Friday, October 31, 2008

Flawed Financial Products-DBS High 5 Notes

The following article on Today has highlighted that DBS High 5 Notes is actually a FLAWED product with a risk factor of 8 or 9 out of 10. But yet, it was systematically sold to people who are only interested in fixed deposits with fixed interests.

Similarly, as explained in my last article "This is what Minibond is all about!" and a similar article in Chinese which illustrated that Lehman Minibonds is NOT Bonds at all.

In fact, it has ABSOLUTELY NOTHING to do with BONDS but just a HIGH RISK product which is TOTALLY FLAWED. Not only that it makes investors become INSURERS of Lehman Brothers but in actual fact, it practically makes investors to GIVE Lehman Brothers the right to use their hard earned money to GAMBLE in the financial derivatives market to earn HIGH RETURNS for Lehman Brothers without having it to bear any risk at all..i.e. Lehman Brothers will have a RISKLESS GAMBLE while all risks are born by investors!

If they make it big gamble, they will only give 5.1% to investors and they keep the rest of the winning. If they lose, sorry, investors will be the ones who will lose the money!

Goh Meng Seng

Products were flawed
High-risk High Notes should not have been sold at all, they contend
By Francis Chan
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SOME DBS High Notes 5 investors are broadening their complaints against the bank that sold them Lehman Brothers-linked investments that are now worthless.

They want to press the case that the structured product had 'flaws' and should never have been sold to them to start with.

This is different from complaints that have so far been lodged against the bank, which centre on allegations of 'mis-selling' of products that did not suit investors.

Two representatives from the 250-strong grouping - which has dubbed itself the 'DBS Hi Notes Investor Group' - spoke to The Straits Times in between two forums organised by DBS at Suntec City yesterday. They contend that High Notes 5 was a high-risk product not suitable for retail investors.

'There is a systemic failure in the product itself,' said one, who asked to be known as Mr Leong, 47. 'In fact, we got the bank to admit during the forum that the product is indeed not a low-risk product,' he added. Said the other representative, 38- year-old Kenneth Tay: 'We asked them to rate it on a scale of one to 10, with 10 being the highest, and they said High Notes 5 was between eight and nine.'

Mr Leong invested $100,000 in the doomed product and Mr Tay, $75,000. Their argument marks a shift away from the current focus on investor complaints about mis-selling of Lehman-linked products, especially to elderly or lowly-educated investors who could not understand their complexities.

DBS, like other financial institutions, has agreed to focus on helping 'vulnerable' investors such as the elderly and less educated and to probe mis-selling claims.
The bank is reviewing all sales transactions on a case-by-case basis regardless of whether a complaint has been made.

Mr Leong said the 250 investors agreed that High Notes 5 had three key flaws. 'The first is the product itself, the second is the sales process and third, the way the bank targeted customers,' he said.

On product flaws, Mr Leong said that with help from a 'finance expert' who had experience in manufacturing structured products, the group had learnt that as investors of High Notes 5, they had unfairly become 'insurers' to the credit default swaps (CDS) which backed the product.

On the sales process, Mr Leong said that it was agreed among the group that the DBS relationship managers who sold the product could not even explain the product features clearly.

'It is our view that they are inadequately trained, so how can inadequately trained people with faulty knowledge hope to advise people who know nothing?' he asked. Mr Leong said the third issue was the way in which the bank had approached customers to sell the product.

'Many [investors] share this story: They went to the bank to renew or open a fixed deposit and somehow ended up buying into High Notes 5,' he added. 'How can one associate a customer who is looking for a largely safe product like a fixed deposit ending up with such a high-risk product?'

Mr Leong and Mr Tay said they did not get satisfactory responses at the forums from DBS consumer banking head Rajan Raju. When asked to comment on the systemic flaws raised by investors, Mr Raju told reporters: 'All investments, as you know, are governed by the Financial Advisers Act in Singapore...and so far, all our products are benchmarked to the Financial Advisers Act.'

He added: 'What we are trying to say is that where there is a breakdown in our process, we will make sure that we take the responsibility and fix the problem.'
More than 360 investors of High Notes 5 attended the two sessions of the dialogue organised by DBS.

These came after 166 investors had visited DBS' Shenton Way headquarters on Oct 21 to call for an open forum. One investor, who declined to be named, said he had heard little new. 'But today they gave us this complaint form with 16 questions to complete, and promised us a fair review, so let's hope for the best - there's not much else I can do anyway.'

The 1,400 investors who bought High Notes 5 would have received letters from DBS by today informing them that their investments are worthless.

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