TOTD: Mis-selling of Dangerous High Risk Financial Bonds to Retail Investors

Thought of the Day - Mis-selling of Dangerous High Risk Financial Bonds to Retail Investors

Just a couple of weeks ago, news broke out on Hyflux defaulting on its interest payment to the perpetual bonds it had sold to investors, which include retail investors.

Most Singaporeans do not understand what is a perpetual bond. For normal bonds, be it government or private company's bonds, they will have an expiry date. It basically means that when you buy these bonds, it promises to pay you an interest every year and at the end of 10 or 20 years, or any number of years dictated on the bond as a contract, it promises to pay you back the amount stated on the bond.

For example, there could be a $100K coupon bond which promises to pay you 5% of $100K each year for 20 years and at the end of the 20 years, it will repay you the 100K stated on bond. You may not pay $100K for the bond because it depends on the interest rates of the market. You may pay higher than $100K if the current interest rate is lower than 5%. Or you may pay lower than $100K for this bond if the current interest rate is higher than 5%. i.e. the price of this bond is inversely related to current interest rate.

Technically speaking, you can trade on these bonds. You can buy or sell these bonds before the maturity of the bonds.

What is perpetual bond then? It basically means that the company will be selling you these bonds and it promises to pay you the coupon rate, eg 5% every year but it will go on forever and it will not repay the principal amount of these bonds. i.e. it will be borrowing these money from you or other investors perpetually... FOREVER.

You can only "cash out" from these bonds by selling to other people who are willing to buy it.

The pricing of such bonds are more complex as the longer the bond maturity is, the higher risk it involves. And now, when technically speaking the maturity is infinity, aka no maturity, then the risk is extremely high.

This is why Perpetual Bonds are NOT MEANT for retail investors but more for institutional or professional investors. MAS, as the regulator of the financial market, should not even allow such perpetual bonds to be sold to retail investors!

But we now know, MAS has actually closed both eyes on such issue. Now that Hyflux has defaulted on the interest payment on its perpetual bonds, these bonds have basically become JUNK bonds in the market with little value left. The retail investors would suffer huge losses in such situation.

Ironically, Termasek Holdings under Ho Ching, has planned to sell perpetual bonds to retail investors, putting up such slogan on "supplementing CPF" earnings!

First of all, it is totally inappropriate to sell perpetual bonds to retail investors.

Secondly, how could a Sovereign Wealth Fund issue such a bond?

Last but not least, 4.5% may look comparatively attractive to the 2.5% or 4% given by CPF, but the amount of risk in perpetual bonds are very much higher! Normally, such bonds are sold at a discount to institution investors but it seems that it is more lucrative to sell to inexperience retail investors at higher price or at its principal value because they do not understand the risks they are taking!

Considering the Prime Lending Rate is at 5% now, the interest for Perpetual Bond should be higher than this rate because, it is basically a loan for forever which will involve greater risk!

Termasek Holdings, as our Sovereign Wealth Fund, is actually taking advantage of Singaporeans, by borrowing from them below Prime Rate with indefinite maturity! Try asking any banks to lend to you $100K FOREVER at prime rate and see what you get from them!

Truly, I must warn all Singaporeans not to be taken advantage by our very own Sovereign Wealth Fund. I do not know why they need to raise funds through perpetual bonds when they are already handling so much funds up to the hundreds of billions but with the opaque manner in which they run their business, the risk is even higher than one could imagine.

Risk arises when there is uncertainty with lack of transparency and information. Please do not be fooled by such "good investment opportunity" sales talk. Else, you may end up like those Minibonds victims, die liao also don't know why and MAS will just brush you aside.

Goh Meng Seng

Minibond Saga in HK - Role of Democratic Pressures

The following is the news in Reuters on DBS paying compensation to Minibond victims in Hong Kong:

DBS Hong Kong to pay $84 mln in Lehman settlement

PRESS DIGEST - Hong Kong - July 14

DBS Group Holdings Limited
4:05pm GMT+0800
HONG KONG | Wed Jul 14, 2010 5:13am EDT
July 14 (Reuters) - DBS Hong Kong, a unit of Singapore's DBS Group Holdings (DBSM.SI), will pay out a combined HK$651 million ($84 million) to some buyers of Lehman Brothers constellation notes, the territory's financial regulator said on Wednesday.

Customers classified by the bank as having a low to medium risk profile would receive their money returned plus interest that would have been payable had it been placed in a fixed-term deposit, Hong Kong's Securities and Futures Commission said in a statement.

Investors in Singapore, Hong Kong and Indonesia who bought the product had lost their money after the U.S. investment bank Lehman Brothers went under in 2008.

The constellation notes are credit-linked notes related to the collapsed U.S. bank. (Reporting by Kelvin Soh; Editing by Chris Lewis)

I have played a very small role in this Minibond Saga, both in Singapore and Hong Kong. But I am very glad that the Hong Kong Victims have finally get at least 60% to 70% compensation from the banks and financial institutions.

This is especially an important lesson for Singaporeans to understand how TRUE DEMOCRACY could work to their advantages in times of such crisis. The Hong Kongers have put great pressures on its government to make good of a settlement for the Minibond saga. This could only be possible with the help and pressure exerted by the Pan-Democratic Legislative Councilors (equivalent to our MPs in parliament) through the various hearings conducted by the Legco.

In Singapore, the government would prefer to protect the interests of the banks and financial institutions in such an ultra-capitalist manner basically because the government itself holds substantial shares in most of the local financial banks and institutions. It would be difficult for the government to be a good referee (i.e. regulator) as well as the main players (shareholders of these institutions). Naturally, the interests of investors would be compromised in the process.

This situation is further worsen by the fact that there is a lack of true checks and balances in parliament. In HK's case, the Legco enforce an equivalent of "Commission of Inquiry" to get civil servants from the Finance ministry as well as chiefs of those banking institutions to be questioned thoroughly. Such pressure has finally paid off by a reasonable settlement being made by getting the institutions to compensate up to 60% to 70% to their investors.

In great contrast, Singapore Minibond victims are left to their own peril. Whatever little effort the MAS puts up, the settlement is a sham which favors heavily to the financial institutions, with compensations as little as 10% only. The only consolation is that Great Eastern has willingly put up 100% compensation to its investors.

But we cannot trust and depend on the magnanimous acts of these institutions. We must have a system which could balance the interests of the masses vs the capitalists. We should not have a government that will face conflict of interests in this case, to act responsibly and fairly.

It is an important lesson of the Democracy for all of us. You will not realize the importance of Democracy unless you need it.

Minibond Gathering in Hong Lim 22 Aug 2009

There will be a Minibond Gathering in Hong Lim tomorrow, 22 Aug 2009.

This gathering aims to put up a petition to the Prime Minister to request his action in getting the relevant authorities to exert social justice for aggrieved Minibond and structured products investors. Particularly, the petition urged the authorities to provide the same compensation option as Hong Kong where financial institutes bought back those investment products at 60% to 70% of original pricing and will return any excess of such amount (after the underlying assets have been sold) to the investors.

Please meet Mr. Tan Kin Lian and group in Hong Lim at 5 pm. Unfortunately, I will have to miss this gathering this time round. The following is message from Mr. Tan Kin Lian:

Tan Kin Lian
There will be a Gathering of investors of the credit linked notes and supporters at 5 p.m. on Saturday 22 August (8-22) at Hong Lim Park. The Gathering will start off with the National Pledge (not Aspiration) that we have been pledging (not aspiring)... for 44 years. I will be extending the Pledge beyond the citizens to include the residents of Singapore. See you there.


Goh Meng Seng

Great Eastern Life is maganimous - Tan Kin Lian

Great Eastern Life is maganimous

When Great Eastern Life sold the Great Link Choice, the product was explained quite transparently. I recalled reading some description of the product in the newspapers. It was clear that on reaching a certain number of credit events, the value of the investment would drop sharply and after passing a threshold, it would be worthless.

The mistake was in allowing this type of "gambling" product to be sold to the general public. There is no way that any investor will be able to assess the risk of losing all their money. They had to rely on the advise of the financial adviser (i.e. insurance agent) and the credit rating agency. The Monetary Authority of Singapore should not have allowed the general public to gamble away all of their money for a small increase in interest rate.
Great Eastern Life made the mistake of selling this product, but several other insurance companies also sold similar products. NTUC Income, which was managed by me during this period, avoided this type of product, resulting in a decline in our market share.
Most policyholders who bought the product were probably told that there is a risk, but were probably assured (wrongly) that the risk is very small. It would be fair for the policyholders to take partial responsibility and bear a portion of the loss. Some policyholders might not have been told of the risk, or might have been misrepresented about the risk, but this is a separate matter.
It is magnanimous (highly generous) of Great Eastern Life to offer a full buyback of this investment product. I congratulate them for this goodwill gesture, which is costly to their shareholders. I hope that all policyholders who got back their money understand that they have been generously treated.
Great Eastern Life has to write off a loss of $250 million. It could be more, if the credit market continue to deteriorate. It could be less, if the credit market improves in the future. No one knows what the future will hold.
I like to wish all the best to Great Eastern Life and hope that they will be rewarded for their generosity, through an improvement in the credit market. In the best possible case, they may fully recover the $250 million that was set aside. At that time, I hope that the policyholders will not ask for the interest to be paid to them (as it would be an unfair expectation).
Whatever the outcome, Great Eastern Life would probably be rewarded by the goodwill gained from the compensated policyholders, their families and friends and the general public in Singapore.
I call on the other insurance companies who have sold similar products to offer a buyback arrangement. It does not have to be as generous as Great Eastern Life, but it should share the loss (or gain) equally between the policyholders and the insurance companies. This would be a fair settlement.
Tan Kin Lian

香港銀行斥63億終極「解迷」

銀行斥63億終極「解迷」
(星島)2009年7月23日 星期四 06:30

(綜合報道)

(星島日報報道)糾纏了十個月的雷曼迷債事件，昨天終於可望解決。證監會、金管局以及十六家銷售迷債的銀行達成集體和解協議。銀行將以原價六折或七折的價錢，向投資者回購迷債。銀行出售迷債抵押品之後，會視乎抵押品價值，向投資者支付額外補償。證監會表示，回購方案已考慮了投資者利益，但雷曼苦主大聯盟則堅持要求銀行十足十賠償。

　　十六家銷售銀行將合共要為回購迷債付出六十三億元，而當年銷售迷債所得的兩億元佣金，也要全數撥入一個特殊基金，以應付出售抵押品的法律開支。不過，證監會在昨天的通告當中，並沒有譴責銀行的字眼，換言之，銀行已取得下台階。

　　早在今年一月以及四月，兩間證券行新鴻基投資以及凱基已與證監會達成和解協議，同意以原價回購迷債，而這兩間證券行更遭證監會公開譴責。相比之下，銀行只是退回部分本金，而且沒有受到譴責，境況較證券行為佳。

　　證監會行政總裁韋奕禮昨天表示，回購方案令到投資者可以盡快取回相當比例的本金，是解決迷債事件的適當方法。他又說，銀行銷售的迷債，無論涉及金額以及投資者人數，都遠較證券行為多，因此兩者難以相提並論。證監會將停止對迷債銷售銀行的調查，而金管局副總裁蔡耀君亦指出，只要投資者接納和解建議，金管局將不會對這些個案採取執法行動。不過，假若銷售過程有可能涉及欺詐等刑事罪行，則會繼續跟進。

　　銀行界消息人士表示，銀行會在八月三日開始，向合資格客戶寄出回購要約文件，客戶要在六十天內作出決定。一旦客戶接受銀行提出的回購方案，就需要撤回投訴。

　　他相信，大部分客戶會接受這個方案，因為相對於抵押品價值，客戶所得是「有多無少」，強調銀行已顯示出最大的誠意。但若客戶拒絕接受，他們的權益亦不會有任何影響，「香港的核心價值是法治精神，如果客戶覺得自己有理據，可以透過法律渠道追討。」

　　銀行估計，有九成五客戶合乎回購方案的資格，至於不合資格的百分之五客戶，則是專業投資者、企業及非個人投資者，而在首次購入迷債之前的三年內，曾有五次或以上買賣結構產品或槓桿成分產品的有經驗投資者，亦不符合資格，消息人士表示，這是為了防止道德風險，令到投資者要承擔其投資責任。

　　政府亦歡迎監管機構與銀行達成和解協議，財經事務及庫務局局長陳家強表示，回購方案是從投資者的利益出發，避免投資者經歷冗長繁複的清盤程序以及不必要的訴訟。

　　他又說，期望銀行可從事件中吸取教訓，改善銷售投資產品的程序。

　　中文大學財務學系副教授蘇偉文估計，大部分迷債投資者相信會接納回購方案，以免夜長夢多，繼續追討將要面對很多不明朗因素。



大聯盟不滿終止雷曼調查投訴
(星島)2009年7月23日 星期四 11:47

十六間雷曼迷債分銷銀行與證監會 就賠償客戶達成共識方案後，在報章發表聯合聲明，正式宣布向合資格的客戶提出回購計劃。不過，雷曼苦主大聯盟召集人陳光譽不滿，若客戶接受方案後，當局將不再繼續調查投訴個案。

陳光譽表示，當局如果不再繼續調查，公義便不能彰顯，社會亦不能從事件中得到教訓。但他強調，並非建議投資者拒絕接受昨日公布的回購方案。投資者應考慮個人經濟狀況，決定循法律途徑繼續追討，或接受方案。

而23日早上10多名購買雷曼迷債的市民，在證監會所在的中環 遮打大廈外靜坐，表示不滿證監和銀行達成的和解方案，他們指銀行欺詐，要求百分百賠償。

十六間雷曼迷債分銷銀行在報章發表的聲明指，在過去數月，分銷銀行在增撥大量資源，加快處理所有投訴個案調查和解答客戶查詣的同時，一直竭盡所能為事件盡快尋求一個全面、公平、合理的解決方案。在今次極不尋常、而且無先例可援的情況下，將雷曼迷債事件作為特殊案例處理，在不承擔任何法律責任的前提下，提出回購計劃。回購計劃已獲證監會和金管局 同意作為管調查全面和解方案的一部分。

聲明又指，雷曼倒閉是全球金融海嘯中的一個巨浪，是不測，也是不幸，無人預計到這個有150年歷史，美國 第四大投資銀行，雷曼會在一夜之間倒閉，相信回購計劃會得到迷債客戶及公眾支持。

根據計劃，65歲以上的投資者可取回七成本金，65歲以下的投資者取回六成本金，日後銀行若成功將債券抵押品變現，投資者可多取一成本金，過去已和解的個案，客戶可獲補償差額，預計銀行合共需支付63億元。

Minibond Victims Petition to PM Lee 迷你债券苦主向李总理的网上请愿书

For those victims of banks and financial institutions mis-selling of structured products like Minibonds, DBS High Notes or Pinnacle Notes, the following is a new online petition started off by Mr. Tan Kin Lian to be sent to Prime Minister Lee.

The main thrust of the Petition is to get MAS to implement a similar
settlement to what is happening in Hong Kong, i.e. 60% now and 40% of
the maturity proceeds. This is reasonable and fair as the various investigations done by both MAS and HK SFC have indications that there are systematic mis-selling of these products to retail investors and fixed depositors.

Please help to spread the news about this petition.

http://www.petitiononline.com/PPMCLN3/petition.html

陈钦亮先生再一次带领迷你债券和结构性金融产品苦主向李总理请愿，请求他为苦主们主持公道，力求金融管理局能向香港证监会一样，为苦主们寻求合理的解决方案。那就是，以至少60%的价格回购所有产品并且把从产品抵押品赎回的40%价值归还给苦主们。

这请愿书将在以下的网页收集签名，如果您想签署这请愿书，请点击以下网址：

http://www.petitiononline.com/PPMCLN3/petition.html

吴明盛代启

Concept of Power II- Hong Kong vs Singapore/PRC , Democracy, Social Justice & National Identity

There are a series of happenings for the past weeks that provide an interesting material to make comparative study of the impact of democratic progress to welfare of the people.

I was only thinking of making democratic comparisons between Hong Kong and Singapore at the beginning of the month after my participation of the Hong Kong 1 July protest march, but the unexpected 5 July racial/ethnic riot has added another perspective to my original script.

The Source of Power

I will start with the call for Universal Suffrage for the election of the Hong Kong Chief Executive. Many people may view such "hard political issue" difficult to relate to their daily lives but the Lehman Brothers Minibond issue has brought great contrast to possibility of how different a government under different degree of democratic progress would react to protect the interests of small investors versus big financially powerful corporations.

The fundamental reasoning for the call of Universal Suffrage is to transfer the power of appointment and empowerment from the few individuals (800 to be exact) to the general public. These 800 individuals are mostly screened and approved by the basic source of power, the Beijing government.

Thus, it would mean that anybody who wants to be elected to be the Chief Executive of Hong Kong, he will have to get the backing of the majority of these 800 Bejing appointed delegates. Most of them are rich, powerful and influential individuals in Hong Kong, representing the business community which includes the property developers, banking and finance sectors etc. Of course there are token representatives from the respective professional functional groups and unions but most of these people are perceived as appointed by or proxies of Beijing government.

With such a power structure, it is natural for those who are in the position of Chief Executive to please the big boss who appointed him in the very first place. At the very least, don't agitate or make the big boss angry. On the other hand, he must maintain cordial relationship with those 800 delegates who voted him as proxy to the Beijing Government. Many of them are tycoons or proxies of such rich and powerful tycoons representing their business and organizations' interests.

Thus in Hong Kong, it is not unusual to hear the people or newspapers complaining of "官商勾结"， meaning collusion of the government and businessman in return of favors.

Buttered Side up

To illustrate how the structure of power affects the political behavior and decisions made by the Chief Executive, the simple request for Universal Suffrage by the Hong Kongers was flatly turned down by Donald Tsang recently in Legislative Council. His reasoning was that the Chinese People's Congress (which of course controlled and directed by the Beijing Government) has closed the case with a time table set for 2017 to implement the Universal Suffrage (instead of 2012). He is not going to go against the political will of the Beijing Government by bringing this up again to the Chinese leaders. Neither will he make any arrangement for those Legislative Council members (i.e. equivalent to our MPs) to visit Beijing to put up their views and requests of Universal Suffrage directly to the Chinese leadership.

It is obvious that Donald Tsang's main concern is to avoid agitating the Beijing Government even though there is strong voices on the ground to demand for Universal Suffrage in 2012. He is less interested in bring the voice of the Hong Kongers to Beijing. This is understandable as his reference of empowerment comes directly from Beijing Government itself.

Accountability of the administration is basically skewed towards the Beijing government who is the source of the power rather than the Hong Kongers. In any system that promotes appointment of key political leaders by the few powerful people, it would always be so.

The Pillars of Democracy & Minibond Saga.

Lucky for Hong Kong, there are two other three pillars of democracy to depend on. The very professional and independent judiciary, the freedom of press and the Legislative Council (i.e. parliament). Apart from that, there is a guarantee of freedom of expression by the layman via street protests.

The Lehman Brothers Minibond saga has demonstrated the importance of having these pillars of the democratic system. The Hong Kong Administration may not have the political will to settle the Minibond saga once and for all using its administrative powers, just like Singapore's MAS. This is basically because many of those in the 800 delegates that elect the next Chief Executive are well connected to the banking and finance sector. By right, the regulatory role should fall flat on the Hong Kong Monetary Authority (HKMA) but eventually, this hot potato was kicked to the Securities and Futures Commission (SFC). HKMA is directly under the prevail of the HK administration of finance ministry while SFC is more or less an independent commission to oversee fair play in the financial market, mostly on the stock exchange and other financial derivative markets. It would be strange to have the SFC instead of the HKMA to oversea regulation over banks who mis-sold structured products. Anyway, this is another story.

SFC being an independent commission did an investigation into the whole matter and took a hard stand on the banks and financial institutions that mis-sold the structured products. It was not satisfied with the initial general settlement proposal (read by earlier posting, overall 60% to 70% compensation) made by the 16 banks and has in fact warned of sanctions on several financial institutions. Some financial institutions have eventually made FULL compensation to ALL of their clients while others are forced to make formal GENERAL SETTLEMENT PROPOSAL.

The Hong Kong Minibond victims are also helped by Pro-Democratic Legco members to force the Legislative Council to set up an independent Legco Committee of Inquiry. They were able to force the setup of such committee of Inquiry which is empowered with special Legco rights and power to call for witnesses mainly because the Hong Kongers have voted in slightly less than half of the Pro-Democratic Legco members as compared to the Pro-Beijing Legco members who are mainly elected via the Functional Group categories. If the composition of the Legco members are just like Singapore Parliament with only 2 or 3 opposition MPs, I really doubt that such Committee of Inquiry could be set up at all.

The Minibond saga in Hong Kong is coming close to GENERAL SETTLEMENT with FAIR compensation to be made to ALL investors mainly due to the power of the Democratic system that allows it to happen. Unlike the plight of Singapore's Minibond victims who are left to their own to fight for their rights and interests, the solid foundation of Hong Kong's democratic system has allowed Social Justice to prevail.

Forging An Identity

The Democratic progress and development in Hong Kong also allows the Hong Kong identity to be enhanced further. From the various postings on the Hong Kong protest march and 4 June memorial service, we an see that young Hong Kongers have been cultivated with a strong sense of social justice and political mindsets.

For an identity to be forged, there must be meaningful collective memories to start with. Collective memories can come in many forms like unique distinctive iconic buildings, common experiences and even food or culture. The unique peaceful protest march of tens of thousands of people without any incidents of violence is one of such amazing collective memories that one would have as a people.

Although Hong Kong is not a country but the Hong Kong identity is unique to many people. Hong Kongers feel that they have the responsibility to mold the future of Hong Kong instead of leaving it to the will and fancy of the Beijing Government. The spirit of "self-determination" is a strong molding factor of Hong Kong identity in this aspect.

As contrast to young Singaporeans who may hold "defeatist" mindset in wanting to initiate a change or molding the direction of their country, the young Hong Kongers, as young as secondary students, would take to the street to voice out their social-political views in the hope that they could maintain the political pressure on the government of the day to meet their demands.

There was a survey study of young Singaporeans and the result was that a substantial percentage of them would consider migration as the ultimate option for them in the future. This is alarming for a COUNTRY that has existed for more than 50 years. Singapore does not face famine, political instability nor any natural disasters. Why would young Singaporeans plan to leave their country? This is, in my view, a National Identity crisis.

Democracy, Social Justice & Fairness, Ethnic Harmony

The riot and unrest in China's Urumqi has raised alarms on racial or ethnic harmony. It is a timely case study for us to understand how such tragedy should be avoided or deal with if it has already happened. Favorism or discrimination will not solve racial and ethnic troubles.

A country needs a system of SOCIAL JUSTICE & FAIRNESS, INDEPENDENT JUDICIARY and DEMOCRACY to ensure that the leaders from top to bottom take heeds of the voices of different races and ethnic groups on the ground. As we can see in Hong Kong's case, minority races or even foreign maids are allowed to go for protests to voice their grievances. In fact, Hong Kong has a commission which looks into Equal Opportunity for all, particularly in employment.

Lessons to be Learned

The very first lesson to be learned is, the political structure and system MATTERS to ALL of us. This is shown by the differences in the way Hong Kong and Singapore government respond to the Minibond issue. While Hong Kong Minibond victims are heading towards possible GENERAL SETTLEMENT with a substantial compensation facilitated by the independent and separation of power along with democratic means to exert political pressures, Singapore Minibond victims are stuck with the only option of going for potentially expensive lawsuits. MAS has only taken the token step of putting a light slap on the wrist of banks who apparently have systematically mis-sold these high risks structured products.

The second lesson to be learned is that our National Identity could not be forged simply by singing nationalistic songs once every year during National Day. Engagements and participations of the young and old in the political discourse and democratic processes are of paramount importance in forging a collective memories, ownership and common identity among the population.

The third lesson is that Social Justice & Fairness could only be supported and sustained by a truly democratic system with high level of citizen activism on the ground. This will maintain the necessary checks and balances to ensure racial and ethnic harmony within.

On the other hand, in order to make our ruling party PAP to really grasp the reality of empowerment by the people, ideally ALL wards should be contested. Although we do not have a good model of democracy or even an ill-democratic system with controlled press and skewed electoral system, but at the very least there is still a way to make PAP MPs and ministers more accountable to the people. This is by means of making each and everyone of them to go through the process of REAL ELECTION rather than walk over.

If they are allowed to walk over lightly, they would think that what matters most is the PAP's SELECTION process, not voters' choice. In the end, they may end up singing more praises to the PAP leadership instead of voicing out the various concerns of the people who are supposed to be their source of power.

Last but not least, we need MORE ELECTED opposition MPs with FULL POWERS in parliament (instead of NCMPs). In my view, the proportionate representation system is the best system we could have to make sure that we have a parliament with a balanced representation of views over the wide population spectrum.

Goh Meng Seng

204 Customers sue Singapore’s DBS over investment loss

Customers sue Singapore’s DBS over investment loss
July 12, 2009 by admin


Source: Reuters, 10 July 2009

SINGAPORE, July 10 (Reuters) - More than 200 customershave sued Singapore’s DBS Bank in a bid to recover investment losses arising from the collapse of U.S. investment bank Lehman Brothers.

Siraj Omar, a director at Premier Law, told Reuters on Friday his firm had filed a claim on behalf of 204 investors in a Singapore court. He declined to discuss the case or reveal the size of the claim, which according to the Straits Times newspaper was around S$17 million ($11.6 million).

The investors had purchased a callable basket of credit-linked notes, called High Notes 5, from DBS Bank, a unit of DBS Group, Omar said.


A DBS spokeswoman confirmed receipt of the claim. She said the suit was without merit and that DBS planned to contest the suit, which is the first involving the bank’s High Notes 5 product.

News of the lawsuit had almost no impact on shares of DBS Group, which were up 0.4 percent on Friday morning at S$11.58 in a generally flat stock market.

Financial institutions around the world have been hit by complaints and lawsuits arising from the sale of interest-bearing structured products linked to Lehman that paid higher interest rates than regular savings deposits.

For example, a class action suit was launched in November against UBS in the United States that alleged the Swiss bank had sold Lehman-linked notes as suitable for investors seeking to protect their principal investment.

News of the suit against DBS comes three days after Singapore’s central bank banned DBS and nine other firms from selling structured notes, citing various issues, such as their failure to adequately train the staff who sold such products.

According to a report released by the Monetary Authority of Singapore (MAS), DBS which received the shortest ban of six months, had sold over S$100 million worth of High Notes 5 to 1,083 investors that became worthless after Lehman’s collapse.

The bank has to-date paid about S$7.6 million in compensation, the central bank’s report said.

MAS said the failings identified in its investigations “do not automatically mean that the financial institutions are liable to individual investors.


News reported by Straits Times:

204 DBS High Notes 5 investors suing bank - By Francis Chan 10 July 2009 ST



MORE than 200 investors who lost a total of about $17 million on structured notes sold by DBS Bank are suing the bank in a bid to get their money back.

Legal firm Premier Law, which served notice on DBS yesterday, said the claim is based on the 'prospectus and pricing statement relating to the [DBS High] Notes 5'.

The investors want the notes declared 'void' and their stakes repaid.

'The investors have taken this course of action after careful consideration, having sought advice from their legal advisors,' said Premier Law.

A DBS spokesman said last night that the bank remains confident that the case is 'without merit and we will defend it'.

The Straits Times understands that the 204 investors involved in the suit had lost about $17 million on the complex structured notes.

More than 1,400 investors here bought $103 million worth of DBS High Notes 5. More than half of them invested $50,000 or less.

A report from the Monetary Authority of Singapore (MAS) on Tuesday detailed flaws in the sales processes of 10 financial institutions - including DBS - that sold products like DBS High Notes 5 linked to failed US investment bank Lehman Brothers.

DBS High Notes 5 were offered to better-off customers last year with a promised annual return of about 5 per cent, but the investors were told by the bank in October that their entire stake had been wiped out with the collapse of Lehman.

Many investors complained that they had been mis-sold the complex structured notes, with some claiming they were told the notes were a low-risk investment.

The MAS report found that the 10 institutions had applied different internal controls and failed in a number of areas.

It also said that some institutions did not ensure that staff were properly trained and had accurate and complete information needed to sell the notes.

In the case of DBS, the report stated that 49 of its relationship managers, who had not taken the required training course, had sold the notes to 303 clients.

The MAS banned DBS from selling new structured notes for at least six months starting from July 1. The other nine institutions received similar bans, with Hong Leong Finance being barred for two years, the harshest penalty.

However, the MAS made it clear that the institutions' failings and the penalties they received do not automatically mean they will be legally liable to investors.

Premier Law said the investors' move was not in response to the release of the findings by MAS.

'This group of investors have been considering their options for several months away from the media spotlight, and it was only after careful consideration that they have decided to take this route to recover their investment,' said Premier Law's Siraj Omar.

The investors also sought the opinion of Professor Michael Furmston, dean of the Singapore Management University's law faculty, said the Premier Law statement.

An SMU spokesman said that Prof Furmston was travelling and could not confirm if he was involved in the case in his personal capacity.

According to the MAS report, DBS paid out $7.6 million to 197 affected investors out of the 866 complaints it had investigated and ruled on.

The bank's payout amounted to about a tenth of the $70 million to $80 million DBS had set aside to compensate investors in Singapore and Hong Kong earlier this year.

The Straits Times understands that most of the investors in the Premier Law group have gone through the three-step complaints resolution process recommended by the MAS.

The MAS had earlier urged investors who could not resolve their differences with the institutions to ask the Financial Industry Disputes Resolution Centre (Fidrec) to resolve their dispute. It also urged investors to avoid taking legal action unless they had exhausted the three-step process.

It is not clear whether any of the 204 investors involved in the suit had accepted compensation offers before embarking on this legal route.

franchan@sph.com.sg

香港證監迷債賠償方案 首曝光

證監迷債賠償方案 首曝光 本金退六成 事主再分抵押品四成
(明報)2009年7月10日 星期五 05:05

【明報專訊】雷曼迷你債券16家分銷銀行與證監會 一度膠着的和解談判，出現新發展。消息人士透露，證監會已根據早前中銀香港 （2388）的六成回購方案（簡稱「中銀方案」）為基礎，向銀行界提出反建議，要求銀行在投資本金的六成之上，再把日後收回抵押品剩餘價值的40％，也歸還客戶所有。

按此計算，大部分迷債持有人可取回近90％的本金，這批迷債以金額計已佔總數逾八成。而分銷銀行須承擔的損失將高於「中銀方案」，對於如何回應證監方案，銀行未有任何共識。證監對有關消息不予置評。

自分銷銀行上月底主動與證監會談判以來，雙方一直就「中銀方案」——以本金六成回購，65歲以上長者獲七成回購的建議，討價還價。證監會認為回購價太低，又指部分抵押品剩餘價值高過六成；銀行則認為證監假設的抵押品價值過高。

證監對方案不置評

惟消息透露，近日談判進度加快，證監會以六成「中銀方案」為基礎，接受六至七成的回購底價，但條件是銀行在抵押品解凍後，將剩餘價值的40％給予客戶，其餘60％價值為銀行所有。根據此方案，剩餘價值較高的迷債系列，客戶最終取回的價值，與「中銀方案」有明顯分別。假設有關抵押品剩餘價值為70％，客戶除了取回六成的回購底價外，更可取回剩餘價值的40％，即28％，總共收回本金的88％。若抵押品價值已跌至接近0％，客戶最終只能取回六成的回購價。

按安永會計師事務所去年11月的估值，除了系列5至9價值跌至0.82％，及系列15至18價值較低（少於13％）外，大部分系列的剩餘價值，均達到約64％。在證監會方案下，後者最終可取回幾近本金90％，較「中銀方案」取得的六成多金額高（見表）。按政府去年公布的資料，這些系列的投資金額達 102億元，佔總體迷債125億元的82％。

事主最高可取回90%本金

不過，這只是證監會對銀行提出的建議，銀行將會如何回應，仍待商討。據悉，昨日16家分銷銀行再次開會，但尚未深入討論證監會的建議，因為各銀行仍就六成和解要付出的成本，等候公司董事會的同意。據了解，銀行曾經向證監會提出，在「中銀方案」之下，額外付出抵押品剩餘價值的5％予客戶，與證監會方案的要求有很大距離。

據悉，證監會認為新方案較「中銀方案」可取，因為在「中銀方案」下，若抵押品剩餘價值高於本金六成，銀行根本毋須作額外賠償，不能反映銀行要為不當銷售而應承擔的責任。在「證監方案」下，銀行則須承受額外的損失，而且高於客戶的虧損，證監認為這樣才較為「合理」。

本報以未償還迷債金額125億元計算，銀行首先要付出六成（即75億元）的和解底價，即使銀行有權取回所有抵押品的價值（按安永估值為67億元），仍要將當中四成（26.8億元）支付予客戶，最終損失達34.8億元。較「中銀方案」損失15.6億元，要多付出近20億元。

（明報記者羅羽庭、姜靜嫻報道）

香港銀行銷售雷曼迷債調查已有初步結論

銀行銷售雷曼迷債調查已有初步結論
(星島)2009年7月7日 星期二 13:00

證監會 行政總裁韋奕禮繼續在立法會 雷曼小組聆訊作供，他表示，部份針對銀行銷售雷曼迷債的調查，已有初步結論，正與銀行討論。

韋奕禮表示，按現行法例，證監會並無權力強制要求分銷商向客戶作出賠償，但經調查後，於考慮如何懲處時，分銷商與客戶的和解協議，以及對客戶作自願賠償的因素，亦會被納入考慮。證監會作最後結論時，會考慮三個元素，包括和解方案能否彌補客戶損失、有關機構有無措施減少日後違規的可能、以及方案對其他機構有否阻嚇作用。

韋奕禮指出，由03年4月至雷曼倒閉前，證監會調查有關經紀涉嫌違反操作守達527宗遭紀律處分，當中5%投訴銷售不當，涉及2000客戶，全部已紀律處分，包括撤銷牌照，另有168宗達成和解。但韋奕禮稱，現未有相關和解賠償金額比率，亦不評論有報道指雷曼迷債分銷銀行早於新年前後已向證監會提交賠償和解建議。

只強調沒有受到政府的壓力，重申沒有權力要求銀行與客戶和解，並指證券行新鴻基 及凱基僅約四至六個月，就完成和解方案，已算很快。 委員會主席何鍾泰 提醒，有關雷曼事件的賠償並未包括於研訊範圍之內。

另外，韋奕禮稱，證監會05年開始研究，要求中介人披露銷售金融產品的佣金，但當時認為需要先諮詢市場意見，確保措施成效，有關諮詢會在今年內進行。他認同，銷售人員按銷售取得佣金存在利益衝突，但情況並不侷限於金融業界，再者中介機構有責任確保銷售過程符合規格，而所銷售產品對投資者合適。

他提及，最激進做法是英國 金融服務局禁止收取佣金之做法，但他認為，即使本港於佣金制定未有確立守則，按現時一般手則要求，對客戶公平做法已有所涵蓋。他又指，已向當局提出建議，成立投資者委員會，以增加保障投資者權力，期望相關工作可加快進行。

Hong Kong Banks Offer Formal Minibond Settlement

Hong Kong Banks Offer Formal Minibond Settlement, Sing Tao Says


By Kelvin Wong

July 3 (Bloomberg) -- A group of 16 Hong Kong banks that sold so-called minibonds linked to Lehman Brothers Holdings Inc. have sent a formal proposal to the city’s securities regulator to settle on a refund to investors, Sing Tao Daily reported.

The banks may suffer losses of as much as HK$1.5 billion ($193.5 million) in the proposal, the Hong Kong-based, Chinese- language newspaper said, without saying where it obtained the information. The banks offered to repay investors between 60 percent and 70 percent of the principle of credit-linked notes arranged by a local unit of failed Lehman, Sing Tao said.

Losses sustained by individual investors on the notes, which lost almost all their value after Lehman collapsed, have ignited street protests and demands for refunds from banks and brokerages. The city’s securities regulator has told seven of 19 banks under investigation for misconduct related to sales of the notes that they face possible sanctions, Martin Wheatley, the head of the agency, said June 23.

A total of HK$13.9 billion of the credit-linked notes were sold to Hong Kong individuals, according to the Securities and Futures Commission. BOC Hong Kong Holdings Ltd., Bank of East Asia Ltd. and Wing Hang Bank Ltd. are among lenders that sold the notes.

Sun Hung Kai Financial Ltd. and KGI Asia Ltd. have finished buying back notes they sold at prices equal to the principal invested, the SFC said yesterday. The two local brokerages are the only minibond vendors who have fully refunded investors, with Sun Hung Kai paying about HK$86 million and KGI about HK$1.5 million.

The securities watchdog is unlikely to accept the banks’ proposal, according to today’s Sing Tao report. The SFC is demanding that banks follow Sun Hung Kai and KGI and repay the full principal, Sing Tao said.

To contact the reporter on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

Hong Kong Minibond heading for possible settlement!

The power of democratic movement in applying great pressure to force both the administration authority and the 16 banks to provide settlement proposals for the Minibond issue is really amazing in Hong Kong.

Right after the 1st July protest march organized by the Hong Kong Minibond Victims Alliance, the 16 banks who are involved in the selling of the Minibond has made settlement proposal to the Hong Kong administration to settle once and for all the Minibond issue.

The key points are:

1) Those Minibond victims who are below 60 years old will get proposal to sell back their Minibond at 60% of their original value.

2) Those who are above 60 years old will get an offer of 70% of their original value.

The banks have made promises that if the value of the collaterals of these structured products are higher than the value offered after they were sold off, the excess amount will be given back to the Minibond victims!

This proposal is made using the key by-back proposal made by Bank of China earlier.

Although some analysts have stated that the buy back value is on the low side but in my view, this is a main big step gained after so many months of continuous street fighting by the Minibond Victims Alliance.

As stated in my earlier posting on this Minibond saga, investors will have to take part of the responsibility in making the investment decisions even though they have been misled. Getting 70% or 80% of the value back is reasonable in my opinion. 60% is on the low side.

I truly hope that the banks and authorities in Singapore could work towards some similar settlement proposal for every Minibond victims. If DBS bank in Hong Kong is willing to make such settlement proposal, I do not see why DBS bank in homeland Singapore should not make the same settlement proposal!

The unwillingness of banks and authority in Singapore to work for a universal settlement maybe due to the fact that Minibond victims in Singapore have not applied enough pressure on both the banks and MAS.

Goh Meng Seng

Hong Kong Minibond Victims 7.1 Protest

Demanding resignation of Chief Executive Donald Tsang

The Hong Kong Minibond Victims Alliance has organized its first largest protest march since last October today. It is basically very well organized with bamboo stick placards all prepared in advance and all supporters mobilized to take part in its first ever 7.1 protest.

The main theme of the protest is to demand the resignation of the Hong Kong Chief Executive Donald Tsang for not able to settle the Minibond saga after so many months of fact finding and investigation.





DBS is naturally one of the main bank the protesters have targeted. There are total of 16 main banks that were involved in the selling of the toxic structured financial products and recently they have made proposals to the Hong Kong Monetary Authority for partial settlement of Minibond investors.

Apparently they are more aggressive in verbal demand



The Alliance has claimed that the mis-selling of minibond should be considered as a case by case basis because it is basically a systematic problem in the marketing of such toxic financial products.

The Alliance has pointed out that the fact finding from the Legislative Council has shown that there are evidences of systematic failure of regulative oversight as well as the internal controls within the banks' marketing protocols.

The Leader of the Alliance addressing the crowd

I estimated the size of the crowd to be about 8,000 to 10,000. Many of the protesters are elderly and fragile victims who have lost their entire savings. In spite of advice from organizers to ask their family members to come as representatives due to the expected hot summer weather, they have insisted to participated in the protest personally.





The protest march created a small commotion on their way to the government house. Some of the protesters deviated from the planned route to the HQ of Bank of China to demonstrate against the bank. Otherwise, the protest is generally peaceful, orderly and very well organized.





This protest is separated from the main 7.1 protest and it is carried ahead of the main 7.1 protest march. Although they lack manpower and funding in setting up big sound system, but generally speaking, in terms of cohesion and preparations, they are better off as a small and highly motivated group of people.

All the best to them.

Goh Meng Seng

港迷债丑闻后续：太阳报社评—坐视毒债祸民 先知惨过无知

主题:港迷债丑闻后续：太阳报社评—坐视毒债祸民　先知惨过无知

太阳报社评—坐视毒债祸民　先知惨过无知
2009-04-15

立法会引用权力及特权法调查雷曼迷债事件，演变成一场财金官员争相卸责的闹剧。金融管理局总裁任志刚昨日出席立法会聆讯时，仍在死撑，多番否认对银行监管不足，强调自己早在○六年已就金融衍生产品可能引发的风险作出多次预警，并要求银行提高相关投资产品的风险评级。他并声称金管局无权参与审批金融产品的文件和章程。

任志刚的一番伟论，委实令人摸不着头脑。如果金管局果真如此先知先觉，为何类似雷曼这种毒债仍可卖到成行成市？为何数万市民会血本无归？

事实胜于雄辩，不妨看看本报去年跟进的一宗案例。去年二月，债券苦主林先生到银行做定期存款，在银行游说下购入被职员称为“保本”的雷曼迷债。林先生回家后细阅文件，发现所购入的迷债原来是高风险投资产品，他认为银行销售手法存在误导，乃于四月十五日向金管局投诉，要求局方介入调查，讵料金管局花了近五个月时间跟进他的投诉后，竟说“没有足够理据支持去展开正式调查”。任志刚自称○六年已发现迷债问题，不知从何说起。

显而易见，任志刚根本是在推卸责任。金管局拥有全面详尽的市场资讯，能够预早察觉金融市场所潜伏的危机，不足为怪。然而作为本港金融业的主要监管机构，局方既然发现问题，实有责任及时介入，加强监管，阻止问题产品流入市面，而不是单单发表几句评论，聊以塞责。当局放纵雷曼迷债横行市面，已是难辞其咎，而金管局既知问题之所在却没作跟进，则更是罪加一等！

不难想像，如果金管局对金融产品及时作出规管，必可防止更多市民中招。但令人失望的是，局方竟对毒债销售视而不见、见而不理，坐视市民纷纷堕入陷阱，到了雷曼爆煲后，他们又将责任统统推给银行，“劝喻”银行与客户达成回购和解，自己则置身事外。如今在立法会跟进下，金管局又以“先知先觉”自居，和证监会互相推卸，把本身的责任推得一干二净。

诚如有议员指出，“迷你债券”的名称本身已具有误导性。有议员质疑金管局明知迷债产品存在高风险，却没有阻止相关的销售广告。事实上，这种高风险产品在欧美地区只会卖给专业投资者，但在香港，却可对包括退休长者、残疾人士在内的普罗大众大销特销，这反映的已经不只是个别银行职员的不良销售行为，而是整个金融监管制度的严重漏洞，以及相关部门的严重失职。

雷曼迷债事件告诉我们，表面上，本港金融业是由金管局及证监会“一业两管”，事实上，却是处于“金管不管，证监不监”的真空状态。更加离谱的是，迷债爆煲迄今，人们只见两个部门互相扯皮，至今不见一名官员主动承认责任。市民寄望立法会介入调查事件，就是希望立法会能主持公道，追究失职官员的责任，同时督促当局堵塞监管漏洞，绝对叉他们再次蒙混过关！

雷曼兄弟倒闭，迷债炸弹爆发，掀起全城风雨，造成难以挽回的损失。然而一众财金官员疏于监管、只顾推诿卸责，这对香港这个所谓金融中心的损害，犹甚于雷曼事件。

雷曼迷你债券集体诉讼法律行动

请大家参考以下这两个网站以便得到关于雷曼迷你债券集体诉讼法律行动的最新动向和消息：

英语网站
华语网站

以下是关于这迷你债券投资者行动组邀请投资者参与集体法律诉讼的启示：

亲爱的迷你债券投资者，

1）在2008年结束前，我们几位持有雷曼兄弟迷你债券的投资者在接到债权分发商拒绝受理我们的投诉后，便聚集在一起探讨采取可行的集体法律诉讼行径。我们觉得我们被歧视而误销的问题根本没有被正视。我们觉得集体法律诉讼是我们讨回公道和赔偿最有效的途径。我们便成立了迷你债券投资者行动组。

2)在接触几间律师行后，我们很高兴康拉德坎帕斯律师行同意成为我们的代表律师。康拉德坎帕斯大律师本人将成为我们集体诉讼的主要代表律师。

3)我们所提出的集体诉讼将针对债券发行者（银行或证券行）和/或债券的信托公司。我们对坎帕斯律师认为我们有足够的法律理据去追讨所损失的赔偿感到非常鼓舞。

4)由于考虑到资金的关系，我们希望能结集大约1000名迷你债券投资者参与这集体诉讼行动以便能筹集最起码的法律诉讼的资金。我们希望能召集到超过这最少1000名的投资者以便使每人的诉讼费用低于预计的两千元（包括消费税）。每一位投资者所支付的律师费将是全包的。这也就是说，如果没有特殊状况出现的话，每人的律师费的顶限（如果我们胜诉的话）将是两千元或更少。

5) 这每人两千元的律师费用将只限于提早登记参与这集体法律诉讼的投资者。后来者将需付三千元或由执行委员会拟定的其他数额的法律费用。

6) 如果要成为提早登记参与这集体法律诉讼的投资者，你就必须符合以下的三个条件：

在2009年3月31日前登记并且付上五百元的订金
必须是首1000名登记的投资者
必须在2009年5月31日前付清其余的一千五百元的律师费

7) 如果你能为我们奉献时间或专能而成为我们临时委员会会员或义工，请通知我们。我们需要所有人的支持和贡献。

8) 我们呼吁所有的投资者能认真的考虑加入我们的这集体法律诉讼的行动。就算是你还没接到金融调解中心的回复，你也应该趁早加入这次行动以便我们的律师能为庭外和解做出准备，并且为一旦谈判失败后所需进行的集体法律诉讼做出适当的准备工作。

9) 请把在这网址http://drop.io/mbond03里的法律诉讼同意书和投资者资料表下载并且打印出来，填妥后把它和五百元的支票送到律师楼，地址：

M/s Conrad Campos & Company,
c/o 30 Cecil Street,
#15-00 Prudential Tower
Singapore 049712.

支票请注明“M/s Conrad Campos & Company” 收

如果你想以现金付款或你有任何疑问，请电邮miagsg@hotmail.com 以便询问详情。

你也可参考http://www.miagsg.com/Frequent-Ask-Question-in-Chinese.html 以解答你心中任何的疑问。

迷你债券投资者行动组启

A Visualization of Crisis of Credit

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

星展高升票据投资者组织研讨会

星展高升票据投资者组织将于

2009年二月十八日
在PSB Academy Delta Road Campus, 355 Jalan Bukit Ho Swee 举行研讨会
时间：晚上六点半 登记, 七点准 开始

这次研讨会将讨论所有可行的法律途径。这研讨会只限于已经登记的会员。如果您还没登记，请即刻电邮

dbs.hn5@gmail.com 以便登记

您也可以电邮以上邮址询问详情。

集体诉讼---请马上登记

集体诉讼---请马上登记

这是非常重要的通告。

对于那一些决定要参与集体法律诉讼的雷曼迷你债券、星展票据和其他结构性的金融产品的苦主们，你们必须现在驯联络你们的各个组长，准备进行集体诉讼。你们应该与组长登记以“原则上”同意进行集体诉讼。这将能让组长们取得你们的联络号码。这只是“原则上”同意，并没有法律约束力，你也无需在这时候付任何费用，如果你在了解整个过程后决定退出，你可以为此作出推出的要求。

在你登记“原则上”同意进行集体法律诉讼后，你也可以继续等待金融机构所提出的任何赔偿和解建议或继续向金融调解局投诉。如果金融调解局拒绝调解你的投诉，你便可以进行集体法律诉讼。

你必须现在就登记。如果你延迟登记，你就有可能失去集体诉讼的机会了。我们没法在最后一分钟帮得了你去争取你的法律权益。请点击这里以取得所有组长的联络。

陈钦亮

Victims of Global Financial Dis-Order

Victims of Global Financial Dis-Order – Credit Linked Financial Products investors

The present financial-economic crisis that we are experiencing now is mainly due to the collapse of the Global Financial Order. The present Credit Crunch is just the result of the total loss of confidence in the Global Financial system.

Financial innovations fuelled by drastic financial deregulations carried out by numerous governments around the world has created an artificial boom in the financial economy. The multiple leverage created by the various new financial derivatives has provided an enormous multiplier effect to the growth of the global financial system. It has also become the fuel to greed and socially irresponsible actions by various individuals and institutions.

Moral hazards were breeding rapidly among a system that puts too much emphasis on monetary performance but resulted in the total neglect on moral obligations of financial institutions to the health and public confidence to the whole financial system.

Products like CDOs created moral hazards which result in irresponsible lending by financial institutions, which transfer risks to other investors in the process. Credit Risk swaps and complex structured products are basically created to remove risks from financial institutions which in return, created moral hazards in allowing them to take more risk than they could bear in normal circumstances in search of higher returns while transferring risks to unsuspecting investors.

The unhealthy competition among cities and countries in wanting to position themselves as “regional financial centres” has caused reckless deregulation process in these places. Hong Kong and Singapore are prime examples of such reckless deregulation due to overzealous of their governments in competing to become regional financial centres.

Minibond and other similar credit-linked structured investors are victims of this financial dis-order created by the combination of Financial Moral Hazards and the reckless deregulation initiated by various governments seeking to become regional financial centres.

High risk and dubious structured products which are being rejected by many countries to be sold to retail investors finally find their ways to these places which welcome them with wide open arms. How could these complex structured products which has high risks as well as potentially damaging financial moral hazards embedded passed through these respective regulatory bodies is still a huge mystery.

The irony is that these products are being disguised as “low-medium risk” products by using deceiving credit ratings, product names as well as big corporate names to create psychological delusions to investors. In some cases, it is really amazing that big financial institutions could “buy insurance” from retail investors which in return, provided these institutions huge funding that they used to invest in high risk financial products. These financial institutions, using a combination of credit risk swaps and investment in high risk CDOs, seek to reap off high returns using totally risk free funds provided by retail investors. Instead of paying for the insurance they seek (or just that this scheme of using big credible reference entities is just a smoke screen utilized to hoodwink unsuspecting investors?), they are actually trying to make money out from the insurance they are buying!

Legal Disparity

Law is the basis of stability and order for the society, country and even the whole world. Law could become such a tool of social stability basically because it commands respect and trust from ALL people that comes under its prerogative. The respect and trust of this legal system comes from the fact that the Law is supposed to PROTECT the interests of ALL people, not just SOME people. In order to do this, everybody is supposed to be EQUAL under the law.

However, what happens in this crisis is in total contrary to what we used to believe. Law has become the accomplice of this financial dis-order.

Imagine that an investment bank like Lehman Brothers could circumvent the law of its country of origin, USA, to open an empty shell company in some small country in pacific ocean to issue huge amount “NOTES” which are named misleadingly as “Minibonds” and sell them to retail investors who are thousands of miles away in the other end of the world.

And when Lehman Brothers went bust, its receiver could actually go to an American Court to protect its interests over the supposedly banned financial products! Furthermore, due to the complicated process whereby these products are created, normal retail investors will find it hard to have the resources and means to seek legal redress.

The prospectus are so well written that not many people could possibly know exactly what these products are, but they did very well in protecting the interests of the issuers in every ways. The Law effectively protects the interests of the issuers but ignore the fundamental common sense of natural justice and the potential huge injustice embedded in the moral hazards of these products.

The situation is being aggravated by the fact that places like Singapore and Hong Kong do not provide a cheaper, efficient and effective avenue for investors to get legal redress. Unlike USA, Hong Kong and Singapore's inheritance of the Commonwealth legal system does not provide class action litigation for these victims.

If such injustice and imbalance of care provided by the Legal system would definitely erode the confidence, respect and trust of the people at large. It would further enhance the perception that the Law is basically a tool to protect the interests of those big, rich and powerful institutions rather than providing a fair and just platform to protect the interests of everybody else.

Over Sold Credibility

Once upon a time, the global citizens at large would trust the Banks to provide them a safe haven for their hard earned money. But this crisis is so serious because Banks and financial institutions have over sold their credibility.

Banks and financial institutions play a very important role in modern world economy as intermediaries for money to be kept within a system that could provide efficient transfer of savings into investment for the global economy. This provide funding for businesses to invest and function with certain leverage. For example, if there are no banking facilities as breaching funds for trading companies, world trade may be adversely affected. Part of the world's problems now is due to the rapid contraction in the role of Banks and financial institutions in financing trading.

Of course, there are huge part of the funds in these institutions that are used in speculative investment in highly leveraged structured financial instruments and derivatives like futures and options.

Traditional banks may only act as an intermediaries in taking money from depositors, paying them an interests and then make loans to businesses and individuals for their investment in properties, machineries, vehicles etc. But all these have changed in the 1990s and up to the early part of this century with deregulation.

In the old days, depositors have trusted banks with their money for safe keeping as well as providing them a certain interest return. Most of the depositors do not want to invest their money in medium-high risk products like stocks, shares, commodities, foreign exchange or even bonds. This is primary reason why these depositors preferred to keep their money in the banks, some in fixed deposits.

But due to the financial deregulation and the shifted paradigm in the role of banks coupled with greed and desires of banks to earn “easy-quick” money, banks begin to sell investment products. Banks have tremendous credibility built up with their clients but in search of higher return, less risk and quick money, banks begin to abuse such trusts. In the beginning, they started off selling seemingly “safe” unit trust funds then insurance-investment products. These products allow banks to earn a percentage from the sales immediately without the need of the banks to take the risks of lending out money to businesses or individuals. The logic is pretty neat. Instead of taking in deposits from depositors and lend them out and bearing risks of bad loans, it would be easier to earn money by selling these financial products!

Couple with low interest rate in the new century, banks begin their aggressiveness in earning quick money. They abuse their position as safe-keepers of depositors' money, getting privileged information on the amount of money their clients put into fixed deposits and embarked on a systematic targeting of clients that have huge sum of money in fixed deposits in their accounts.

The worse part is that, there seems to be evidences from the combined information we get from Minibond-DBS High notes and other structured credit-linked victims that the banks have deliberately trained their front line sales persons to use specific misleading words to sell these products to their clients. They understand their clients as those who would prefer to put their money into low risk fixed deposits, thus, phrases like “just like fixed deposits with fixed interests”, “can guarantee get back capital because it is capital protected”, “very low risk because the reference entities are all very stable companies” etc. These sales talks are specifically designed and targeted at this specific group of fixed depositors.

Many people accuse these victims as greedy investors but in our view, the banks and financial institutions are the most greedy ones. They have misled their clients to buy something that their own sales persons may not even understand totally and resulting them to take up higher risks than any fixed depositors would want to take. Their clients took all the risks while they themselves bear no risks but earn immediate return as high as their clients!

Unwittingly, these banks and financial institutions have over sold their credibility this time round. Making the first mistakes as irresponsible sellers of these products to clients that trusted them is already a bad move. Brushing aside all responsibilities and refusing to bear social and financial responsibilities to their clients after things went bad is really an act of putting a nail in the coffin of their fragile credibility.

Implications of Credibility Crisis of banks and financial institutions

It seems that many of the world governments do not see the seriousness of this Minibond crisis. The world is facing a serious crisis of confidence and liquidity crunch. But the more serious problem lies in the credibility crisis of the whole world banking and financial order.

If the world's banks and financial institutions are now being viewed as untrustworthy entities in their dealings with depositors' and investors' money, what will happen next would be a rapid withdrawal of money from the whole world's financial and banking system.

It is easy for governments of the world to deal with potential bank runs and the domino effects of bank runs by giving 100% blanket guarantee to deposits. But it does not solve the growing discontent, distrust and erosion of confidence in the banks and financial institutions. Investment in financial instruments which act as a very important financial intermediaries that provide funds to world businesses will drop drastically. Unit trusts, fund managing services, insurance, hedge funds will start to shrink or even collapse.

This will effect a snowballing de-leveraging process which may eventually result in the collapse of the whole world's financial order. This may sound a bit exaggerating to many people but the truth is, the second wave of this financial crisis may just develop into that direction very soon.

Rebuilding the World financial order

It is important for the world's governments to come up with a complete solution to this financial chaos that we are facing. The Minibond saga may be a small part of the puzzle of the whole financial chaos but it is an important part in this part of the world because the credibility of the banks and financial institutions are at stake.

Just like what happens in the collapse of the Gold Standards in the early part of last century, we are now in a period of transition from a massive financial chaos created by the destruction of confidence and credibility of the banks and financial institutions to a new era of new financial order.
While the world search for a new order and solutions to maintain stability within a globalized financial system, the most critical part in saving the dying credibility of the banks must be carried out. A world political solution must be provided to rebuild and regain public confidence in the whole banking and financial systems in this world.

The task of bringing change and making these financial institutions to be responsible to their ill-considerate actions of greed should be born by governments of the world, especially so for Hong Kong, Taiwan and Singapore governments. This is because with the flaws of the legal system and the apparent legal disparities that exist within the system, the victims will have little power bring these financial institutions to task.

Fair settlement

Moral hazards exist while financial institutions, in search for highest returns by using other people's money. Moral hazards also exist when investors invested irresponsibly with their money seeking for highest return but knowing that they could get away from taking responsibility for the risks they take.

Thus to me, a fair settlement for the Minibond saga must address adequately the problems of moral hazards of BOTH sides. It must also address the responsibility of the regulators.

I would suggest the following allocation of responsibilities to each parties:

1) Banks should bear 50% of the responsibility as they earn fees from such transactions and they are suspected to use unethical sales tactic which may amount to serious systematic mis-selling.

2) Investors should bear 30% of the responsibility. Investors must learn the basic rule of investment, no risk no gain. When the return of a product is higher than their fixed deposits, there must be higher risks involved. Thus, in order to prevent future improper investment decisions by other people as well as reducing Moral Hazards of investors, they should bear part of the responsibility.

3) Governments, as regulators, should bear 20% of the responsibility for the lapses in their role.

In my opinion, such settlement would be a fair settlement for all and it addresses the respective allocation of responsibilities among the main players. Such a fair settlement may set a good reference example for the future New Financial Order for the world. An important message must be sent to all these financial institutions that they just could not hide behind a barricade of legal disparities and wash their hands off from irresponsible dealings.

Social Justice as the basis of Social Confidence in Financial Order

It is important to maintain social confidence in times like this crisis of confidence. The only way to maintain social confidence is for us to see social justice is being upheld.

The New World Financial Order needed much of the social confidence from the whole world to function. But before such social confidence and credibility of this new order to be established, Social Justice of inappropriate financial dealings must be seen to be done.

Minibond saga is one of the most prominent financial injustice that needs to be solved immediately, in order for the world citizens to start regaining their confidence in the global financial system again.

I would urge the world's governments to look into this matter seriously to effect a just and fair settlement to the Minibond saga. The Minibond saga is significant because it involves global financial workings and processes. It exposes the inadequacy in the global legal framework in dealing with such complex financial dealings which involve multiple parties across the world. It affects victims from multiple places and countries and IT IS A GLOBAL FINANCIAL PROBLEM.

The complexity of the Minibond saga is far greater than anyone's imagination. The implications of this Minibond saga is far greater than the world thought. If this Minibond saga is not solved fairly, I do not think there will be any confidence left for the present and future financial world order.

Goh Meng Seng

Hong Kong : 新鴻基投資回購雷曼迷債 II

This is the full report on the FULL REFUND by an institution in Hong Kong to their Minibond investors.

Goh Meng Seng


新鴻基投資回購雷曼迷債
(星島)1月23日 星期五 05:30

(綜合報道)

(星島日報 報道)迷債風波昨晚突傳喜訊，證監會 完成首宗就迷債銷售手法的調查，結果與新鴻基 金融旗下的新鴻基投資服務達成協議，新鴻基自願按最初投資本金，向該行合資格客戶悉數回購未到期的迷債，涉資八千五百萬元。

　　財經組記者：劉思敏

　　證監會行政總裁韋奕禮昨日傍晚臨時會見傳媒，公布該會與新鴻基投資服務達成協議的消息。他指出，這次處理方法所達致的成果，符合投資者的最佳利益，對這宗個案所達致的結果感到相當滿意。

　　涉310客戶 共8500萬

　　根據回購計畫，新鴻基將向該行合資格客戶回購未到期的迷債，但只限第一市場的零售客戶，不包括透過第二市場購買迷債的客戶，亦不包括被界定為專業投資者的客戶。至於已向新鴻基展開法律行動的客戶，以及達成和解並已收取一筆超逾投資本金的款項的客戶，亦不獲回購。

　　故這次回購涉及三百一十名新鴻基的迷債客戶，新鴻基以約八千五百萬元，賠償這批迷債客戶全部投資本金，並會在客戶接納回購建議後三十日內向客戶支付款項。

　　原額賠償 為銀行添壓

　　這是首次有迷債分銷機構即時按本金向客戶進行回購，可謂迷債苦主首場小勝仗。不過，這次受惠的苦主畢竟為數不多，絕大多數的苦主都是通過銀行購買迷債，但銀行的回購價格乃根據迷債資產的市值，而非按客戶當初的投資本金，所以客戶難以全數回本。何況迷債信託人面對雷曼清盤人的法律挑戰，亦延誤回購工作至今，依然未有解決出路，社會注視新鴻基原價賠償的做法，會否對銀行造成壓力。

　　銀行公會雷曼事件專責小組發言人稱，目前無法評論新鴻基原價賠償，會否對銀行構成壓力，相信要先了解證監會的調查結果及新鴻基的做法，並進行討論。

　　她又指，雖然回購迷債的法律問題還未解決，但小組工作未有停止，目前仍就銀行墊支的一億元基金的使用方法，與信託人滙豐進行磋商。

　　財經事務及庫務局 發言人表示，有關證監會的決定是經過嚴謹的過程和全面、有效率及公平的調查，該局有信心證監會及金管局 會繼續就收到投訴，公正、認真和迅速地進行調查。

　　不承認任何責任或過失

　　證監會經過調查後，就新鴻基自二○○二年起向客戶銷售雷曼迷債涉及的內部系統及監控措施，對該行作出譴責。新鴻基不承認任何責任或過失，但確認證監會關注事項的嚴重性，結果與證監會達成協議。

　　除了賠款外，根據協議，新鴻基投資服務須繼續全面協助及配合證監會的調查，並委任獨立的會計師行，檢討該行的內部監控及合規制度。