27 July 2009
WHILE the Lehman Minibonds affair is far from over, a final solution to the problem of the ill-fated notes linked to the now-failed American investment bank appears to be nearer in Hong Kong than in Singapore.
Last week, Hong Kong’s Securities and Futures Commission (SFC) announced BOC Hong Kong Holdings and 15 other financial institutions in the Special Administration Region had agreed to pay at least US$0.60 ($0.86) on the dollar to the nearly 30,000 people who invested in the notes.
The total compensation in Hong Kong, where some US$1.8 billion worth of the notes were sold, will amount to about HK$6.3 billion ($1.17 billion). The final compensation will however depend on the amount of collateral the banks can recover from Lehman’s liquidators. And according to Hong Kong’s Financial Secretary John Tsang, investors could get back 70 per cent or more of their original investments.
By comparison, compensation to the nearly 10,000 people here who invested some $520 million in structured notes like the Lehman Minibonds, DBS High Notes 5 and Merrill Lynch Jubilee Series 3 LinkEarner Notes amounted to far less — just over $105 million. In fact, the compensation ranged from a mere 1 per cent of the amount sold as in the case of stockbrokers UOB Kay Hian to the 67 per cent, or some $58 million paid out by Hong Leong Finance to those who complained that they had been misled into buying the notes.
Despite acknowledgment by the Monetary Authority of Singapore (MAS) that there had been at least some mis-selling by the institutions concerned, those investors who have not been offered any compensation have been told to either continue with the three-step dispute resolution process recommended by the MAS, or take legal action on their own, a step a number have since taken. Its findings on the matter were disappointing for many, to say the least.
Worse still, the MAS has also come out to say that the findings of its recent report on the matter, under which some 10 financial institutions were punished, did not automatically mean the institutions are legally liable despite the tacit acknowledgment of mis-selling. The 10 institutions concerned, which included Singapore’s largest bank, DBS Bank, and Hong Leong Finance, have been barred from selling complex financial instruments for periods of up to two years.
It appears the authorities here were more concerned about protecting the system rather than the individual.
The 10 institutions were found guilty of at least one of three failings — misclassifying the rather complex notes they were selling as lower-risk products than they really were; not providing accurate and complete information about the structured notes to sales staff; and not ensuring that the sales teams were adequately trained to sell the notes.
Many felt the punishment meted out was merely a slap on the wrist.
While some investors, especially the elderly and the more ignorant, were able to secure full compensation, the authorities here appear to have relied more on moral suasion rather than have exerted any real pressure on a settlement.
So, why wasn’t the Hong Kong model followed? After all, it isn’t as if the institutions here do not have the capacity to have been more generous with their payouts.
For sure, not all the investors were as ignorant as they made out to be. Many were led by greed to buy the notes by the relatively-high returns they promised. Others did not even bother to assess the risks involved in buying these instruments.
But the authorities must also accept some blame in not adequately monitoring the institutions and the people who sold these highly complex and risky products, which even many bankers did not fully understand.
It is ironic that Hong Kong, one of the greatest bastions of free-wheeling and dealing, was able to wrest a better deal for the victims of the Lehman Minibonds than Singapore, which has a reputation for having a better regulated financial environment.
Sunday, July 26, 2009
Honesty and fairness
It is important for our society to be operated on the principles of honesty and fairness. The minibond crisis has raised many issues of deep concerns to me, and many other people in Singapore.
When I organised the Petition last September, it was very clear that the financial institutions had failed in their conduct as required under the Securities and Futures Act and the Financial Advisers Act. The Petition, signed by more than 1,000 people, asked the authority to carry out an investigation and take appropriate actions under these law.
After a protracted period, which left many investors in deep anguish, the investigation report was published. The punishment meted to the financial institutions was light. Many investors, who lost large sums of money, were not compensated. This raised serious doubts on the question of fairness and justice in our society. It seems that the ordinary people are at the mercy of the powerful people and institutions.
Hong Kong took a different approach. The authority exercised its power and influence to get the financial institutions to make compensation of 60% or more, to the investors. The amount that is being compensated is many times of the compensation in Singapore. The situation is similar, in respect of wrong doings by the financial institutions.
The Hong Kong settlement is scantily covered in our local media, although it is a matter of great importance, not only to the investors who are affected and their families, but to the other people who are not affected. It shows two different approaches taken by two states on a similar issue.
This raise another serious issue of honesty and transparency. Why is such an important issue being swept under the carpet and not reported in the mainstream media? People are not blind. They can read the news in the internet and the blog. They have ears and can listen to gossips in the coffee shops and elsewhere.
I hope that the authority will reflect on this matter and re-approach it on the principles of fairness and honesty. It concerns the future of our country, the people and our children.
Tan Kin Lian
When I organised the Petition last September, it was very clear that the financial institutions had failed in their conduct as required under the Securities and Futures Act and the Financial Advisers Act. The Petition, signed by more than 1,000 people, asked the authority to carry out an investigation and take appropriate actions under these law.
After a protracted period, which left many investors in deep anguish, the investigation report was published. The punishment meted to the financial institutions was light. Many investors, who lost large sums of money, were not compensated. This raised serious doubts on the question of fairness and justice in our society. It seems that the ordinary people are at the mercy of the powerful people and institutions.
Hong Kong took a different approach. The authority exercised its power and influence to get the financial institutions to make compensation of 60% or more, to the investors. The amount that is being compensated is many times of the compensation in Singapore. The situation is similar, in respect of wrong doings by the financial institutions.
The Hong Kong settlement is scantily covered in our local media, although it is a matter of great importance, not only to the investors who are affected and their families, but to the other people who are not affected. It shows two different approaches taken by two states on a similar issue.
This raise another serious issue of honesty and transparency. Why is such an important issue being swept under the carpet and not reported in the mainstream media? People are not blind. They can read the news in the internet and the blog. They have ears and can listen to gossips in the coffee shops and elsewhere.
I hope that the authority will reflect on this matter and re-approach it on the principles of fairness and honesty. It concerns the future of our country, the people and our children.
Tan Kin Lian
SCMP:Monetary Authority director clarifies minibond deal rules
6 July 2009
Investors who bought Lehman Brothers minibonds will receive compensation even if they have more than HK$8 million in investments - as long as they have not signed any documents describing themselves as professional investors, the Monetary Authority executive director says.
Raymond Li Ling-cheung's comments yesterday came after a number of minibonds buyers raised questions over whether they would be eligible for a payout under a deal agreed with 16 Hong Kong banks which sold minibonds guaranteed by Lehman Brothers.
In the days since the announcement of the settlement, which applies only to buyers classified as "individual investors", the definition of "professional investor" has been widely debated. Those who had made five or more investments in structured products such as minibonds over the past five years would be considered professionals. Corporate investors would not be covered by the settlement.
Mr Li moved to clear up some of the questions yesterday.
"The definition of professional investors is very clear in the law," he said. "It does not say you must be a professional investor when you have HK$8 million in the bank.
"If the bank classifies you as professional investor, an agreement should follow and the bank must tell you that you are classified as a professional investor and obtain your approval. It is not mandatory to say you are a professional investor when you have HK$8 million.
"If you want to know whether you're classified as a professional investor or not, you had better ask the bank."
The Securities and Futures Commission, the Monetary Authority and 16 distributing banks jointly announced on Wednesday that they had reached an agreement in relation to the compensation payout of Lehman Brothers-linked minibonds from eligible customers.
The agreement means that 90 per cent of investors will get backup to 70 per cent of their money. The banks will repay at least HK$6.3 billion to 29,000 people who bought minibonds in what is likely to be the world's largest compensation package for retail investors.
More than 33,000 Hong Kong investors bought HK$12 billion worth of high-risk minibonds that became virtually worthless when Lehman collapsed last 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 banks will send letters to investors next month, the investors will have 60 days to decide if they want to accept the deal. Those aged under 65 will receive 60 per cent of the value of their initial investment. Those over 65 will get 70 per cent back.
The Democratic Party will meet with minibonds investors today to discuss progress on the issue.
Investors who bought Lehman Brothers minibonds will receive compensation even if they have more than HK$8 million in investments - as long as they have not signed any documents describing themselves as professional investors, the Monetary Authority executive director says.
Raymond Li Ling-cheung's comments yesterday came after a number of minibonds buyers raised questions over whether they would be eligible for a payout under a deal agreed with 16 Hong Kong banks which sold minibonds guaranteed by Lehman Brothers.
In the days since the announcement of the settlement, which applies only to buyers classified as "individual investors", the definition of "professional investor" has been widely debated. Those who had made five or more investments in structured products such as minibonds over the past five years would be considered professionals. Corporate investors would not be covered by the settlement.
Mr Li moved to clear up some of the questions yesterday.
"The definition of professional investors is very clear in the law," he said. "It does not say you must be a professional investor when you have HK$8 million in the bank.
"If the bank classifies you as professional investor, an agreement should follow and the bank must tell you that you are classified as a professional investor and obtain your approval. It is not mandatory to say you are a professional investor when you have HK$8 million.
"If you want to know whether you're classified as a professional investor or not, you had better ask the bank."
The Securities and Futures Commission, the Monetary Authority and 16 distributing banks jointly announced on Wednesday that they had reached an agreement in relation to the compensation payout of Lehman Brothers-linked minibonds from eligible customers.
The agreement means that 90 per cent of investors will get backup to 70 per cent of their money. The banks will repay at least HK$6.3 billion to 29,000 people who bought minibonds in what is likely to be the world's largest compensation package for retail investors.
More than 33,000 Hong Kong investors bought HK$12 billion worth of high-risk minibonds that became virtually worthless when Lehman collapsed last 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 banks will send letters to investors next month, the investors will have 60 days to decide if they want to accept the deal. Those aged under 65 will receive 60 per cent of the value of their initial investment. Those over 65 will get 70 per cent back.
The Democratic Party will meet with minibonds investors today to discuss progress on the issue.
Advice on individual shares
Dear Tan Kin Lian,
I had bought a China counter Sino Environment Tech shear by using my CPF investment account. But now the shear price drop to 30 % and looks the company is having some internal problem. They did not announce the 1st Qtr result and all investment funds also selling there holding. Could you advice me is it wise decision to sell and investment other counter instead of loosing all?
I had bought a China counter Sino Environment Tech shear by using my CPF investment account. But now the shear price drop to 30 % and looks the company is having some internal problem. They did not announce the 1st Qtr result and all investment funds also selling there holding. Could you advice me is it wise decision to sell and investment other counter instead of loosing all?
REPLY
I do not give advice on individual shares. Sorry.
I do not give advice on individual shares. Sorry.
Pensioner Health Benefits
Hi Sir,
Someone I know is a civil servant who is currently under the Pension Scheme. She is considering purchasing medical insurance. She is 50 years old. She did not opt to switch to the CPF Scheme when the change was offered.
I understand that pensioners are provided good medical coverage. Is my friend adequately covered for her hospitalisation and medical needs? I have tried to find out more details about the health benefits offered under the pension scheme but so far have been unable to find out what I need to know.
REPLY
Your friend, the civil servant, should ask the employer. I do not know the answer because the medical benefit scheme are different for different categories of civil servants and have changed many times in past years.
Always ask the right source, and not someone else.
Someone I know is a civil servant who is currently under the Pension Scheme. She is considering purchasing medical insurance. She is 50 years old. She did not opt to switch to the CPF Scheme when the change was offered.
I understand that pensioners are provided good medical coverage. Is my friend adequately covered for her hospitalisation and medical needs? I have tried to find out more details about the health benefits offered under the pension scheme but so far have been unable to find out what I need to know.
REPLY
Your friend, the civil servant, should ask the employer. I do not know the answer because the medical benefit scheme are different for different categories of civil servants and have changed many times in past years.
Always ask the right source, and not someone else.
Interest rate on 25 July 2009
Here is an update of the interest rate on savings account and fixed deposit as at 25 July 2009. It is for your easy reference. Hope you find it useful. As the interest rate changes, please verify with the financial institution.
Winners of Intelligence Quiz and Name The Shape contests
Congratulations to the following winners:
Intelligence Quiz: Siew Hon Foong SXXXX993E
Name The Shape: Tina Wee SXXXX439B
Books can be ordered here.
Intelligence Quiz: Siew Hon Foong SXXXX993E
Name The Shape: Tina Wee SXXXX439B
Books can be ordered here.
Subscribe to:
Posts (Atom)