October 13, 2008: 03:26 AM EST
HONG KONG -(Dow Jones)- Hong Kong banks came under fire Monday from lawmakers who accused them of playing down the risks of structured products backed by Lehman Brothers Holdings Inc. (LEH) that were sold to thousands of small investors.
The investors lost millions of dollars when Lehman declared bankruptcy last month and many have been protesting in the streets as officials look into the matter.
In an emergency hearing on the crisis, lawmaker Cyd Ho accused bank managers of pressuring staff to sell the products quickly, by playing down risks to customers.
BOC (Hong Kong) Ltd. (2388.HK) and DBS Bank (Hong Kong) Ltd. pledged Monday to compensate customers if they found any wrongdoing occurred, as the products, known as "mini-bonds," were sold to retail customers. "If we find there was any wrongdoing during the sales of structural products, we will be responsible and compensate the customers fully," DBS head of consumer banking Linda Wong told the lawmakers Monday.
BOC (Hong Kong) head of personal banking Lawrence Law said the bank was willing to compensate customers "but needs to look at the cases on an individual basis."
The Hong Hong Monetary Authority has received 9,281 complaints from investors and said last week it was investigating sales of the structured products by nine banks. HKMA officials said they might also consider whether retail banks should be stopped from selling such products.
http://money.cnn.com/news/newsfeeds/articles/djf500/200810130326DOWJONESDJONLINE000106_FORTUNE5.htm
Monday, October 13, 2008
FAQ from investors (1)
Here are some frequently asked questions. I shall speak on these points at Speaker's Corner on Saturday 18 October at 6 p.m.
1. Can I lodge a complaint?
Some investors ask if they can lodge a complaint, if they have signed certain forms, or if they had bought in a different mode (e.g. by responding to a mail). Each case has to be considered on its own merits. It is impossible for me to give this type of advice.
Generally, you can lodge a complaint if you have been misled into buying the product. This misleading sitaution could occur in various ways, e.g. from the advertisements, brochure, verbal statement and assurances and other forms. You must get the facts and write a sworn statement (i.e. statutory declaration or affidavit).
2. How to get advice
It is best that you get advice from your fellow investors in similar situation. You should join a group and keep in touch with them. You should also read my blog, www.tankinlian.blogspot.com.
I am not able to give individual advice. Each day, 20 people write to me, expecting me to understand their situation. It is impossible for me to perform this role. You are not the only person that needs help. I do not have the time to give proper advice.
3. Gather the facts
Many investors asked me, "Should I sell or hold on to this investment?". This type of question can only be answered, if you get the facts. You cannot expect anyone to give you the answer without the facts.
If the facts are not available, no one can answer them. If you ask about the future, no one knows the answer (except God).
4. To hold or sell?
Many people are uncertain and frightened. They ask for advice on whether to sell or hold to a certain structured product. They have to find out the facts about the product. What is the current price now. What are the quality of the underlying assets?
There are more than 50 different types of structured products in the market. Each product is complicated and different from the other products. Even the financial institutions marketing the product do not know what they are.
The best is for you to ask the financial institution and get the facts. Do not expect someone else to know the answer. If the facts are not available, you should not expect any outsider to be able to get the answers for you.
Here are my general advice:
a) If you sell any structured product now, you are likely to get a bad price. The market is very bad. It is generally better to keep the product and hope for the best.
b) Nobody knows if the situation will get worse. You cannot expect anyone to help you to know the future. You have to make the decision on your own. It is your own money.
c) If things are uncertain, I will wait and not sell now. I hold shares and are losing money. I decide to keep them and wait for things to recover.
5. Financial institution to pressure their sales representatives
Some investors said that the financial institutions are putting pressure on their sales representative to tell lies, so that they will protect the institution. This is unethical, but it cannot be helped. If the representatives tell lies, they are committing a crime of cheating. This can be serious.
6. DBS to compensate on case by case basis
Some investors said that DBS has agreed to compensate the investors on a case by case basis. This is the correct apporach.
Any claim for compensation has to be decided on a case by case basis. Some people are misled and need to be compensated. Other people are not misled and cannot claim for the same type of compensation.
7. Fair compensation
I hope that the financial institution will offer a fair compensation to investors who have been misled. A fair compensation is for the loss to be shared equally between the investor and the distributor.
Some investors expect 100% compensation. This is unreasonable. The distributor expects to get away with no compensation. This is unreasonable also.
Tan Kin Lian
1. Can I lodge a complaint?
Some investors ask if they can lodge a complaint, if they have signed certain forms, or if they had bought in a different mode (e.g. by responding to a mail). Each case has to be considered on its own merits. It is impossible for me to give this type of advice.
Generally, you can lodge a complaint if you have been misled into buying the product. This misleading sitaution could occur in various ways, e.g. from the advertisements, brochure, verbal statement and assurances and other forms. You must get the facts and write a sworn statement (i.e. statutory declaration or affidavit).
2. How to get advice
It is best that you get advice from your fellow investors in similar situation. You should join a group and keep in touch with them. You should also read my blog, www.tankinlian.blogspot.com.
I am not able to give individual advice. Each day, 20 people write to me, expecting me to understand their situation. It is impossible for me to perform this role. You are not the only person that needs help. I do not have the time to give proper advice.
3. Gather the facts
Many investors asked me, "Should I sell or hold on to this investment?". This type of question can only be answered, if you get the facts. You cannot expect anyone to give you the answer without the facts.
If the facts are not available, no one can answer them. If you ask about the future, no one knows the answer (except God).
4. To hold or sell?
Many people are uncertain and frightened. They ask for advice on whether to sell or hold to a certain structured product. They have to find out the facts about the product. What is the current price now. What are the quality of the underlying assets?
There are more than 50 different types of structured products in the market. Each product is complicated and different from the other products. Even the financial institutions marketing the product do not know what they are.
The best is for you to ask the financial institution and get the facts. Do not expect someone else to know the answer. If the facts are not available, you should not expect any outsider to be able to get the answers for you.
Here are my general advice:
a) If you sell any structured product now, you are likely to get a bad price. The market is very bad. It is generally better to keep the product and hope for the best.
b) Nobody knows if the situation will get worse. You cannot expect anyone to help you to know the future. You have to make the decision on your own. It is your own money.
c) If things are uncertain, I will wait and not sell now. I hold shares and are losing money. I decide to keep them and wait for things to recover.
5. Financial institution to pressure their sales representatives
Some investors said that the financial institutions are putting pressure on their sales representative to tell lies, so that they will protect the institution. This is unethical, but it cannot be helped. If the representatives tell lies, they are committing a crime of cheating. This can be serious.
6. DBS to compensate on case by case basis
Some investors said that DBS has agreed to compensate the investors on a case by case basis. This is the correct apporach.
Any claim for compensation has to be decided on a case by case basis. Some people are misled and need to be compensated. Other people are not misled and cannot claim for the same type of compensation.
7. Fair compensation
I hope that the financial institution will offer a fair compensation to investors who have been misled. A fair compensation is for the loss to be shared equally between the investor and the distributor.
Some investors expect 100% compensation. This is unreasonable. The distributor expects to get away with no compensation. This is unreasonable also.
Tan Kin Lian
Concern about disorderly behaviour
Dear Mr Tan,
I appreciate that you are trying to help those people who were at Hong Lim Park on Saturday. As a great amount of money is involved, and from what I gathered at the park, there were many people who had possibly lost their life savings, emotions will indeed run high as some people will inevitably be in desperate positions.
I do want to caution you as a concerned citizen that I am indeed worried about some of the group leaders encouraging the people to gather at the banks at a scheduled day and time. I had no intention of prying into the matter but I cannot help overhearing the plan to crowd the banks. I am not so sure that it is safe for the public to have a big group of unhappy investors gathered in a public place at the same time. The people were even advised to pretend not to know each other.
I am not so sure that the group leaders will be able to keep order if the group of unhappy people do not get what they want and react emotionally that could lead to disorder.
I respect that you are a former CEO of a big company like NTUC Income and that with your in-depth knowledge of the financial matters, you might be able to provide some guidance to many people who are apparently feeling very helpless. May God bless you.
I had wanted to speak to you about this on Saturday but I did not get the chance. I just feel that there must be other ways of addressing this problem. As you mentioned that you are in communication with SM Goh, perhaps you can ask him to arrange a proper venue and get all the banks involved in addressing this matter.
I wish you God’s speed and wisdom.
I appreciate that you are trying to help those people who were at Hong Lim Park on Saturday. As a great amount of money is involved, and from what I gathered at the park, there were many people who had possibly lost their life savings, emotions will indeed run high as some people will inevitably be in desperate positions.
I do want to caution you as a concerned citizen that I am indeed worried about some of the group leaders encouraging the people to gather at the banks at a scheduled day and time. I had no intention of prying into the matter but I cannot help overhearing the plan to crowd the banks. I am not so sure that it is safe for the public to have a big group of unhappy investors gathered in a public place at the same time. The people were even advised to pretend not to know each other.
I am not so sure that the group leaders will be able to keep order if the group of unhappy people do not get what they want and react emotionally that could lead to disorder.
I respect that you are a former CEO of a big company like NTUC Income and that with your in-depth knowledge of the financial matters, you might be able to provide some guidance to many people who are apparently feeling very helpless. May God bless you.
I had wanted to speak to you about this on Saturday but I did not get the chance. I just feel that there must be other ways of addressing this problem. As you mentioned that you are in communication with SM Goh, perhaps you can ask him to arrange a proper venue and get all the banks involved in addressing this matter.
I wish you God’s speed and wisdom.
Sales representatives should tell the truth and admit mistakes
Dear Mr. Tan
I have spoken to my financial advisor who sold me the Notes. My financial advisor mentioned that it seems like the banks & financial institutions are trying to protect their interests and have pushed all responsibilities of misrepresentation to the sales persons selling the Notes products to investors.
I need to highlight this because if the sales person is the one who misrepresented, the banks and financial instituations can claim they are not in the postition to refund or attend to our complaints.
Apparently, my financial advisor mentioned that last week, his company has gotten all their sales staff to sign some documents that in the event of misrepresentation to investors, the sales persons will have to bear the compensation to investors themselves.
REPLY
The responsibility lies with the financial institution, as they have not provided the correct information and training to the sales representatives.
The sales representatives should tell the truth and not be intimidated into telling lies. If they lie, they are commiting a crime. If they make a mistake and gave the wrong information, they should admit it, as it is a genuine mistake.
It is better for the sales representative to tell the truth.
I have spoken to my financial advisor who sold me the Notes. My financial advisor mentioned that it seems like the banks & financial institutions are trying to protect their interests and have pushed all responsibilities of misrepresentation to the sales persons selling the Notes products to investors.
I need to highlight this because if the sales person is the one who misrepresented, the banks and financial instituations can claim they are not in the postition to refund or attend to our complaints.
Apparently, my financial advisor mentioned that last week, his company has gotten all their sales staff to sign some documents that in the event of misrepresentation to investors, the sales persons will have to bear the compensation to investors themselves.
REPLY
The responsibility lies with the financial institution, as they have not provided the correct information and training to the sales representatives.
The sales representatives should tell the truth and not be intimidated into telling lies. If they lie, they are commiting a crime. If they make a mistake and gave the wrong information, they should admit it, as it is a genuine mistake.
It is better for the sales representative to tell the truth.
HK legislators criticize regulators over bonds
Monday October 13, 2:51 am ET
By Min Lee, Associated Press Writer
Hong Kong legislators criticize regulators over Lehman-backed bond fiasco
HONG KONG (AP) -- Hong Kong legislators on Monday accused regulators of failing to monitor banks that sold Lehman Brothers-backed bonds that have put hundreds of millions of dollars in doubt after the U.S. investment bank failed amid the global financial crisis.
Hong Kong's Securities and Futures Commission estimates outstanding value of Lehman-related investment products in the city at about $2 billion. Hundreds of Hong Kongers are worried about the state of their Lehman-related bonds after the company's collapse, and have held protests and demanded compensation.
Billions of dollars in souring debt forced Lehman Brothers Holdings Inc., once the fourth-largest investment bank in the U.S., to file for bankruptcy last month amid the world's worst financial crisis in decades.
In a full-day hearing on the issue Monday, Hong Kong lawmakers questioned if officials had made sure banks properly explained the risks the bonds carried. Investors -- among them retirees who invested their life savings -- have complained that bank salespeople were misleading.
The chief executive of Hong Kong's de facto central bank, Joseph Yam, said the Hong Kong Monetary Authority had asked banks to classify as high-risk bonds that involved complex collateralized debt obligations, or CDOs, after the U.S. sub-prime crisis broke out last year.
CDOs are securities backed by underlying bonds and other fixed-income assets.
Pro-government legislator Lau Kong-wah questioned if the move came too late.
"Many people had already bought the bonds. Some citizens shifted their life savings, all their timed deposits to these bonds. You only told people these are high-risk products at the end of last year. Isn't that belated awareness of the problem?"
Yam responded that risk levels change, noting the bonds were not considered high-risk before the sub-prime crisis occurred. He said he repeatedly warned the public about the risk of financial investments.
Opposition legislator Lee Wing-tat asked if the bonds should be called bonds at all, giving the false impression that they are safe investments.
Securities and Futures Commission Chief Executive Martin Wheatley disagreed, saying it is incumbent upon investors -- and bank staff -- to explain the risk of the bonds.
"I would be shocked if anybody bought a product based on the name of the product. The requirement is to understand the features of the product," Wheatley said.
"Anybody who is offered via bank staff a product that pays 6 percent rather than half a percent on deposit, they should be asking, 'why?'" he said.
Last Monday, the Hong Kong government announced a scheme under which local banks and distributors of Lehman-backed bonds would buy back the products at a value to be decided on.
He Guangbei, chief executive of Bank of China (Hong Kong) Ltd. and chairman of the Hong Kong Association of Banks, said the banks welcome the proposal and are studying how it can be implemented.
Financial Secretary John Tsang, however, said the government will not reimburse investors. "It's not fair to the taxpayers," he said.
http://biz.yahoo.com/ap/081013/as_hong_kong_lehman_bonds.html
By Min Lee, Associated Press Writer
Hong Kong legislators criticize regulators over Lehman-backed bond fiasco
HONG KONG (AP) -- Hong Kong legislators on Monday accused regulators of failing to monitor banks that sold Lehman Brothers-backed bonds that have put hundreds of millions of dollars in doubt after the U.S. investment bank failed amid the global financial crisis.
Hong Kong's Securities and Futures Commission estimates outstanding value of Lehman-related investment products in the city at about $2 billion. Hundreds of Hong Kongers are worried about the state of their Lehman-related bonds after the company's collapse, and have held protests and demanded compensation.
Billions of dollars in souring debt forced Lehman Brothers Holdings Inc., once the fourth-largest investment bank in the U.S., to file for bankruptcy last month amid the world's worst financial crisis in decades.
In a full-day hearing on the issue Monday, Hong Kong lawmakers questioned if officials had made sure banks properly explained the risks the bonds carried. Investors -- among them retirees who invested their life savings -- have complained that bank salespeople were misleading.
The chief executive of Hong Kong's de facto central bank, Joseph Yam, said the Hong Kong Monetary Authority had asked banks to classify as high-risk bonds that involved complex collateralized debt obligations, or CDOs, after the U.S. sub-prime crisis broke out last year.
CDOs are securities backed by underlying bonds and other fixed-income assets.
Pro-government legislator Lau Kong-wah questioned if the move came too late.
"Many people had already bought the bonds. Some citizens shifted their life savings, all their timed deposits to these bonds. You only told people these are high-risk products at the end of last year. Isn't that belated awareness of the problem?"
Yam responded that risk levels change, noting the bonds were not considered high-risk before the sub-prime crisis occurred. He said he repeatedly warned the public about the risk of financial investments.
Opposition legislator Lee Wing-tat asked if the bonds should be called bonds at all, giving the false impression that they are safe investments.
Securities and Futures Commission Chief Executive Martin Wheatley disagreed, saying it is incumbent upon investors -- and bank staff -- to explain the risk of the bonds.
"I would be shocked if anybody bought a product based on the name of the product. The requirement is to understand the features of the product," Wheatley said.
"Anybody who is offered via bank staff a product that pays 6 percent rather than half a percent on deposit, they should be asking, 'why?'" he said.
Last Monday, the Hong Kong government announced a scheme under which local banks and distributors of Lehman-backed bonds would buy back the products at a value to be decided on.
He Guangbei, chief executive of Bank of China (Hong Kong) Ltd. and chairman of the Hong Kong Association of Banks, said the banks welcome the proposal and are studying how it can be implemented.
Financial Secretary John Tsang, however, said the government will not reimburse investors. "It's not fair to the taxpayers," he said.
http://biz.yahoo.com/ap/081013/as_hong_kong_lehman_bonds.html
Sunday, October 12, 2008
Credit linked securities were highly risky, even in good times
Mr. Tan,
Many of the investors here bought the the Mini Bonds before the sub-prime crisis surfaced in the 2H of 2007. At that time, the bonds didn't look high risk, did it?
Given its rating at that time, people knew there was a small chance the issuer would default. Even banks and other companies could fail at any time--there is a small chance. But in good times, people were willing to take the risk.
There are many banks and insurance companies currently having the same rating as Lehman had before it failed. Would you call them "high risk" too?
REPLY
You appear to be speaking for the financial institution that sold the products.
The credit linked securities are high risk. It is not just the risk of Lehman Brothers. The risk is muliplied at least 10 times due to the way that the product is structured. Even in good times, this product should never be approved and should never be sold.
Read this explanation:
http://tankinlian.blogspot.com/2008/10/possibel-wrong-doings-in-structured.html
I have written about it more one year ago, when times are good, to ask investors to avoid this type of product. (At that time, I was not aware about the extent of the risk - due to its complicated structure and lack of tranparency. I am now horrified to learn about the extent of the risk.
Many of the investors here bought the the Mini Bonds before the sub-prime crisis surfaced in the 2H of 2007. At that time, the bonds didn't look high risk, did it?
Given its rating at that time, people knew there was a small chance the issuer would default. Even banks and other companies could fail at any time--there is a small chance. But in good times, people were willing to take the risk.
There are many banks and insurance companies currently having the same rating as Lehman had before it failed. Would you call them "high risk" too?
REPLY
You appear to be speaking for the financial institution that sold the products.
The credit linked securities are high risk. It is not just the risk of Lehman Brothers. The risk is muliplied at least 10 times due to the way that the product is structured. Even in good times, this product should never be approved and should never be sold.
Read this explanation:
http://tankinlian.blogspot.com/2008/10/possibel-wrong-doings-in-structured.html
I have written about it more one year ago, when times are good, to ask investors to avoid this type of product. (At that time, I was not aware about the extent of the risk - due to its complicated structure and lack of tranparency. I am now horrified to learn about the extent of the risk.
Low cost investment funds
Many retirees lost their life time savings through bad investment products sold by the trusted financial institutions. These institutions sold products that earned a high profit margin, but were highly risky to the retirees.
There is a need for a new institution, similar to the Central Provident Fund, to serve our retirees. This institution should operate as follows:
1. Be non-profit driven
2. Offer a few large, well diversified funds of Government bonds, corporate bonds, equities and property REITS.
3. The funds should have low fees, just sufficient to cover the operating expenses
4. The operating expenses should be kept low through streamlined, efficient systems
5. No commission should be paid for the marketing of these funds.
This is similar to the concept of the "private pension plans" that was considered by the Central Provident Fund a few years ago, but was shelved. It is time to revive this plan and offer it to both existing CPF members and also to retirees.
It is also desirable for the fund to enjoy some tax benefits, so as to encourage people to invest their savings in these funds.
There is a need for a new institution, similar to the Central Provident Fund, to serve our retirees. This institution should operate as follows:
1. Be non-profit driven
2. Offer a few large, well diversified funds of Government bonds, corporate bonds, equities and property REITS.
3. The funds should have low fees, just sufficient to cover the operating expenses
4. The operating expenses should be kept low through streamlined, efficient systems
5. No commission should be paid for the marketing of these funds.
This is similar to the concept of the "private pension plans" that was considered by the Central Provident Fund a few years ago, but was shelved. It is time to revive this plan and offer it to both existing CPF members and also to retirees.
It is also desirable for the fund to enjoy some tax benefits, so as to encourage people to invest their savings in these funds.
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