I have approached a well known lawyer. He told me that the legal fees to take a case to the High Court is likely to be $100,000 or more. If this is shared by 100 investors, the cost per investor is $1,000. If there are 200 investors, the cost is $500 per investor.
If investors wish to contemplate taking legal action, you have to be prepared to spend $500 to $1,000. As the amount invested in most cases is quite large, averaging about $50,000, it may be necessary to spend 1% or 2% to seek compensation.
I shall be putting up another "petition" to gauge the interest in taking collective action to engage the service of the lawyer. I will arrange for the investors to meet the lawyer before you take the final decision.
It may be necessary for the lawyer to take separate cases against separate distributors. This is complicated and may add to the cost. I will let the lawyer explain how to handle this matter at a future time.
What are your views? You can post your comments in this blog.
Tuesday, October 7, 2008
Monday, October 6, 2008
Credit default swaps - who benefits?
Someone should me a chart showing the cost of credit default swaps. Before the financial crisis, the swap rate is at average of 100 bps p.a. for well rated companies. If the structured product sells the swap to insure 6 entities, the total payout is 6% p.a. The money received from the investors were invested in CDOs and low quality bonds, which are likely to earn another 6% p.a. (this is my estimate).
It is possible that the structured product could earn up to 12% p.a. But, this is not the return given to the investors. They are given a low return of about 5% p.a. The question is, "where does the rest of the money go"? I suspect that they are taken away as charges for distribution and profit. There amounts are not disclosed to the investors.
The figures indicated by me are estimates and may not be accurate. It will be better to look at the actual figures. So far, the trustee or the arranger are not disclosing these figures. Perhaps the authority can step in and ask for these figures to be disclosed.
Even if the actual figures are lower than my estimates, there is still a question whether the charges are reasonable or excessive, and whether there is any breach of fiduciary duty.
It is possible that the structured product could earn up to 12% p.a. But, this is not the return given to the investors. They are given a low return of about 5% p.a. The question is, "where does the rest of the money go"? I suspect that they are taken away as charges for distribution and profit. There amounts are not disclosed to the investors.
The figures indicated by me are estimates and may not be accurate. It will be better to look at the actual figures. So far, the trustee or the arranger are not disclosing these figures. Perhaps the authority can step in and ask for these figures to be disclosed.
Even if the actual figures are lower than my estimates, there is still a question whether the charges are reasonable or excessive, and whether there is any breach of fiduciary duty.
Coordinated interest rate cuts
There is speculation in the financial markets that the central banks will have a coordinated interest rate cut to help the financial markets.
The chance of this happening is high. Inflation has dropped. Economies are entering into a recession, which will bring down inflationary pressures. The coordinated action means that several countries will be cutting interest rate together, at almost the same time.
Over the longer term, the global financial system needs to be revamped. It is bad to have extremely high leverage. There must be controls over the amount of debt that businesses are allowed to pile up. The control has to be stricter for financial institutions.
The chance of this happening is high. Inflation has dropped. Economies are entering into a recession, which will bring down inflationary pressures. The coordinated action means that several countries will be cutting interest rate together, at almost the same time.
Over the longer term, the global financial system needs to be revamped. It is bad to have extremely high leverage. There must be controls over the amount of debt that businesses are allowed to pile up. The control has to be stricter for financial institutions.
Reduced bonus under Income policies
Dear Mr. Tan,
With the fall in the global stockmarket, should I cancel my NTUC policies and take out the cash value. The bonus was cut this year. Can I ask NTUC to keep its promise and pay the higher bonus before the cut?
REPLY
If you decide to surrender the Income policy, you will get the cash value that is not less than the cash value before the bonus cut. Income has promised that they will declare a higher rate of special bonus for the current year that will compensate for the cut in the annual bonus. This guarantee is valid for the current one or two years only (I am not sure about the duration).
In the future years, there is no such guarantee. If the special bonus is cut, you will suffer a reduction in cash value, due to the lower rate of annual bonus. If you do not need the life insurance protection, it is better to surrender the policies now, and take out the cash value.
I am likely (but have not made a final decision) to surrender my existing policies, so that it wil lnot be affected by the lower rates of bonus in the future.
With the fall in the global stockmarket, should I cancel my NTUC policies and take out the cash value. The bonus was cut this year. Can I ask NTUC to keep its promise and pay the higher bonus before the cut?
REPLY
If you decide to surrender the Income policy, you will get the cash value that is not less than the cash value before the bonus cut. Income has promised that they will declare a higher rate of special bonus for the current year that will compensate for the cut in the annual bonus. This guarantee is valid for the current one or two years only (I am not sure about the duration).
In the future years, there is no such guarantee. If the special bonus is cut, you will suffer a reduction in cash value, due to the lower rate of annual bonus. If you do not need the life insurance protection, it is better to surrender the policies now, and take out the cash value.
I am likely (but have not made a final decision) to surrender my existing policies, so that it wil lnot be affected by the lower rates of bonus in the future.
Dividend under STI ETF
Hi Tan Kin Lian,
It is clear to me that any index ETF tracks the underlying index. However, index itself will have dividend yield (let's say 3%), which I believe is significant.
If so, in the ideal circumstances ETF performance shall have to beindex + dividend yield.
Does ETF price reflect the dividend yield of the index? Where does the dividend of index go?
REPLY
If you invest in the STI ETF by StateStreet, the dividend is paid out in half yearly distributions.
It is clear to me that any index ETF tracks the underlying index. However, index itself will have dividend yield (let's say 3%), which I believe is significant.
If so, in the ideal circumstances ETF performance shall have to beindex + dividend yield.
Does ETF price reflect the dividend yield of the index? Where does the dividend of index go?
REPLY
If you invest in the STI ETF by StateStreet, the dividend is paid out in half yearly distributions.
Full particulars of investors of credit linked securities
I wish to collect full particulars of investors to be submitted to the Monetary Authority of Singapore - including age, language, contact information, amount invested, type of structured product and distributor. Complete information has to be provided this time.
If you wish to provide the information, please click here: http://www.petitiononline.com/PICLS2/petition.html
---------------------------------
Update:
I have collected sufficient information and will close this "petition" now.
Someone asked me to state what the particulars are to be used for. A senior person in MAS asked me if I have information about older people, especially those that are not literate in English, who have been asked to invest in these structured products. This is why I have asked for age, language and occupation. I am not sure at this time, if this information will be helpful to get MAS to take a pro-active stand.
If you wish to provide the information, please click here: http://www.petitiononline.com/PICLS2/petition.html
---------------------------------
Update:
I have collected sufficient information and will close this "petition" now.
Someone asked me to state what the particulars are to be used for. A senior person in MAS asked me if I have information about older people, especially those that are not literate in English, who have been asked to invest in these structured products. This is why I have asked for age, language and occupation. I am not sure at this time, if this information will be helpful to get MAS to take a pro-active stand.
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