Saturday, October 25, 2008

Leveraged Dual Currency Investments

I have been advising people to avoid Dual Currency Investment for the past year. My views are stated in this FAQ: http://www.tankinlian.com/faq/duali.html

This type of investment allows you to bet on currency movements. You stand the chance of a big loss when the currency moves against you. You only get a small return (in the form of a higher interest rate) when currency moves in your favour.

Recently, the AUD dropped by 30%. Those who were "long" in AUD lost 30%. But those who were "short" in AUD did not gain 30%. They only gain 1% or 2% in higher interest. The bank keeps the remainder of the profit.

I learned to my horror that unsophisticated investors were asked to invest in "leveraged" dual currency investments. The bank lends them 4 times of their investment, so that they can take 5 times of the risk. If the currency drops by 20%, their total investment is wiped out (i.e. 20% X 5 times).

The relationship manager of the bank who sold the leveraged DCI earned 5 times of the commission on this product. But, it wiped out the total savings of the investors.

Someone told me that her mother lost $500,000 on this type of investment. Another retiree told me that he lost $150,000 in 2 months, out of the invested sum of S200,000.

Do not invest in any of these products. Be careful about the advice of the relationship managers.

Pinnacle Notes - lodge a complaint now

Dear Mr. Tan,
I met the RM of my bank and asked about the Pinnacle Notes. The RM said that there is no problem with the Pinnacle Notes now, and if the reference entity does not "credit event", I will be able to get back 100% of my invested sum.

I asked about the price of the Pinnacle Notes now, but the RM said that I should sell but wait until maturity to get back 100%. Is this correct?

REPLY
You should ask the relationship manager to put the assurance in writing that 100% of the invested sum will be paid back on the maturity date, if there is no credit event involving any of the reference entities.

It is better for you to lodge a complaint now about mis-selling, as the price of the Pinnacle Notes have dropped significantly and you these notes may default before the maturity date. Even if there is no default, you may get less than 100%.

HK Monetary Authority refers 40 more 'mini-bonds' cases to SFC

Saturday, 25 October 2008

The Hong Kong Monetary Authority said yesterday it had referred to the Securities and Futures Commission 40 more cases of alleged mis-selling of Lehman Brothers-backed financial products by banks.

"The 40 cases, which are the second batch of Lehman-Brothers-related cases referred in this way, involved alleged misconduct by two licensed banks in Hong Kong," the city's de-facto central bank said in a statement.

It said one of the banks in question was also involved in the first batch of 24 cases it referred on October 17.

Up to Thursday, the authority said it had received 16,301 complaints by investors who said their banks had sold them "mini-bonds" backed by the collapsed US giant without having fully explained to them the risks involved.

Apart from the 64 referrals to the SFC, the authority said it had opened investigations on 285 complaints and was seeking further information on 1,942 complaints.

In light of the large number of complaints, the authority said it would have to streamline the investigation process by identifying groups of cases with common features in making referrals to the SFC.

The Hong Kong Association of Banks said in a statement Friday that individual banks had since earlier this week started the process of settling with relevant investors, particularly elderly customers with no investment experience.


The association said its special task force will be in close liaison with the Monetary Authority to explore a mediation mechanism between the banks and their investors.

Thousands of investors have held protests across the territory in the past few weeks claiming the banks mis-sold the mini-bonds as risk-free investments, and lured vulnerable citizens into using up their life-savings.

Although the banks agreed last week to adopt a government proposal for them to buy back the products from customers at their current market value, the move failed to pacify investors who said they would get back a portion of their investment.


The mini-bonds are complex financial products linked to a bundle of derivatives backed by Lehman, and their value plummeted after the investment bank collapsed in September.

http://www.macaudailytimesnews.com/index.php?option=com_content&task=view&id=18068&Itemid=34

Speech at Speaker’s Corner – 25 Oct 2008


http://theonlinecitizen.com/2008/10/investors-to-submit-fourth-petition-to-mas/#respond

1. Lodge your complaint
The first step is to lodge your complaint with the financial institution that sold the product to you.

Be honest. In your report, you should state honestly what you were told and what you were led to believe, when you decided to invest in the product. Many investors were assured that the structured product is “safe” and “low risk” and is a good alternative to “fixed deposit”. If this is the case, you can state it honestly.

Do not worry that you have signed forms given to you by the sales representative (or relationship manager). If you were not told about the content of the form and did not get a clear explanation on what the statements meant, you can state it in your report.

The most important point is to state how you were misled, and what you were told by the sales representative.

I have printed the forms for you to collect the relevant information to complete your complaint. You can get the assistance of the volunteers, if you are not clear about the type of information that is needed.

Read this advice:
http://tankinlian.blogspot.com/2008/10/general-advice-to-investors-of.html

2. “Non-Vulnerable” Investor
Many investors were unsure about how they will be treated, as the fall outside of the “vulnerable” group. So far, MAS and the financial institutions have not stated how these investor will be treated.

Let us take it one step at a time. You should lodge your complaint and attend the interview arranged by the financial institution. You can state honestly what is contained in your statement that you lodged with the financial institution.

If you do not wish to attend alone, you can bring a family member, friend or fellow investor to accompany you.

3. Dispute Resolution Center
If you are not able to get a satisfactory compensation from the financial institution, you can bring you case to Financial Industry Dispute Resolution Center, FiDREC (http://www.fidrec.com.sg/). You pay a fee of $50.

FiDREC will form a panel to consider your complaint. FiDREC has the authority to pass a judgment that is binding on the financial institution. This decision is NOT binding on the consumer. The consumer still has the right to take the case to court.

At present, FiDREC has the authority to decide on claims up to $50,000. It can hear larger cases, subject to agreement of the financial institution.

4. Open Forum with Financial Institution
I suggest that investors should get together, according to the financial institution that sold the product to you, to request the financial institution to hold an open forum with the investors to discuss the following:

a) How the investors were misled by the information given by the sales representatives

b) How the financial institution can compensate the investors for their loss, caused by the bad advice and mis-information.

5. Petition #4
There are a potential of 10,000 cases to be handled. So far, just a handful of cases under the “vulnerable group” have been handled. It will take a long time for these 10,000 cases to be resolved, using the “case by case” approach. Many of those affected have still not lodged their complaint.

I will be organizing another Petition #4 addressed to the chairman of MAS. This is to ask MAS to help find a collective solution to the mis-selling by the financial institutions. A collective approach will reduce the stress on the individual investors in making the complaint and will ensure that fair compensation is given to all the affected investors, according to the category that they fall under.

6. Legal action
Some investors wish to take collective legal action. I like them to be aware that it can be costly and risky to take this action. It should be considered only as a last resort.

Before the investors decide to take this action, they should be aware about the cost and the chance of winning the case. They must also agree on the approach. They may be able to get different estimates of the cost from other lawyers.


Tan Kin Lian
http://www.tankinlian.blogspot.com/