Saturday, September 20, 2008

High Notes : MAS Must Act!!!

More UPDATES : $110M of High Notes 5 was sold. If the average amount invested is $50k-$80K, more than a thousand people are affected. Someone is trying to organise a meeting : his email is

UPDATE 20 Sept 2008 : Tan Kin Lian has urged MAS to hold financial institutions responsible for "mis-selling" activities for such products : Link

Here is a discussion in Tan Kin Lian's blog about DBS High Notes : Link.

'If customers feel that our relationship managers or staff have misrepresented the product, they can come to our branches, call or e-mail us to raise those issues. I assure customers that we already have an independent system in place to investigate such complaints,' - Mr Rajan Raju, head of DBS' consumer banking group
"I think customers have a better chance if they held a protest a Hong Lim Park and bring attention to their plight and get the authorities to act....." - Lucky Tan
My mom is not very well educated but she is a cautious person. All her life she keeps her money in fixed deposit accounts. Sometimes she would do some homework and move her money to the bank that offers the highest interest rate. My mom leads a simple thrifty life so she does not need to take any risk to grow her money. One day while queuing up to deposit her money in a bank, she was "redirected" to a bank officer who tried to market a structured product to her. It was sold to her as something very safe and has higher returns than fixed deposit. My mom remembering my warnings about these products decided to turn it down but she brought the brochure home for me to take a look. I took one whole day to go through it and couldn't figure out the product - it was financially engineered to the point that only the people who crafted it have the data to understand it. It goes something like this : you get 6(?)% of your money after 6 months as return, but your funds are locked up for 5 years and subsequent returns depends on the worst performing of a basket of 20 global blue chip stocks.....principle guaranteed but if you take the money out early, you're at the mercy of the bank's calculations...there are 2 pages of fine print written the kind of legal language that only lawyers can understand. ...and they are trying to sell this to my mom who has only primary school education.

MAS should ban the marketing of these products at the bank branches for the following reasons:

1. The products are impossible to understand in terms of financial outcomes. Only the banks knows what is going on putting the customers at a great disadvantage. Since banks are required to explain the risks to the customers, something that is impossible to do, these products don't meet the basic requirement under the Banking Act that requires "that the banks must disclose and explain clearly on the recommended products".

2. Many of the products have disproportionately high risks relative to the return. For only 5% return, purchasers of the DBS High Note were subjected to the risk of losing all or most of their principal if a "credit event" occurs in one of 8 entities - one of which was Lehman Bros. Who pockets the large risk free profits and passed all the risk to the customers? This product should be banned for the same reason drugs are banned & loan sharking is is harmful to the customers.

How many old ladies have to lose their life savings before the PAP govt does something?

The main reason for banks to market these products is profits. If anything is learnt from the subprime crisis is when bad financial products with high profit margins is marketed to people who cannot possibly understand it - the result is disastrous.

The PAP takes care of the interests of the citizens especially the old folks who have contributed so much to this country. Although the PAP govt has stakes in numerous banks including DBS, it have never allowed the greedy pursuit of profits to influence regulation that is needed to protect ordinary Singaporeans. We trust that we have a govt that proactively takes care of the interests of ordinary Singaporeans. We can expect this trust to be demonstrated in the coming days as the govt stand on the side of the people who have lost so much in products marketed by banks. Going through the responses in the internet, at a minimum the citizens are asking for MAS and the govt to investigate whether the banks have complied with existing regulation and whether there is any possibility of misrepresentation to customers. Of course, for a govt with a "socialistic heart", it will twist the arm of the bank to compensate part of the losses out of goodwill. DBS afterall took over POSB once known as the "people's bank".....and the PAP is the People's Action Party which acts on behalf of the ordinary people. I'm sure right now the PAP govt is outraged that ordinary people are hurt and demanding answers from DBS. We will hear from the PAP govt soon on this.


Anonymous said...

Hi Lucky,

I share your sentiments. I saw many of this products being peddled nowadays. Its like gambling for the customers since they do not know the outcomes and the bank is the "house". Some people may like it because of good returns but at EXTREMELY high and unnecessary risks.

Correct me if I'm wrong but this is what I understand from reading their advertisements in newspapers.

It is marketed like this:

Customers will get X% in Y number of years if event A,B,C,D,E happens; else customer will get less than X%. Principle not guaranteed.

My question is: Over the long run who is the biggest winner in this game, the Banks or the Customers?

Economist with a heart :)

LuckySingaporean said...


I have full confidence MAS will step in and hold these institutions responsible. I'm also sure the PAP with its socialist heart will act for the good of the people despite having a large stake in DBS. The PAP govt is beyond conflicts of interests...the interest of the people overwhelms everything else. I'm also very sure that the MAS does not formulate regulation lobbied for by financial institutions to enhance their own profit.

I'm confident the govt will act...because it is a good govt for the people.

Anonymous said...

Good comment lucky. I almost fell off my chair from laughing.

Anonymous said...

Hi Lucky

Now the Feds\SEC\CB\what-have-yous have thrown everything and the kitchen sink ... whats your take?

Reversal or mother-all-of-crashes come Oct 2nd/3rd?


Onlooker said...

Misleading Ads from DBS for some financial stuff.
What happen to all those money in that fund?

Anonymous said...

The US bailout now going on only helps the fat cats ie the bank shareholders, who are the biggest campaign donors. In the case of the DBS highnotes, I would not think the MAS will help either, bearing in mind that DBS belongs to the Singapore Government and they can always argue that the customers know the risk involved. This is an interesting case unravelling.

Anonymous said...

Hey NoName,

I doubt Lucky Tan can help you, full stop. Since even the best financial brains have gone bankrupt or taken over. Imagine HBOS sold for £12Bn!

Come next week it will be profit-taking and the Mr Market will go anemic, if you haven't withdraw your windfall courtesy of the US treasury, maybe can consider doing so? Everyone's making a quick buck why not you.

And here's why not to be optimistic. Headlines and financial savant agrees this is the biggest number 2 since the depression, as a comparison, biggest drop of stock index was 46% during the period of recession from 73' to 75', it was then a heady mix of war and oil crisis.

How does this compare? S&P is roughly -20% from its peak, this is not even comparable to 01'

While helicopter Ben is doing his rounds, the housing market seems in the world of the living dead, magnums, shotguns, spades, booby trap, all weapons used...

However if your glass is half full, there's also reason is ponder the good news, the dollar is back in prime form, solid during this week, pundits suggest an inflow of cash back to the US from the emerging markets.

So! After so many bear rallies, why should you believe this one? I say once again stuff your portfolio with cash and be patient.

Anonymous said...

these high notes or minibonds had to be approved by the authority before they can be marketed to the public masses. i believe dbs had already cleared this approval stage before commencing its marketing efforts.

also, there are periodic audits and inspections to ensure that risk disclosure procedures met regulatory requirements.

so i think there is a need to investigate further before holding any one party responsible

Anonymous said...

reading your blog and reading Mr wang's blog - really funny.
Sounds like he is pausing on his blog to undo the very damage indicated in this blog.

Jon said...

The love of money is the root of all evil.

Applies to MiniBonds, High 5 notes, Tainted milk, etc.

Anonymous said...

who dont love money? only those MAKE ENOUGH or those mega institutions who collected millions will tell you the love of money is the root of all evil.

love is a relationship. if you have an adulterous relationship with money, you bring evil to humanity.

Anonymous said...

maybe i should make it clearer...which they often say, money is not the root of all evil..but the LOVE of money is which imply that they DONT LOVE money but that they like to RULE over MILLIONS of dollars in the name of god knows what LOL

Anonymous said...

In HK, someone who love sex more than money is called a sex pervert.

Anonymous said...

My mother was, once, a victim of DBS Structural Deposit scheme. So are many of her senior citizen friends.

Anonymous said...

You guys expect the PAP govt to help. Dream on. The PAP govt will never stand up for its own citizens against the banks. Your loss, your suffering means nothing to the PAP.

Agust said...

Just suggestion. We know that bonds have ratings, why don't apply it to banking / capital market product. It is not easy but possible. The point is to make it easy for people to understand, ie rating A is very safe, B is moderate risk and so on. People can easily decide their investment based on their risk preferences. Lets make it simple for Mom and Pop.

maxibon said...

thank god you warned your mom first, or she'll be living with you for the rest of your life. know what i'm sayin?

Kelvin Tan said...

As far as I know, DBS High notes are sold only to DBS Treasures customers.

Now, since all phone conversations between these customers and the RMs are tape recorded, it might be easier to check whether they have been misled.

But for minibonds or other products which are sold over the counters, tough luck since no one will have a recording of things that are said.