Wednesday, August 5, 2009

Call to investors

I have written a few blog postings in RED, calling on the financial institutions to offer the Hong Kong settlement.
If you agree with them, you can send the blog posting to the financial institution that sold the credit linked note to you. You can also send it to your Member of Parliament or other channels, asking them to take up your matter.
If more investors do this, it may create an impact.

Volunteers for 22 August Gathering

I need volunteers to help with the following duties for the Gathering on 22 August:
a) Hold up the placards
b) Collect signatures for the Petition - you will be provided with a hard backing board and signature forms
c) Distribute flyers
d) Sell my books - 50% of proceeds will go towards the expenses
If you are able to help, please send an email to kinlian@gmail.com.

Great Eastern Life is maganimous

When Great Eastern Life sold the Great Link Choice, the product was explained quite transparently. I recalled reading some description of the product in the newspapers. It was clear that on reaching a certain number of credit events, the value of the investment would drop sharply and after passing a threshold, it would be worthless.

The mistake was in allowing this type of "gambling" product to be sold to the general public. There is no way that any investor will be able to assess the risk of losing all their money. They had to rely on the advise of the financial adviser (i.e. insurance agent) and the credit rating agency. The Monetary Authority of Singapore should not have allowed the general public to gamble away all of their money for a small increase in interest rate.
Great Eastern Life made the mistake of selling this product, but several other insurance companies also sold similar products. NTUC Income, which was managed by me during this period, avoided this type of product, resulting in a decline in our market share.
Most policyholders who bought the product were probably told that there is a risk, but were probably assured (wrongly) that the risk is very small. It would be fair for the policyholders to take partial responsibility and bear a portion of the loss. Some policyholders might not have been told of the risk, or might have been misrepresented about the risk, but this is a separate matter.
It is magnanimous (highly generous) of Great Eastern Life to offer a full buyback of this investment product. I congratulate them for this goodwill gesture, which is costly to their shareholders. I hope that all policyholders who got back their money understand that they have been generously treated.
Great Eastern Life has to write off a loss of $250 million. It could be more, if the credit market continue to deteriorate. It could be less, if the credit market improves in the future. No one knows what the future will hold.
I like to wish all the best to Great Eastern Life and hope that they will be rewarded for their generosity, through an improvement in the credit market. In the best possible case, they may fully recover the $250 million that was set aside. At that time, I hope that the policyholders will not ask for the interest to be paid to them (as it would be an unfair expectation).
Whatever the outcome, Great Eastern Life would probably be rewarded by the goodwill gained from the compensated policyholders, their families and friends and the general public in Singapore.
I call on the other insurance companies who have sold similar products to offer a buyback arrangement. It does not have to be as generous as Great Eastern Life, but it should share the loss (or gain) equally between the policyholders and the insurance companies. This would be a fair settlement.
Tan Kin Lian

Conduct in this blog

Someone asked if I accept criticism of my views in this blog. The answer is "yes", but I expect the following conduct:
a) The person must state his/her real name and connection to this issue
b) The remark must be fair and respectful.
I do not accept criticism from any anonymous person. It is cowardly and unfair. They often denegrate into personal attacks.
I have also blocked attacks against other people or groups. I allow some to go through, especially if they express grievance of people who felt that they have suffered injustice (such as the episode on the credit linked notes).
I observe the following conduct in posting my views:
a) I do not criticise any person or pass judgement on them
b) I use my real name; people know my background
c) I write on issues that I agree with (being positive) and disagree with (giving an alternative view)
d) I show repect to the views of other people
I hope that other commenters in this blog will observe a similar conduct.
Tan Kin Lian



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

5 August 2009

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

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

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

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

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

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

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

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

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

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

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

Timing the stockmarket

Dear Mr. Tan,
I have invested in blue chips, including (names deleted). These stocks are high dividend yield stocks. I bought them during the Sep 2008; just before the crash of Lehman Bro's.

With the recent recovery in the stock market, my portfolio has finally break-even in value. I am wondering should I sell all my positions now to "play safe" or should I stay put and do nothing; collect the dividend.

I don't think the current recovery in the stock market is sustainable. Please advise...

REPLY
I am not able to advice on timing decisions. If you sell the stocks, remember that the money earns you less than 1% p.a. in the bank. In my case, I am holding on to my equity investments, although they are still lower than my cost.