How I was misled (1)

Dear All,

I have written to H and MAS 3 weeks ago. Until now, I have not got any reply from them yet. I have bought Pinnacle series 6 & 7 from H. I felt that I am misled and I this was what happen to me.

Last year June 2007, I was looking around for banks that offered good fixed deposit rates. Through the website, I found out that H offered one of the highest interest fixed deposit rates.

My wife and I then went to H as it was near to our workplace. When we approached the counter staff on the intention of opening an fixed deposit account, she instead persuaded and recommended us the Pinnacle Notes Series 6 & 7. She told us that this product was as safe as fixed deposit but with a much higher interest paid out. Upon hearing this, we were quite excited and keen of learning more of this product. She then introduced us to the FM J, as she was busy assisting customers who had signed up for the Notes.

J started by showing us the brochures at the side of the counter. She told us that the response was overwhelming the H might stop accepting further applications as they had a lot of back log to process and clear.

The following was what she had told us during that short time :-

* The notes issued are invested in five leading banks, namely DBS, Citibank, UOB, OCBC, BOA and as well as SingTel.

* It pays between 5.2% and 5.0% interest per year for a 5.5 year tenure.

* Series 7 is tied to the share price of the mentioned 5 leading banks and SingTel.

* The risk is low and it operates just like the fixed deposit account.

* She did mention that the principal amount is not guaranteed but she assured us that the 5 leading banks and SingTel will not go bankrupt. She told us that even if you put your money in the fixed deposit account and the bank goes bankrupt, you will also stand to loose your principal amount.

* She further explained that as the money will be invested in the mentioned 5 leading banks and SingTel, even if you are so unlucky that one of the banks goes bankrupt, you will note loose all your principal amount, unless all the 5 banks go bankrupt a the same time.

* During the short time that she explained the product to us, she kept emphasizing the word "secured" credit linked notes. Hence, the product is extremely safe as it is linked to the 5 banks and SingTel.

* We were under a bit of pressure to sign up on the spot as she kept saying that due to the overwhelming response, H would stop accepting further applications these one or two days, before the closing date.

We were definitely being misled into believing that the Notes are used to invest in the 5 banks as well as SingTel. We invested $X Each in both Series 6 & 7 Pinnacle Notes.

Hastily, she filled up the application form for us, with brief explanation. Thereafter, she told us that she needed to do a simple survey of my profile. She said that this was required by her company. She flip through the survey form and randomly asked a few questions. She asked about our particulars, whether do we need the money in the next five years, and also did we purchase any similar products from other banks. The rest of the questions, she said she will tick "average/medium".

Before we left the bank, she handed a copy of the application form and survey form to us. Since then, we did not hear anything from H until 11 July 07. We received from DMG & Partners a confirmation notice that we had bought the Series 6 & 7 Pinnacle Notes. We have also received 2 payouts, on Jan 08 and July 08.

When we learnt of the collapse of the Lehman Brothers Bank and protest from investers of Pinnacle Notes, we decided to check it out from H.

On 9 Oct 08, I went to H to check if the Notes that we have invested are alright. Only then that I came to realise that our money are actually not invested in the 5 mentioned banks and SingTel. It was instead invested in 125 companies and 2 (Lehman Brothers and Washington Mutual) had already bankrupt. I was shocked and asked to see the list of the 125 companies. They were initially not very willing to show me but I insisted. I was even more shock when I received their email, as it is not only invested in the 125 companies but also used to buy credit card bills of Chase Bank.

I asked why we are not shown this list, prior to our purchase of these Notes. His explanation was that the list of companies which they have invested were only released after the offer period closed.

We were angry and fustrated that how can a Relationship Manager from such a reputable financial institution, deceived us into believing that the product is issued and invested in the 5 banks and SingTel, and that it is very safe, just like fixed deposit account.

Did the Financial Insitution do a risk assessment before they undertake to sell the product? Why are we not shown the list on what were invested. No clear and detailed explanation is provided before our purchase. Why H did not update us after the closing date on the list of companies that the notes invested. Why H did not update us when 2 of the 125 companies go bankrupt?

KTS

Mibibond has return of 3 (on scale) and risk of 9

This contribution has been edited by TKL

Dear Mr. Tan
If we using the rating scale of 1 to 10 for the return and risk, then if the fixed deposit is rated at return of 1 with the risk of 1 , then minibond should be rated at return of 3 but with the risk of 9. OCBC 5.1% preference share should be rated at return of 3 and with the risk of 3.

Risk analysis for OCBC PS and minibond :

> We can sell the OCBC 5.1% PS anytime if we need cash
> We are locked up for 5 full years for minibond.

> The risk for losing everything for OCBC 5.1% PS is when OCBC bank go bankrupt
> The risk for losing everything for minibond is any one of the followings:
1) any one of the six major banks or Lehman brothers go bankrupt
2) some others credit events(out of 150 CDOs) occurred (very complex)

Under (1), the risk of minibond is already 7 times of OCBC PS. If we include (2), the risk will multiply, say 20 to 30 times. (I have the impression that the 150 CDOs are much more risky than the six banks)

Clearly, no one in the right mind will buy minibond for a return of 3 but with the risk of 9, if they are aware of the full risk.

Pang

Wayang Party

I wish to introduce you to another blog that contains information about developments on the credit-linked notes, and also about issues in Singapore.

http://wayangparty.com/

Lesson from China: Hu Jintao

Chinese President Hu Jintao said China can help alleviate the impact of the financial crisis and slowing global growth by stoking its own economy.

Steady and relatively fast growth in China is in itself an important contribution to international financial stability and world economic growth.

China announced a $586 billion economic stimulus, focused on building low-rent housing, roads, railways and airports. The package also allows tax deductions for fixed assets such as machinery to stimulate investment. Farmers will also benefit from more subsidies.

China has taken an active part in the international cooperation to deal with the financial crisis and played a positive role in maintaining international financial stability and promoting the development of the world economy. Hu suggested that rich countries must take the lead in addressing the crisis.

Developed nations “should undertake their due responsibilities and obligations” by stabilizing their economies, restoring growth and taking steps to “safeguard investors’ interests”.

Lesson from President-elect Obama

Extracted from bloomberg.com
Obama said he has assigned someone on his presidential transition team who interacts with Paulson (treasury secretary of Bush administration) daily.

"We are getting the information that's required, and we're making suggestions in some circumstances about how we think they might approach some of these problems,'' Obama said. Obama also said the government must do more to help distressed homeowners.

"We have not focused on foreclosures and what's happening to homeowners as much as I would like,'' Obama said, according to the excerpts. He called for setting up ``a negotiation between banks and borrowers so that people can stay in their homes.''

Translate into Singapore situation
The government and MAS must do more to help distressed investors of the credit linked notes.
They have not focused on helping the investors as much as is possible. There should be a negotiation between banks and investors so that fair compensation can be given to the investors for their losses.

Write directly to MAS and your MP

Dear Mr. Tan,

I am writing with a great deal of embarrassment. My husband and I are far from being uneducated. In fact, there are two phDs between us but that goes to show that stupidity doesn't discriminate against people with education. We sank $100 000 - half of it was with pinnacles 8.

I have the following questions:
(details deleted)

What we want to say is that there is definitely a history of misrepresentation in this case. However, we are also embarrassed by the fact that we were so gullible and trusting. In the news, much is made of the plight of retirees who couldn't have known better. However, the honest truth is - it is a very complex product and if we (someone like us) could not understand it, I suspect, many people will walk into this blindly.

My point - the law usually wouldn't allow anyone to sell lousy goods in bad faith. However, when it comes to banks - they can legitimately take millions off simple folks like us and walk away. This is what I find incomprehensible. Is MAS an innocent bystander?

Finally, I just want to thank your website for helping me understand the issues even though I feel more of a fool after reading what others are saying. What I want to say is that don't assume education is going to protect you from such blunders. (details deleted)

I hope this reaches your personal email account and not your blog. If for some reason it goes to your blog, I would be grateful if you could remove it.

REPLY
I advise you to write directly to the MAS and to your member of Parliament. I have a few hundred people writing to me on similar experiences. I do not have the power to do anything, except to post into my blog, speak at Hong Lim Park, and organise Petitions (which are ignored by MAS).

G20 and G8

The G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.

The Netherlands and Spain were also represented, as were the IMF, World Bank, Financial Stability Forum and United Nations.

The G8 are Canada, France, Germany, Italy, Japan, Russia, the United Kingdom and the United States of America, and the President of the European Commission.