TodayOnline - Tuesday, October 14, 2008
AS HONG Kong investors took to the streets, seeking redress for the failed Mini-Bonds series structured by Lehman Brothers, about 1,000 Singapore investors gathered at Hong Lim Park over the weekend.
Their plight triggered memories of my previous job, and it dawned on me that I could have been responsible for their indignation, either directly or indirectly.
You see, I used to work for a bank, selling similar structured products, unit trusts and insurance to the bank’s customers. Among them were retirees, housewives and professionals — some with high risk appetites, others not at all. And it was my job to convince them of the benefits of the products the bank was promoting.
The remuneration package was structured such that sales performance received a significant weightage when my performance came up for review.
Also, there was a quota of financial products to be sold, so that I did not incur a huge penalty in commissions. For example, if there was enough revenue clocked from unit trusts, but not enough insurance or housing loans revenue,I would lose a sizeable sum.
There was always the pressure to meet any shortfalls in the designated monthly quota, so that both career and salary did not suffer.
There was also external pressure from management. I was hounded daily by my superiors on the shortfalls and sometimes, in order to fulfil the cluster’s overall target, I was told to concentrate on certain products that were not moving. Often, these were dangled with attractive incentives to ensure that I would be more willing to sell them over others.
But with the carrot also came the stick: There was a ranking-list flashed at meetings, with the names of staff who did not meet their sales targets. It was a public shaming routine, and to meet the targets, my weekends were usually spent at roadshows.
Operating in such a high-pressure environment meant that some sales staff resorted to employing strong sales techniques to get the customer to sign on the dotted line.
One senior manager even said that customers were only interested in benefits, so it was advisable to come up with a pitch that maximised these benefits and minimised the costs.
At times, scripts were handed to frontline workers. We were forced to memorise them for a flawless presentation.
Perhaps to avoid accusations of “mis-selling” in future, the time is ripe for financial institutions to review their procedures for assessing sales staff. They should tweak the promotion criteria, which relies heavily on sales results. Benchmarks like service attitude and turnaround time — such as attending to customers’ mundane requests promptly — could be given greater weightage. Customer feedback in the assessment of their relationship managers could be another criteria — after all, most banks covet customer loyalty.
On the other hand, consumers must be aware of what they are investing in. This could be done through more investor-education programmes. Proactive steps should be taken by financial institutions to work with MoneySense, a national investment education body, to acquaint customers with risk management, instead of just concentrating on product-pushing.
As the adage goes, it takes two to tango. If consumers are befuddled by the complex nature of some financial products, they should seek clarifications, or not invest at all.
After all, stable low returns beat sleepless nights, any day.
The author was a financial consultant for two years.
http://www.todayonline.com/articles/281339.asp
Monday, October 13, 2008
Protest outside DBS headquarters
Posted in another Forum
Some people have been warned by the police against protesting outside DBS’s Shenton Way headquarters. For those who wish to take effective action, I urge that you first master your own emotions before fighting back. How would breaking the law help you? If even a small group of investors were arrested, it would terrorize the rest into sullen submission. Any attempts at trying to build a case or even to win public opinion would collapse. Do not allow yourself to be used by people with other motivations. There are groups that wish to expand their anarchical ranks and would happily urge you to break the law, but I ask that you stay within the law.
Even though the contracts that have been signed appear to be ironclad, a case of misrepresentation can still be made if it can show that the employees of the financial institutions deployed deceptive sales tactics. Misrepresentation is a criminal act and the investigation and legal prosecution of it would be undertaken by the state via the Commercial Affairs Department and Attorney General. It is not a civil representative lawsuit hence there are no legal liabilities which you need to pay. The penalty for misrepresentation is up to seven years jail.
But in order to motivate an investigation, it is necessary to first make a case that misrepresentation has occurred. To do so would require a concerted effort on the part of investors in gathering evidence that can be used to persuade the authorities and the public. The chances of success maybe slim, but if investors were to throw themselves against the rocks in the name of justice, then the chances of success would be zero. Do not do what many stupid and selfish politicians in Singapore have done and seek self destruction when an intelligent and courageous drive to uncover the truth is needed. More than ever, you need to endure and stand tall.
http://forum.channelnewsasia.com/viewtopic.php?p=2308570#2308570
Some people have been warned by the police against protesting outside DBS’s Shenton Way headquarters. For those who wish to take effective action, I urge that you first master your own emotions before fighting back. How would breaking the law help you? If even a small group of investors were arrested, it would terrorize the rest into sullen submission. Any attempts at trying to build a case or even to win public opinion would collapse. Do not allow yourself to be used by people with other motivations. There are groups that wish to expand their anarchical ranks and would happily urge you to break the law, but I ask that you stay within the law.
Even though the contracts that have been signed appear to be ironclad, a case of misrepresentation can still be made if it can show that the employees of the financial institutions deployed deceptive sales tactics. Misrepresentation is a criminal act and the investigation and legal prosecution of it would be undertaken by the state via the Commercial Affairs Department and Attorney General. It is not a civil representative lawsuit hence there are no legal liabilities which you need to pay. The penalty for misrepresentation is up to seven years jail.
But in order to motivate an investigation, it is necessary to first make a case that misrepresentation has occurred. To do so would require a concerted effort on the part of investors in gathering evidence that can be used to persuade the authorities and the public. The chances of success maybe slim, but if investors were to throw themselves against the rocks in the name of justice, then the chances of success would be zero. Do not do what many stupid and selfish politicians in Singapore have done and seek self destruction when an intelligent and courageous drive to uncover the truth is needed. More than ever, you need to endure and stand tall.
http://forum.channelnewsasia.com/viewtopic.php?p=2308570#2308570
Leveraging and greed
Businesses are greedy. They like to earn a ROE (return on equity ) of 15% to 20% per year. This can only be achieved by taking excessive risk, through leveraging (i.e. borrowing several times of their equity).
In a competitive market, a business can earn a return of say 8% per annum. If all the capital is funded by equity, the ROE is 8% and the risk is low.
If they issue a bond at 5% of the same amount as equity (i.e. leverage of 1 time), they hope to earn the difference of 3% on the bond. This will give a return of 8% + 3% on the equity, i.e. 11%. This is risky as the interest on the bond has to be paid first from the profit.
If they are greedy and are leveraged 2 times, they hope to earn 8% + 2 X 3% or a total of 14% on the equity. This is more risky compared to a leverage of 1 time.
Some investment banks were leveraged 20 times. This is madness.
To make matters worse, the borrowings were made on 30 or 90 days credit, instead of long term bonds. During good times, the cost of short term credit is lower than the cost of bonds. The businesses were greedy to make higher profits on the spread. This is extreme madness.
During the financial crisis, they were not able to get new borrowings to repay back the old borrowings. This lead to the collapse of the global financial system.
In the new financial system, there has to be regulatory control over the amount of leveraging. especially for financial companies, including hedge funds.
In a competitive market, a business can earn a return of say 8% per annum. If all the capital is funded by equity, the ROE is 8% and the risk is low.
If they issue a bond at 5% of the same amount as equity (i.e. leverage of 1 time), they hope to earn the difference of 3% on the bond. This will give a return of 8% + 3% on the equity, i.e. 11%. This is risky as the interest on the bond has to be paid first from the profit.
If they are greedy and are leveraged 2 times, they hope to earn 8% + 2 X 3% or a total of 14% on the equity. This is more risky compared to a leverage of 1 time.
Some investment banks were leveraged 20 times. This is madness.
To make matters worse, the borrowings were made on 30 or 90 days credit, instead of long term bonds. During good times, the cost of short term credit is lower than the cost of bonds. The businesses were greedy to make higher profits on the spread. This is extreme madness.
During the financial crisis, they were not able to get new borrowings to repay back the old borrowings. This lead to the collapse of the global financial system.
In the new financial system, there has to be regulatory control over the amount of leveraging. especially for financial companies, including hedge funds.
DBS will take responsibility, in some cases
TodayOnline
DBS Bank says it will take responsibility for some of the Lehman Brothers products sold through its network in Singapore and Hong Kong if there was mis-selling.
“In specific cases when evidence of mis-selling is established, DBS (Hong Kong) Limited and DBS Bank (Singapore) will take responsibility,” the bank said yesterday.
It issued the statement in reply to queries about a recent report in the South China Morning Post that said it would consider full compensation for losses on one of Lehman’s structured products sold in Hong Kong if its investigations showed that buyers had been misled by the bank’s sales staff.
DBS also pointed out in a separate statement last night that customers in Singapore who had bought High Notes 5, a structured product sold with Lehman as one of the reference entities, may not get a cent back.
The collapse of Lehman triggered the early redemption of High Notes 5 and the unwinding process has begun.
“We expect that the final valuation of the Notes, which is market determined,
will be completed on or around Oct 31. In the worst case scenario, customers could lose their entire investment,” it said.
The bank has since set up dedicated Investor Care Centres in Hong Kong and Singapore, manned by experienced staff specially trained to handle queries about the troubled structured products.
Mr Rajan Raju, DBS’ managing director and head of consumer banking, added: “More than 300 customers have approached our Investor Care Centre and we are addressing their concerns about their investments. As soon as each case is reviewed, DBS will inform the respective customers of the outcome.”
http://www.todayonline.com/articles/281348.asp
DBS Bank says it will take responsibility for some of the Lehman Brothers products sold through its network in Singapore and Hong Kong if there was mis-selling.
“In specific cases when evidence of mis-selling is established, DBS (Hong Kong) Limited and DBS Bank (Singapore) will take responsibility,” the bank said yesterday.
It issued the statement in reply to queries about a recent report in the South China Morning Post that said it would consider full compensation for losses on one of Lehman’s structured products sold in Hong Kong if its investigations showed that buyers had been misled by the bank’s sales staff.
DBS also pointed out in a separate statement last night that customers in Singapore who had bought High Notes 5, a structured product sold with Lehman as one of the reference entities, may not get a cent back.
The collapse of Lehman triggered the early redemption of High Notes 5 and the unwinding process has begun.
“We expect that the final valuation of the Notes, which is market determined,
will be completed on or around Oct 31. In the worst case scenario, customers could lose their entire investment,” it said.
The bank has since set up dedicated Investor Care Centres in Hong Kong and Singapore, manned by experienced staff specially trained to handle queries about the troubled structured products.
Mr Rajan Raju, DBS’ managing director and head of consumer banking, added: “More than 300 customers have approached our Investor Care Centre and we are addressing their concerns about their investments. As soon as each case is reviewed, DBS will inform the respective customers of the outcome.”
http://www.todayonline.com/articles/281348.asp
DBS to settle case by case: Rebecca Lee
I am Mrs Rebecca Lee. I wrote to Straits Time basically saying DBS is omnipotent since DBS defended all their relationship managers and that they have explained all the risks to us "investors". But that's not why I write this. What's important is for all to know:
In Today's news, DBS is saying it will settle case by case. This is obviously a reaction to the gathering that Mr Tan have brought all the victims of DBS HN2, 5 together with others. DBS high note victims have scheduled to go to DBS shenton way 10 am to demand a settlement and bring all documents along. DBS must have gotten wind of this and decided to do a divide and conquer. I just want to make sure that none of us is stupid enough to let this happen and that we will continue to find where the other 1400 investors are, gather friends and family to give us the support and get justice done this Wednesday 10 am as agreed. If not for this gathering, DBS would not have any response. The squeaky door gets the oil. Please get more people to support the DBS HN victims. For some it's their life long savings - for others, it's their children's future that got pawned away.
Look at what the HongKongers do and see what DBS's reaction to them. Don't be a door mat or we will get stepped all over by DBS.
Mrs Rebecca Lee
In Today's news, DBS is saying it will settle case by case. This is obviously a reaction to the gathering that Mr Tan have brought all the victims of DBS HN2, 5 together with others. DBS high note victims have scheduled to go to DBS shenton way 10 am to demand a settlement and bring all documents along. DBS must have gotten wind of this and decided to do a divide and conquer. I just want to make sure that none of us is stupid enough to let this happen and that we will continue to find where the other 1400 investors are, gather friends and family to give us the support and get justice done this Wednesday 10 am as agreed. If not for this gathering, DBS would not have any response. The squeaky door gets the oil. Please get more people to support the DBS HN victims. For some it's their life long savings - for others, it's their children's future that got pawned away.
Look at what the HongKongers do and see what DBS's reaction to them. Don't be a door mat or we will get stepped all over by DBS.
Mrs Rebecca Lee
Look at the Product Advice
Hi Mr Tan,
I am one of the investors in Minibond. I would like to share with the rest of the investors on what I have found out in the Product Advise Report.
In my Product Advice Report, under the section Recommendations and Acknowledgement, it was written that I want to invest in bonds (which was what I said to the Financial Planner) but the Financial Planner recommended minibond to me which invest in CDOs. As I bought 3 series of Minibond from 3 different financial planners, all told me that I was investing in bonds issued by the corporations listed in the brochures. I have since written my complaint to the distributor, FIDReC, one of the three well-respected individuals to oversee the relevant FIs’ complaints, my MP and HSBC Trustee.
Maybe, you can advise those investors who bought these structured products to take a look at the Product Advice Report and see whether there was any evidence of misrepresentation by the financial planners.
On a separate note, I noticed that the prospectus was only given to investors weeks (at least 3 weeks) after investors have bought the structured notes. Is this the correct and acceptable practice by MAS? Shouldn't the financial institutions give out the prospectus (like the case in IPOs although I know not many people read them) before investors invest in these structured products since MAS already approved their products and prospectus?
KK
REPLY
It is wrong for the financial institution to give the prospectus a few weeks after the product was sold. You can mention this point in the statutory declaration (affidavit).
I am one of the investors in Minibond. I would like to share with the rest of the investors on what I have found out in the Product Advise Report.
In my Product Advice Report, under the section Recommendations and Acknowledgement, it was written that I want to invest in bonds (which was what I said to the Financial Planner) but the Financial Planner recommended minibond to me which invest in CDOs. As I bought 3 series of Minibond from 3 different financial planners, all told me that I was investing in bonds issued by the corporations listed in the brochures. I have since written my complaint to the distributor, FIDReC, one of the three well-respected individuals to oversee the relevant FIs’ complaints, my MP and HSBC Trustee.
Maybe, you can advise those investors who bought these structured products to take a look at the Product Advice Report and see whether there was any evidence of misrepresentation by the financial planners.
On a separate note, I noticed that the prospectus was only given to investors weeks (at least 3 weeks) after investors have bought the structured notes. Is this the correct and acceptable practice by MAS? Shouldn't the financial institutions give out the prospectus (like the case in IPOs although I know not many people read them) before investors invest in these structured products since MAS already approved their products and prospectus?
KK
REPLY
It is wrong for the financial institution to give the prospectus a few weeks after the product was sold. You can mention this point in the statutory declaration (affidavit).
Sales representatives did not know - misrepresentation
Hi Mr Tan
I appeal you to highlight this. I feel that most wales representatives thought the credit securities products were "not High Risk" products. If they had known that it is a high risk product, they would not have recommended people to invest.
Therefore, it is definitely a misrepresentation by sales representatives - the way the credit linked products were marketed as relatively "Safe/Low Risk" products by Lehman, Merrill, Morgan to the banks & financial institutions which was in turn presentated to the investors.
It is common sense that if it was marketed as high risk - few people would have invested.
I appeal you to highlight this. I feel that most wales representatives thought the credit securities products were "not High Risk" products. If they had known that it is a high risk product, they would not have recommended people to invest.
Therefore, it is definitely a misrepresentation by sales representatives - the way the credit linked products were marketed as relatively "Safe/Low Risk" products by Lehman, Merrill, Morgan to the banks & financial institutions which was in turn presentated to the investors.
It is common sense that if it was marketed as high risk - few people would have invested.
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