The Legislative Council has passed a motion and three amendments to criticize the government for failing to monitor the sale of Lehman Brothers minibonds and other products by financial institutions and banks.
Diana Lee
Thursday, October 23, 2008
The Legislative Council has passed a motion and three amendments to criticize the government for failing to monitor the sale of Lehman Brothers minibonds and other products by financial institutions and banks.
Lawmakers also called for strengthening the protection of investors' interests and preventing any recurrence.
But banking sector legislator David Li Kwok-po said he hoped the issue would not be "politicized."
A bank is just the agent of the minibonds and selling them has been approved by the authorities, Li said.
"The banks have no obligation to conduct buyback deals with customers. They responded to market demand and were also taking risks."
Li's remarks raised the hackles of unionist Lee Cheuk-yan. "The banks abused the trust of the public," Lee said.
Meanwhile, the Hong Kong Association of Banks said the first Lehman minibond buyback exercise can be conducted in early December.
The Consumer Council said at least one complainant had sought assistance from its legal action fund to file a lawsuit.
A source said the Securities and Futures Commission expects banks to do their own review of the cases.
The source said the SFC has no plans to launch a blanket solution on compensation as it prefers banks to decide for themselves.
Meanwhile, the Monetary Authority of Singapore said it received two proposals to restructure Lehman products, a move that could help investors recoup some losses.
HSBC Institutional Trust Services (Singapore), the trustee for the minibonds, said two international financial institutions have offered to restructure the notes to allow them to run to maturity.
DBS said total customer compensation in Singapore and Hong Kong will be around HK$362 million.
http://www.thestandard.com.hk/news_print.asp?art_id=73338&sid=21122158
Thursday, October 23, 2008
Global financial crisis is getting out of control
I wish to ask investors to be aware that the global financial crisis is getting out of control. Since the lodging of the Petition 3 weeks ago, the stockmarkets have dropped by 30%.
The timing may be bad for the investors to press the claims at this time. The financial institutions will be quite busy managing their other issues, including the solvency of their main business.
The timing may be bad for the investors to press the claims at this time. The financial institutions will be quite busy managing their other issues, including the solvency of their main business.
Treat all investors fairly
Dear Mr. Tan,
I appreciate the good work you have done todate.
It is wrong to give priority to the so-called vulnerable group because this implies that the vulnerable group has a Right for full compensation whilst those outside it do not have such a Right. You can somehow discern that the FIs are driving in that directions.
If the aim of giving priority to the vulnerable group is to prevent immediate financial hardship because he or she needs immediate cash as otherwise he or she has to seek government help, then that is understandable. I believe those elderly investors' fund were not "daily expense savings".
In such a case, then education and knowing the English language is NOT a criteria to be used to define the vulnerable group. We therefore need MAS to state that education is not a criteria. Mis-selling (as defined in the ST today) is mis-selling. It has nothing to do with the educational level of the investor.
Albert Tan
tan4tell@yahoo.com
I appreciate the good work you have done todate.
It is wrong to give priority to the so-called vulnerable group because this implies that the vulnerable group has a Right for full compensation whilst those outside it do not have such a Right. You can somehow discern that the FIs are driving in that directions.
If the aim of giving priority to the vulnerable group is to prevent immediate financial hardship because he or she needs immediate cash as otherwise he or she has to seek government help, then that is understandable. I believe those elderly investors' fund were not "daily expense savings".
In such a case, then education and knowing the English language is NOT a criteria to be used to define the vulnerable group. We therefore need MAS to state that education is not a criteria. Mis-selling (as defined in the ST today) is mis-selling. It has nothing to do with the educational level of the investor.
Albert Tan
tan4tell@yahoo.com
Response to: DBS begins process to compensate customers
Letter sent to Straits Times
I read your report in The Straits Times dated 24 October 2008, entitled "DBS begins process to compensate customers". It had a statement which mentioned "Brokerages like OCBC Securities, which distribute, but do not advise investors on Minibonds, ..........".
I beg to differ with the words 'do not advise'. OCBC Securities has an alternative product department which gives advice on alternative products such as minibonds, pinnacle notes, equity linked notes, etc. By stating so boldly that they only distribute but do not adivse is clearly a misnormer. How else can you market your products if you do not advise? Do you think clients of OCBC Securties will just purchase these products off the shelf with no questiones asked and advice given by their alternative product sales personnel. Insofar, I find statements made by OCBC Securities as a way of trying to evade responsibility and I find it very disturbing.
For your information, my husband and I are both victims of the minibond and pinnacle notes debacle and you probably can guess who had sold us the products. I also find that brokerages (in general) that had marketed these products to their clients, have been keeping a low profile and not willing to admit to any misrepresentation in mis-selling. Perhaps it is time to put pressure on them to "do the right thing' as of the like of DBS, Maybank etc. "
Regards
C P Tay
I read your report in The Straits Times dated 24 October 2008, entitled "DBS begins process to compensate customers". It had a statement which mentioned "Brokerages like OCBC Securities, which distribute, but do not advise investors on Minibonds, ..........".
I beg to differ with the words 'do not advise'. OCBC Securities has an alternative product department which gives advice on alternative products such as minibonds, pinnacle notes, equity linked notes, etc. By stating so boldly that they only distribute but do not adivse is clearly a misnormer. How else can you market your products if you do not advise? Do you think clients of OCBC Securties will just purchase these products off the shelf with no questiones asked and advice given by their alternative product sales personnel. Insofar, I find statements made by OCBC Securities as a way of trying to evade responsibility and I find it very disturbing.
For your information, my husband and I are both victims of the minibond and pinnacle notes debacle and you probably can guess who had sold us the products. I also find that brokerages (in general) that had marketed these products to their clients, have been keeping a low profile and not willing to admit to any misrepresentation in mis-selling. Perhaps it is time to put pressure on them to "do the right thing' as of the like of DBS, Maybank etc. "
Regards
C P Tay
Reputation as financial services hub
Hi Mr. Tan,
I have been quietly watching you championing for those who have lost their money at minibonds and High Notes. And, I must congratulate you as it is a good first success step that ST reported that the 3 banks may compensate the "vulnerable".
I have to tell you that I also bought the minibonds, series 2, although a small sum only.
I did not seek out for such an investment. I think I went to May Bank 2 years ago to do an FD, and the RM sold it to me.
Also, with the explanation, I was given to understand that I bought the bonds of these 7 organisations. Bonds should be quite safe right esp if held to maturity?
I remembered very clearly that I asked him what was the risk?
He told me that the risk is - if any of the 7 organisations went under , then I would lose the portion depending what is the percentage of the bonds. So, I calculated the risk. At most 1 company go under, then I should still get back he rest of the money from the balance of the bonds in the basket I remembered asking him this scenario, and he did not disagree with me. Looking at the list of the 7 big companies, the chance of 1 going under is slim leave alone more than one company going under.
No time during our conversation was Lehman Bros a risk analysis factor.
My friend, who has low risk appetite and is an accountancy grad, is also affected when she bought High Notes (given the understanding that in the worse case scenario, she would get the full sum back if held until maturity). Again, she did not seek out the investment, she went to DBS to do an FD.
Hence, my main point here is that - it is not only the vulnerable is affected. Someone with degree is also affected.
The Govt need to deal with banks who gave misleading info to consumers , if it wants its banks and our financial services here to retain a reputation as a reliable financial service hub.
KKW
I have been quietly watching you championing for those who have lost their money at minibonds and High Notes. And, I must congratulate you as it is a good first success step that ST reported that the 3 banks may compensate the "vulnerable".
I have to tell you that I also bought the minibonds, series 2, although a small sum only.
I did not seek out for such an investment. I think I went to May Bank 2 years ago to do an FD, and the RM sold it to me.
Also, with the explanation, I was given to understand that I bought the bonds of these 7 organisations. Bonds should be quite safe right esp if held to maturity?
I remembered very clearly that I asked him what was the risk?
He told me that the risk is - if any of the 7 organisations went under , then I would lose the portion depending what is the percentage of the bonds. So, I calculated the risk. At most 1 company go under, then I should still get back he rest of the money from the balance of the bonds in the basket I remembered asking him this scenario, and he did not disagree with me. Looking at the list of the 7 big companies, the chance of 1 going under is slim leave alone more than one company going under.
No time during our conversation was Lehman Bros a risk analysis factor.
My friend, who has low risk appetite and is an accountancy grad, is also affected when she bought High Notes (given the understanding that in the worse case scenario, she would get the full sum back if held until maturity). Again, she did not seek out the investment, she went to DBS to do an FD.
Hence, my main point here is that - it is not only the vulnerable is affected. Someone with degree is also affected.
The Govt need to deal with banks who gave misleading info to consumers , if it wants its banks and our financial services here to retain a reputation as a reliable financial service hub.
KKW
High risk, absymal return
Dear Kin Lian
You are certainly doing a great job for the community by bravely taking side against the establishments. If not for your effort at galvanizing support and media coverage I am sure the response by the banks will have been different.
My heart goes out to all the investors who have bought these derivatives without understanding the associated risks. I do not expect the vast majority of them to even have an inkling that these products can be so risky. After all when one steps into a bank and is told by their staffs that they have a very "safe" product to sell which yields higher than deposit rates then of course many will be simply sold by the fact that they are dealing with a reputable bank that will not dupe them.
I myself have been approached many time by staffs of banks wishing to sell me "products that are high yielding and safe." When I queried them further on their products abysmal return versus the risk they were unable to answer me. I guess they are only repeating what they have been taught not what they should know. I do not blame the staffs as most of the products they are selling have so many clauses, technicalities and conditions that they themselves are overwhelmed. I think the banks who sold these products should bear responsibility for any and all losses incurred by investors.
Well done and keep up the excellent work.
Paul (a fund manager)
You are certainly doing a great job for the community by bravely taking side against the establishments. If not for your effort at galvanizing support and media coverage I am sure the response by the banks will have been different.
My heart goes out to all the investors who have bought these derivatives without understanding the associated risks. I do not expect the vast majority of them to even have an inkling that these products can be so risky. After all when one steps into a bank and is told by their staffs that they have a very "safe" product to sell which yields higher than deposit rates then of course many will be simply sold by the fact that they are dealing with a reputable bank that will not dupe them.
I myself have been approached many time by staffs of banks wishing to sell me "products that are high yielding and safe." When I queried them further on their products abysmal return versus the risk they were unable to answer me. I guess they are only repeating what they have been taught not what they should know. I do not blame the staffs as most of the products they are selling have so many clauses, technicalities and conditions that they themselves are overwhelmed. I think the banks who sold these products should bear responsibility for any and all losses incurred by investors.
Well done and keep up the excellent work.
Paul (a fund manager)
Impact of Lehman Brothers on different types of securities
Dear Mr. Tan,
I am not clear why the collapse of Lehman Brothers affect some securities (such as High Notes, Jubilee Notes) more than other securities (such as Minibond)?
REPLY
Lehman Brothers is listed as a "reference entity" in the High Notes series 5 and the Jubilee Notes series 3. When Lehman Brothers entered into a "credit event", the entire capital of the securities is used to pay the swap counter-party. There is nothing left for the noteholders (i.e. investors of these securities).
For the Minibonds, Lehman Brothers is the swap counter-party. With the collapse of Lehman Brothers, another counter party has to be found to take over its place. If this is not done, the underlying securities have to be liquidated now at the current depressed price. This will leave the investors with very little, maybe 20% or less (just a guess). If a new swap counter party is found, the underlying assets can be kept until the maturity date. Hopefully, the price will be higher, but the investors is not likely to get back 100%.
For the securities that have not defaulted yet, the investors will still face the following risks prior to the maturity date:
a) Risk that any of the reference entity may default (similar to the Lehman Brother situation)
b) Risk that the underlying assets may defaults
c) Risk that the swap counterparty may default
All these risks remain quite high, under the current global financial crisis.
I am not clear why the collapse of Lehman Brothers affect some securities (such as High Notes, Jubilee Notes) more than other securities (such as Minibond)?
REPLY
Lehman Brothers is listed as a "reference entity" in the High Notes series 5 and the Jubilee Notes series 3. When Lehman Brothers entered into a "credit event", the entire capital of the securities is used to pay the swap counter-party. There is nothing left for the noteholders (i.e. investors of these securities).
For the Minibonds, Lehman Brothers is the swap counter-party. With the collapse of Lehman Brothers, another counter party has to be found to take over its place. If this is not done, the underlying securities have to be liquidated now at the current depressed price. This will leave the investors with very little, maybe 20% or less (just a guess). If a new swap counter party is found, the underlying assets can be kept until the maturity date. Hopefully, the price will be higher, but the investors is not likely to get back 100%.
For the securities that have not defaulted yet, the investors will still face the following risks prior to the maturity date:
a) Risk that any of the reference entity may default (similar to the Lehman Brother situation)
b) Risk that the underlying assets may defaults
c) Risk that the swap counterparty may default
All these risks remain quite high, under the current global financial crisis.
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