 2003 march.

He said he expected the number of people at today's march to be higher than last year.

He said the Central Policy Unit had conducted surveys recently on whether people intended to take part in the rally, but declined to reveal the outcome.

The Civil Human Rights Front, which organises the annual prodemocracy march, estimated that 47,000 people protested last year. But the police estimated last year's turnout at 15,500. A government source said earlier that the turnout for this year's march was expected to reach 100,000 or more.

Professor Lau admitted that Hong Kong's economy was facing hard times and many people were worried about the prospects for the economy.

"The government's handling of several issues in the past year has aroused dissatisfaction among many people," he said.

The top adviser cited the controversy over the appointment of deputy ministers and political assistants, the public outcry over the government's approval of an application by former housing chief Leung Chin-man to work with property developer New World China Land, and the administration's perceived failure to monitor the sale of minibonds issued by Lehman Brothers. Minibonds are not corporate bonds, but consist of high-risk credit-linked derivatives.

Professor Lau noted that young people were increasingly dissatisfied as the jobless rate for this sector of the community was higher than for other age groups.

"Many young people feel their expectations can't be realised, as social mobility in recent years is lower than for previous generations," he said, "A considerable number of young people have developed an anti-establishment mentality."

Professor Lau said economic development ranked much higher than democratic progress among the concerns of Hong Kong people.

Ivan Choy Chi-keung, a political scientist at Chinese University, said Professor Lau's assessment of public discontent was sensible. Mr Choy predicted a turnout of around 100,000 for today's march.