I brought my small dog to Yio Chu Kang stadium. After two rounds the track, the attendant called to me. He said that "dogs are not allowed". It is posted in the regulation of the stadium. I checked and found "Animals, birds or reptiles are not allowed".
It is an irony. MAS registered more than 50 series of credit linked notes that are approved for sale to the public who are expected to invest "with their eyes open". It seems that dogs are not allowed in the stadium, but credit linked notes, with "first to default" swaps and 100 or more toxic CDOs are approved - even if you can lose a lifetime of savings.
Saturday, November 15, 2008
New swap counter party to replace Lehman Brothers
Many people asked me if a new swap counter party is found to replace Lehman Brothers, will they get their principal back on maturity (i.e. the full sum invested in the minibond)?
The answer is "I don't know". The investor still has to face the following risks during the remaining term:
> default of the 6 reference entity
> default of the underlying assets
> default of the new swap counter-party
For example, Morgan Stanley is the swap counter party for Pinnacle Notes 9 and 10. They are still intact. The reference entities under these notes have not defaulted. However, 5 of the underlying assets of these notes have defaulted. These notes now have zero value.
The fate of these pinnacle notes show that the minibond still have many risks down the road, even if a new swap counterparty is found.
The answer is "I don't know". The investor still has to face the following risks during the remaining term:
> default of the 6 reference entity
> default of the underlying assets
> default of the new swap counter-party
For example, Morgan Stanley is the swap counter party for Pinnacle Notes 9 and 10. They are still intact. The reference entities under these notes have not defaulted. However, 5 of the underlying assets of these notes have defaulted. These notes now have zero value.
The fate of these pinnacle notes show that the minibond still have many risks down the road, even if a new swap counterparty is found.
God help the righteous
Hi Mr Tan Kin Lian
Our family and friends are very appreciative of your good cause and perseverence to fight for justice for the oppressed. We thank God for your righteousness.
A few key things I would like to summarize here after a long episode of struggle since the fateful day of 15 Sep 08 of Lehman collapse for "a just and fair" resolution resulting in nothing but a fatal rejection. This case is "DBS" High Notes 5 mis-selling.
We feel so helpless and victimised because the product was a DBS product sold as a very safe and low risk product like a FD but later turned out to be such a complex product that we do not even understand, and how is it that we became the "insurer" of the bank?
I wrote letters to the CEO and MD of Consumer Banking, copied MAS and FIDReC. There was no reply to specific questions asked, including:
- The 31 Mar 08 letter to investors from Brandon Lam of DBS which "emphasise that none of the DBS High Notes has any direct exposure to US subprime mortgage-backed securities." Why did this contradict the event of Lehman Brothers.
- The 31 Mar 08 letter to investors from Brandon Lam of DBS stated that "it would take several underlying reference entities in the collateral to suffer Credit Events before investors suffer a loss to their principal amount." Why did a single event of Lehman Brothers lead to zero redemption when there are 8 reference entities?
- The 27 Jun 08 letter from Brandon Lam of DBS urging investors to hold "DBS" High Notes as he said "DBS High Notes are designed to be held to maturity". Why DBS did not uphold its due diligence to safeguard the investment of the people but misled us to hold the funds and later turned around and said that it's zero value? This is "DBS" High Notes, carried under its name.
- Why there is no explicit and clear explanation of the risks associated with this product during sales?
- Why pricing statement and prospectus were not given and explained during sales?
- Why did the RM still claim the product is low risk but the MD admitted that it is high risk in the scale of 8 out of 10?
- Why the product is so complex, yet the RM thought that it is a simple FD kind of investment?
MAS remains on the sideline without any comments. They said they cannot be involved in getting the bank to compensate for the loss or mis-representation. They said they can fine and warn the bank for wrong practice, but we lost our hard-earn money for them to correct their processes and practice?
We are not financially nor legally trained. We wish to know why the authority is also so helpless towards such mis-selling of a financial product that impact so many people.
God help us. For the eyes of the Lord are toward the righteous and His ears are open to their cry. When the righteous cry for help, the Lord hears and delivers them
from all their distresses and troubles.
You see, the Lord is close to those who have a broken heart, and saves such who are crushed with sorrow and are humbly penitent. We claim this promise. Amen.
JL
Our family and friends are very appreciative of your good cause and perseverence to fight for justice for the oppressed. We thank God for your righteousness.
A few key things I would like to summarize here after a long episode of struggle since the fateful day of 15 Sep 08 of Lehman collapse for "a just and fair" resolution resulting in nothing but a fatal rejection. This case is "DBS" High Notes 5 mis-selling.
We feel so helpless and victimised because the product was a DBS product sold as a very safe and low risk product like a FD but later turned out to be such a complex product that we do not even understand, and how is it that we became the "insurer" of the bank?
I wrote letters to the CEO and MD of Consumer Banking, copied MAS and FIDReC. There was no reply to specific questions asked, including:
- The 31 Mar 08 letter to investors from Brandon Lam of DBS which "emphasise that none of the DBS High Notes has any direct exposure to US subprime mortgage-backed securities." Why did this contradict the event of Lehman Brothers.
- The 31 Mar 08 letter to investors from Brandon Lam of DBS stated that "it would take several underlying reference entities in the collateral to suffer Credit Events before investors suffer a loss to their principal amount." Why did a single event of Lehman Brothers lead to zero redemption when there are 8 reference entities?
- The 27 Jun 08 letter from Brandon Lam of DBS urging investors to hold "DBS" High Notes as he said "DBS High Notes are designed to be held to maturity". Why DBS did not uphold its due diligence to safeguard the investment of the people but misled us to hold the funds and later turned around and said that it's zero value? This is "DBS" High Notes, carried under its name.
- Why there is no explicit and clear explanation of the risks associated with this product during sales?
- Why pricing statement and prospectus were not given and explained during sales?
- Why did the RM still claim the product is low risk but the MD admitted that it is high risk in the scale of 8 out of 10?
- Why the product is so complex, yet the RM thought that it is a simple FD kind of investment?
MAS remains on the sideline without any comments. They said they cannot be involved in getting the bank to compensate for the loss or mis-representation. They said they can fine and warn the bank for wrong practice, but we lost our hard-earn money for them to correct their processes and practice?
We are not financially nor legally trained. We wish to know why the authority is also so helpless towards such mis-selling of a financial product that impact so many people.
God help us. For the eyes of the Lord are toward the righteous and His ears are open to their cry. When the righteous cry for help, the Lord hears and delivers them
from all their distresses and troubles.
You see, the Lord is close to those who have a broken heart, and saves such who are crushed with sorrow and are humbly penitent. We claim this promise. Amen.
JL
High risk is not disclosed in Prospectus
Dear Mr Tan,
I am one of the Pinncle Note investors. As I am working in a Financial Institution, I can't be considered as a vunerable group. But honestly, I am not aware of the extremely high level of risk associated with such notes. The risk of default is way beyond the basket of blue-chip reference entities.
I received a letter from the bank that I bought the note, together with a letter from Pinncle Performance Limited informing that credit rating assigned by Fitch has been downgraded to "B-" (Rating Watch: Negative) due to the credit events occured in respect of Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Glitnir banki hg, Kaupthing banki hf and Landsbanki Islands hf.
When I bought the note, I was told that the note is credit-linked to these reference entities: Standard Chartered bank, HSBC Bank PLC, Bank of China Limited, The Korea Development Bank, Malayan Banking Berhard, DBS Bank, United Overseas Bank Ltd.
I am really surprised to see Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Glitnir banki hg, Kaupthing banki hf and Landsbanki Islands hf. appearing on the letter.
I looked through the Base Prospectus of the notes dated 7 Aug 2006 and I can't find the above toxic entities mentioned.
Is this sufficient ground to argue that the arranger or the FI has misold the product or have not fully disclosed the details of this products? Not sure how many other such toxic entities are associated with the notes. I would certainly have thought twice if the risk is beyond the 7 blue-chip banks as mentioned in the brochure.
REPLY
I believe that you have sufficient grounds. I suggest that you prepare a statutory declaration to support your complaint. Read the instructions in my blog:
http://tankinlian.blogspot.com/2008/10/general-advice-to-investors-of.htmlhttp://tankinlian.blogspot.com/2008/10/affidavit-statement-made-under-oath.htmlhttp://tankinlian.blogspot.com/2008/10/individual-advice.html
I am one of the Pinncle Note investors. As I am working in a Financial Institution, I can't be considered as a vunerable group. But honestly, I am not aware of the extremely high level of risk associated with such notes. The risk of default is way beyond the basket of blue-chip reference entities.
I received a letter from the bank that I bought the note, together with a letter from Pinncle Performance Limited informing that credit rating assigned by Fitch has been downgraded to "B-" (Rating Watch: Negative) due to the credit events occured in respect of Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Glitnir banki hg, Kaupthing banki hf and Landsbanki Islands hf.
When I bought the note, I was told that the note is credit-linked to these reference entities: Standard Chartered bank, HSBC Bank PLC, Bank of China Limited, The Korea Development Bank, Malayan Banking Berhard, DBS Bank, United Overseas Bank Ltd.
I am really surprised to see Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Glitnir banki hg, Kaupthing banki hf and Landsbanki Islands hf. appearing on the letter.
I looked through the Base Prospectus of the notes dated 7 Aug 2006 and I can't find the above toxic entities mentioned.
Is this sufficient ground to argue that the arranger or the FI has misold the product or have not fully disclosed the details of this products? Not sure how many other such toxic entities are associated with the notes. I would certainly have thought twice if the risk is beyond the 7 blue-chip banks as mentioned in the brochure.
REPLY
I believe that you have sufficient grounds. I suggest that you prepare a statutory declaration to support your complaint. Read the instructions in my blog:
http://tankinlian.blogspot.com/2008/10/general-advice-to-investors-of.htmlhttp://tankinlian.blogspot.com/2008/10/affidavit-statement-made-under-oath.htmlhttp://tankinlian.blogspot.com/2008/10/individual-advice.html
High risk of credit linked notes, inadequate return
Dear Mr. Tan,
Here are a few pointers you may want to use in your talk on Saturday about investors going in with their eyes open.
Any rational person if he is made aware of the risks in the Minibonds will never but it for the simple reason that the interest rate is only 5% compared with dual currency and equity Link investments which offers up to 22% with lower risks. In the worst scenario we just have to be converted to the foriegn currency or pick up the normally blue chips share. The risk is certainly less than that of minbond.
In short, we were hoodwink and MAS who is supposed to safeguard its citizens have allowed this toxic product to be sold through their negligence or ignorance. I have been told by unconfirmed sources that a certain rating agency refuses to rate the credit linked notes, but they received veiled threats.
I am quite sure the town councils who lost money did not understand what they were buying but are too embarassed to say so. After all it not their money but the taxpayers.
Keep up the good work
VK
Here are a few pointers you may want to use in your talk on Saturday about investors going in with their eyes open.
Any rational person if he is made aware of the risks in the Minibonds will never but it for the simple reason that the interest rate is only 5% compared with dual currency and equity Link investments which offers up to 22% with lower risks. In the worst scenario we just have to be converted to the foriegn currency or pick up the normally blue chips share. The risk is certainly less than that of minbond.
In short, we were hoodwink and MAS who is supposed to safeguard its citizens have allowed this toxic product to be sold through their negligence or ignorance. I have been told by unconfirmed sources that a certain rating agency refuses to rate the credit linked notes, but they received veiled threats.
I am quite sure the town councils who lost money did not understand what they were buying but are too embarassed to say so. After all it not their money but the taxpayers.
Keep up the good work
VK
Friday, November 14, 2008
Retrenchment Loan
DBS Bank has announced that it will retrench 900 employees. More than half will come from its operations in Singapore.
Many companies in Singapore are expected to retrench their employees in the months ahead, following the slowdown in the global economy. Analysts expect that the number will exceed the 30,000 people retrenched during the Asian financial crisis in 1998.
Singapore does not have an unemployment insurance scheme. The retrenched employees will find it difficult to find alternative jobs. They are likely to be unemployed for several months or years.
I wish to suggest that the Government set up an Unemployment Loan scheme to provide a monthly payment to the retrenched employees. I propose this scheme to work as follows:
a) The amount of loan will be at 70% of the average earnings, subject to a cap of $2,000 a month
b) Interest will be charged at 2.5% per annum
c) The loan will apply to a worker who has been retrenched from a job that he has worked for more than 12 months.
d) The loan can be drawn for up to 24 months from the date of retrenchment.
e) Any retrenchment benefit received by the worker should be used first, before the worker is allowed to draw down on this retrenchment loan.
This loan will enable to retrenched worker to meet the mortgage repayments and family expenses. It has to be repaid in the future, when the retrenched worker has found a job. Any unpaid balance of the loan will be recovered from the Central Provident Fund savings of the worker.
This is similar to the Unemployment Benefit operated by many countries - with one key difference: the proposed scheme provides the monthly payment as a loan that is repayable at a modest rate of interest. The retrenched employee who needs money does not have to rely on credit cards and loan sharks that charge a high rate of interest.
Many companies in Singapore are expected to retrench their employees in the months ahead, following the slowdown in the global economy. Analysts expect that the number will exceed the 30,000 people retrenched during the Asian financial crisis in 1998.
Singapore does not have an unemployment insurance scheme. The retrenched employees will find it difficult to find alternative jobs. They are likely to be unemployed for several months or years.
I wish to suggest that the Government set up an Unemployment Loan scheme to provide a monthly payment to the retrenched employees. I propose this scheme to work as follows:
a) The amount of loan will be at 70% of the average earnings, subject to a cap of $2,000 a month
b) Interest will be charged at 2.5% per annum
c) The loan will apply to a worker who has been retrenched from a job that he has worked for more than 12 months.
d) The loan can be drawn for up to 24 months from the date of retrenchment.
e) Any retrenchment benefit received by the worker should be used first, before the worker is allowed to draw down on this retrenchment loan.
This loan will enable to retrenched worker to meet the mortgage repayments and family expenses. It has to be repaid in the future, when the retrenched worker has found a job. Any unpaid balance of the loan will be recovered from the Central Provident Fund savings of the worker.
This is similar to the Unemployment Benefit operated by many countries - with one key difference: the proposed scheme provides the monthly payment as a loan that is repayable at a modest rate of interest. The retrenched employee who needs money does not have to rely on credit cards and loan sharks that charge a high rate of interest.
Complexity of Credit Linked Notes
Dear Minister Mentor
An investor asked me to send this letter to you. I hope that you can find the time to read it. Thank you.
Dear Mr. Tan
I do not understand how MM Lee has come to conclusion that Minibond investors invested with their eyes open. Many financial experts have expressed their views that the minibond products are too complex for any ordinary investor to comprehend. The following are quotes from the financial experts:
1. Mr. R. Sivanthy, business times senior correspondent : (Straits Times 20/09/08) If you want a front-row lesson in first-class financial obfuscation for structured products, then look no further than the way the recently collapsed Minibond Series 3 notes were packaged and marketed.
Up to $200 million of these notes were sold to a gullible public who probably thought they were buying a five-year bond issued by six leading banks that paid a 5 per cent coupon per year, but were in reality not only exposed to the United States housing market but also to a complex credit default swap arrangement whose substantive party was the now-bankrupt Lehman Brothers.
Moreover, while it is possible to piece together the actual substance of these notes from the documents available, it is a tedious process and arguably not within the ability of the average retail investor.
Finally, if disclosure was weak, then so was knowledge among distributors. Some brokers did not understand the true nature of the instrument and sold it as a bond. Maybe the name had something to do with it, though as investors have now found out painfully, what they had bought was not a bond but a convoluted swap-based instrument.
2. Mr. Tan Kin Lian, former CEO of NTUC Income (Weekend Today, 04/10/08)
Mr. Tan interest in such credit-linked securities did not come about only now. It began when they first appeared on the market two years ago. With the help of another financial analyst, he had studied such products closely. The complex way in how these products were structured baffled him.
When financial experts who spent many hours to read the prospectus could not figure out what the structure was. How can you expect the general public who were sold these products to understand the risk that they were taking?
Even Mr. Tan was shocked with extent of the risks involved. “I became horrified to learn the true nature of the structure and the extent of the high risk”
3. Professor Ivan Png, National university of Singapore (Sunday times 26/10/08)
The Lehman bankers who designed this products were not only smart in finance, they were also geniuses in marketing. They gave the name “Minibond Limited” to the special purpose vehicle that issue the notes. So the shorthand name for the credit-linked notes issued by Minibond was simply “Minibond”. But of course, the notes were not bond at all. It took me quite a few hours to pieces together an understanding of the structure notes from the pricing statement.
I cannot guarantee that my understanding is complete and you may not rely on it as I am not a financial adviser.
The other condition is more difficult to understand. According to the pricing statement, the synthetic CDO was some how based on a portfolio of 150 securities and the value of the CDO depended on those securities.
The pricing statement did not disclose the identities of the 150 securities referenced by the synthetic CDO.
Complex? Absolutely.
4. Associate Professor Low Buen Sin, Finance at Nanyang Business School. (Sunday times 26/10/08)
Are structure products very complex instruments? Yes, they can be. Some structured products are not easy to comprehend even for very seasoned wealth managers. Let us use credit-linked structured products that are similar to Minibond and Jubilee Series 3 as an illustration of the level of complexity that it can get to.
5. David Gerald. SIAS’ president and CEO (Weekend Today 2/11/08)
While some of the conditions are straightforward, understanding the entire 54-page document requires advice from a professional.
It is clear that having considered the document in it totality, that the structured products in question are not suitable for ordinary small investors especially for the “vulnerable group” unless they have sought professional advice or understood the prospectus and the document.
6. Associate Professor Lan Luh Luh of the National University of Singapore’s Department of business policy. (Clarification from Dr Lan Luh Luh 03/11/08)
I mentioned that I never invest in things I don’t understand, because many of these structured products are really, really very complex.
I also mentioned that there should be more stringent requirements as to the qualifications of these financial managers – from the Lehman episode, it can be seen that quite a number of them did not even understand the products that they were selling (which I found out as well when I talked to some of them on many previous occasions).
Pang
An investor asked me to send this letter to you. I hope that you can find the time to read it. Thank you.
Dear Mr. Tan
I do not understand how MM Lee has come to conclusion that Minibond investors invested with their eyes open. Many financial experts have expressed their views that the minibond products are too complex for any ordinary investor to comprehend. The following are quotes from the financial experts:
1. Mr. R. Sivanthy, business times senior correspondent : (Straits Times 20/09/08) If you want a front-row lesson in first-class financial obfuscation for structured products, then look no further than the way the recently collapsed Minibond Series 3 notes were packaged and marketed.
Up to $200 million of these notes were sold to a gullible public who probably thought they were buying a five-year bond issued by six leading banks that paid a 5 per cent coupon per year, but were in reality not only exposed to the United States housing market but also to a complex credit default swap arrangement whose substantive party was the now-bankrupt Lehman Brothers.
Moreover, while it is possible to piece together the actual substance of these notes from the documents available, it is a tedious process and arguably not within the ability of the average retail investor.
Finally, if disclosure was weak, then so was knowledge among distributors. Some brokers did not understand the true nature of the instrument and sold it as a bond. Maybe the name had something to do with it, though as investors have now found out painfully, what they had bought was not a bond but a convoluted swap-based instrument.
2. Mr. Tan Kin Lian, former CEO of NTUC Income (Weekend Today, 04/10/08)
Mr. Tan interest in such credit-linked securities did not come about only now. It began when they first appeared on the market two years ago. With the help of another financial analyst, he had studied such products closely. The complex way in how these products were structured baffled him.
When financial experts who spent many hours to read the prospectus could not figure out what the structure was. How can you expect the general public who were sold these products to understand the risk that they were taking?
Even Mr. Tan was shocked with extent of the risks involved. “I became horrified to learn the true nature of the structure and the extent of the high risk”
3. Professor Ivan Png, National university of Singapore (Sunday times 26/10/08)
The Lehman bankers who designed this products were not only smart in finance, they were also geniuses in marketing. They gave the name “Minibond Limited” to the special purpose vehicle that issue the notes. So the shorthand name for the credit-linked notes issued by Minibond was simply “Minibond”. But of course, the notes were not bond at all. It took me quite a few hours to pieces together an understanding of the structure notes from the pricing statement.
I cannot guarantee that my understanding is complete and you may not rely on it as I am not a financial adviser.
The other condition is more difficult to understand. According to the pricing statement, the synthetic CDO was some how based on a portfolio of 150 securities and the value of the CDO depended on those securities.
The pricing statement did not disclose the identities of the 150 securities referenced by the synthetic CDO.
Complex? Absolutely.
4. Associate Professor Low Buen Sin, Finance at Nanyang Business School. (Sunday times 26/10/08)
Are structure products very complex instruments? Yes, they can be. Some structured products are not easy to comprehend even for very seasoned wealth managers. Let us use credit-linked structured products that are similar to Minibond and Jubilee Series 3 as an illustration of the level of complexity that it can get to.
5. David Gerald. SIAS’ president and CEO (Weekend Today 2/11/08)
While some of the conditions are straightforward, understanding the entire 54-page document requires advice from a professional.
It is clear that having considered the document in it totality, that the structured products in question are not suitable for ordinary small investors especially for the “vulnerable group” unless they have sought professional advice or understood the prospectus and the document.
6. Associate Professor Lan Luh Luh of the National University of Singapore’s Department of business policy. (Clarification from Dr Lan Luh Luh 03/11/08)
I mentioned that I never invest in things I don’t understand, because many of these structured products are really, really very complex.
I also mentioned that there should be more stringent requirements as to the qualifications of these financial managers – from the Lehman episode, it can be seen that quite a number of them did not even understand the products that they were selling (which I found out as well when I talked to some of them on many previous occasions).
Pang
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