Sunday, September 28, 2008

Structured Products, Minister Pay and the Pursuit of GDP Growth....

``The market does not exist to serve the interests of financial intermediaries. It exists to serve the public.'' - Joseph Yam, CEO HKMA
``You need regulators to take a view. You need a health warning.'' - Joseph Yam
"The HKMA pledged this week to support more than 10,000 individuals who say they suffered losses on investments in credit-linked securities arranged by Lehman" - Bloomberg.
A few weeks ago a colleague of mine got a call from a RM (relationship manager) urging him to purchase an equity linked product. He was queuing up to move some money into his fixed deposit when he was intercepted and marketed to....being ultra-cautious he said "no" first but told the RM he needed some time to consider. When the RM called, he asked for a description of the product which he showed to me and another colleague. After 30 minutes we all started laughing because the product was so hilariously complex, the two of us with Masters degrees couldn't figure out the expected payback. We wanted to look for the feller with a Phd to help with the analysis but he was overseas. My colleague called the RM and basically asked her 'to go fly a kite'. What seemed so funny at that time is not so funny now because it turned out that these products were sold to thousands of retirees......
"...entry level relationship managers earn a basic monthly salary of between $2400 to $3000 - in a good month, they can make $8000 to $9000 in commissions" - Sunday Times Pg 10.
"Who comes first.... the customer or the commission?" - Lucky Tan.
The MAS allowed the marketing of structured products some time 2006 and between July 2006 and end-2007, FIDEC received 531 complaints. Little was done about the marketing of structured products. Perhaps deregulation is part of our leaders aspirations turn Singapore into a financial hub. GDP growth, afterall is what our leaders consider their ultimate performance indicator. Nobody in authority saw anything wrong with 20-something RMs selling products they could hardly understand to old ladies who could never understand what they were buying. Several public spirited Singaporeans, like Dr. Money and Tan Kin Lian who warned investors of the pitfalls of structured products : [Link] - it was an accident waiting to happen. But a handful of Singaporeans cannot overcome the marketing budgets of banks and their armies of RMs.
MAS first response to the blowup of DBS High Note 5 and Lehman Minibonds was to advise customers to go back to the banks with their queries. As the outrage and disquiet began to spread, the MAS struck a deal with the banks to have them appoint their own "independent" investigators. You can be sure the banks have already hired the best lawyers by now and asking the customers to hand over their complaints to the bank so they can build a defense for misselling totally undermines any chance of a legal redress. Contrast that to the response of the HKMA - the 1st thing the HKMA did was to meet the investors to find out how best to protect their interests....the next thing the Hong Kong authorities did was to start their own investigation into misselling by banks.
Our govt ambition to grow quickly as a financial hub led to deregulation which eventually led to this financial disaster for many Singaporeans. The authorities pre-occupied with growth of the industry saw nothing wrong with the marketing of structured products to the public. There were many things wrong these products but the banks were making very high margins from them and those RMs marketing were earning commissions in excess of their pay. There is a price to be paid when bad products are sold to public. Be it tainted milk, subprime loans, is the job of the regulator to prevent such products from getting to the market and punish those who tried put profits ahead of their fiduciary duty then try to hide behind the law and lawyers for failing to act responsibly. There are many precedents for this - e.g. the NY Attoney General who recently forced the banks to buy back auction rate securities due to mis-selling.
'Once you have growth, all problems can be managed." - MM Lee.
"Hmmm...what happens if growth itself is causing the problem..." - Lucky Tan
Not too long ago, during the debate on ministers' pay, our esteemed MM Lee said that their pay increase is justified because of the size of our GDP. There is little doubt that the single most important performance indicator for our govt is economic growth..... all else is secondary. We will grow our GDP even as the income gap balloons, we will turn ourselves into a medical hub even as the cost of medical care for Singaporeans escalates and resources are strained, we will import as many foreign workers as it takes to grow even though we cannot find suitable places to house them. It is this pursuit of growth that pushed our regulators to allow banks to grow their profits by selling structured products to people who don't need them. What good does this do for our society except allow a handful of youngsters working as RMs to get an remuneration they don't deserve and for rich bankers to get richer at the expense of ordinary Singaporeans? The kind of growth we pursued in recent years is akin to body builders injected with steriods, we have ignored all the side-effects of growth, the downside of building casinos, the social ills we will sustain for the extra GDP growth.


Anonymous said...

Time and again leading experts and nobel economists have repeated that economic growth is not the best indicator of a nation's well being.

Anonymous said...

In sales, the commission is everything. Customer care is just but a stepping stone to better commisssions. If I can get more comisssions by omitting customer care, then so be it.

Over here, we operate in a pro-business environment. We take care of those who pay the most taxes and employ the most people.

Retirees take up space and pay no taxes.

It is a no-brainer whose side we should take in the fall-out of those financial instruments that are "structured" to fail anyway.

Anonymous said...

You bet the PAP government will keep mute as always and think the problem will go away by itself.

The PAP is well known to be a miser when it comes to caring its citizens, but rewards handsomely its cronies and dogs.

Alan Wong said...

Despite the queue behind me, the DBS/POSBbank teller had the time to "entertain" me to a couple of investment adverts prominently displayed at the counter with the purpose of enticing me to put some of my savings into such financial instruments.

These bank tellers are suppose to mind their business especially when they have the priviledge of looking at the customer's bank balances. The question that I hope DBS/POSB Bank can answer is what business do these bank tellers have to take the trouble of promoting their banks financial products to unsuspecting customers on the pretext that these intruments can bring higher returns than savings/fixed deposits.

Is this not an outright abuse by DBS/POSB Bank in taking advantage of having the prior knowledge of the customer's financial position ?

Just imagine, if I am the Marketing Manager of a Insurance company or a luxury car business, would this not provide me with a competitive edge over my competitors if I were to have access to such client information. I say there is a certain conflict of interest when bank tellers become promoters of their bank products on account of having privy knowledge of their customers' financial status.

Do you think our MAS will ever take action against DBS/POSB Bank considering that their masters belong to the same interest group?

Anonymous said...

at one time, many of my peers who just graduated with business and arts degree chose to work in banks. Most of them were considered "pretty" or good looking ones in school, and worked for a certain bank that is well known for recruiting good looking people. Oh boy, they dressed up in Shenton way suits, and seemed to do well, while others not in banking sector could only talk about their high pay and polished look. They were lucky.

Robert HO nric S0197974D said...

RH: This article :
seems to show a whole panoply of safeguards for Americans putting their monies in banks, securities, money markets, etc.

Question is how come LIE KY, trying hard to push his pirates colony as a 'financial centre' -- like he pushed the now defunct Crazy Horse soft porn 'live' shows -- has not even the semblance of such protections?

Worse, now that some Singaporeans have been cheated out of their life savings by his govt owned and co-owned banks, he and his ilk have nothing to say except GCT wooden assertion that 'caveat emptor'.

LIE KY knows well he and his nepots and cronies are safe from accountability because they have been rigging elections all this while, not only rigging election rules and processes but also stuffing fake PAP votes to win, as my eyewitnesses related in my blog.

Rest assured LIE KY and his nepots and cronies will be accountable in Hell.

The Sun Chair Critic said...

Last time, we used to worry that our parents are conned by con artistes knocking on doors and selling magic stones on the streets. Now, we worry that our parents get conned by the BANKS.

What have the world become...

Anonymous said...

Hi Everyone,

Ah Goh already said on TV that those who are misled about those minibonds and High Notes (which are offered by DBS Bank aka a Temasek Holdings bank which are owned by our very own ministers) have only themselves to blame!!! You want "sure win" investments? Put your money in CPF for the 3% la.

Aren't Singaporeans lucky that our beloved gahmen cares so much for us? I feel very patriotic nowadays sia.....

Anonymous said...

I pray for the day that Goh Chok Tong and his merry friends in the cabinet are brought to justice. They try to make us believe that they care for the average Singaporean when in fact they have nothing more than contempt for us.

Anonymous said...

scary - that our MAS has become more free-wheeling than Hong kong - guess it is part of the casino culture we have all adopted.

fighting fit said...

Deregulation is one of the reasons that the US now has the subprime crisis. It happened during Greenspan's watch as Fed chairman.

"Once you have growth, all problems can be managed." -- MM Lee.
In plain English, that is "Once you have growth, all problems become secondary."

We have all got to push the financial institutions here to use plain English in their prospectus. The SEC is pushing it. During such times, it is opportune for us, when faced with gobbledygook in brochures and stuff you see at your bank and insurance companies, to tell them you are not buying it. Why? Because you can't understand it. If they can't explain it well, it is likely few of them can understand it well too.

I believe when enough of us throw it back and reject their advances and marketing efforts, they will be forced to move in the direction we want them to.

Anonymous said...

Together with to be legalized organ trading, this will have doubled the hardship visited on the poor. What a mess! Something is obviously wrong and it seemed only a minority noticed.

Anonymous said...

Vote them out if you are not happy with the current system. We vote for a government to make our life better and not keep telling us "its not our fault".

Anonymous said...

Hi folks, serve you people right to keep having faith in these monster & liar. go sway yr F1 flag and join in the celebration . now go dig yr own grave & jump in but remember to cut out yr organs cos they don't belong to you.

Close Down Your DBS/POSB Account said...

SM Goh's statement in this Today article reflects his lack of empathy with the public. His wife is no better and she's perhaps better known for her peanuts statement. SM Goh should step down as MAS' Chairman.

Anonymous said...

Sorry, disrupt the finance discussion here for an important breaking news that matters to all Singaporeans who are mature enough to know that he mattered:

Anonymous said...

JBJ, what a legend. LKY, Little Lee and friends combined are no more a man than the late JBJ.

Anonymous said...

Ala, they all go to the same schools on the same scholarships, studied the same thing, brainwash by the same protocol and directives and behave in the same way. The deviates will be kick out along the way. U dun agree with me, u are out or this good for the country and the people. Nobody dare to say NO !