Friday, January 16, 2009

Structured Products : 54% of investors to be compensated!!!

If most of the people get more than 50% of their money back without lawsuits filed against the banks, I say the MAS deserves a pat on the back.

It is not clear from the report how much these people will be compensated.

For Singapore to be a successful financial hub, protection of investors is paramount. If the banks act against the interest of investors, they have to be punished to send a strong signal. The banks might lose some money when they pay out the compensation but what is important is reputation - lose money, don't ever lose reputation.

Digress a little....

DBS recently allowed those with home loans to pay only the interest on their loans to help those struggling with mortgages - it is a good move .....I hope more banks follow given the extraordinary times we are in. I hope MAS is proactive in tackling this home loan issue. Looking at what happened in US, it is important for govt to step in early to prevent an avalanche and vicuous cycle of loan defaults, foreclosures falling prices, negative equity and more defaults. In the "interest only" scheme, a $500K loan can be serviced with $1400 per month. This will allow those who are temporarily distressed to hang on longer with limited savings until they can find another job or sell off their homes in an orderly fashion.

It is time for banks to seek out win-win arrangements and quickly implement them. MAS should help to coordinate some of these before things get worse.

58% of investors 'missold' Lehman-linked products to be compensated
By Nicholas Fang, Channel NewsAsia Posted: 16 January 2009 1836 hrs

SINGAPORE: More than half of investors who complained they were mis-sold products linked to the collapsed Lehman Brothers are set to be compensated. The Monetary Authority of Singapore (MAS) says the financial institutions who sold the products will inform affected investors of the level of their individual compensation amounts. These could range from partial to full compensation. Over 5,300 complaints were received from investors who bought Lehman Minibonds, DBS High Notes 5 and Merrill Lynch Jubilee Series 3 products. MAS says resolutions have been reached for 5,127 of these cases, including one quarter of investors who bought DBS High Notes and 11 per cent of those who invested in the Merrill Lynch product. The central bank is still working on the details for those who bought the Lehman Minibonds. But 25 per cent of complainants whose cases have been resolved will receive full settlement while 33 per cent will get partial settlement. The financial institutions are in the process of informing investors about the individual outcomes and this is expected to take a few weeks. If individuals are still not happy about the compensation they receive, MAS says they can still turn to the Financial Industry Disputes Resolution Centre for further mediation. - CNA/ir


Anonymous said...

58% compensated but what is the amount? they could be picking all the smaller investor like 10-30k type while rejecting those 100k to even million dollar range.

unless the amount of compensation is reveal, if not 58% is just another figure that makes them look good. Just like 33.3% vote yet only 2-3 seat out of 84 in parliament.

Anonymous said...

So many good news these 2 days...

Eg. No cut in CPF rates even after the meeting was brought forward.

Could it be due to the "Cockroach King Effect" or to the oncoming elections?

Ghost said...

I wouldn't call 54% as most investors. What about the other 46%? I'm also interested how they decide who should be paid, and why others will not. Personally it's seems wrong to me. They should pay back everyone or pay back no one. That's the only way to be fair

Anonymous said...

we should let the property market burst! if more help like the one given out along the way, than how can a shark like me go for the kill? let it CRASH!

Anonymous said...

Hi Lucky Tan,

The example you used for subprime is not that clear to me.

Please correct me if I'm wrong. Are you saying that the subprime has 2 categories? 1st is for first time home buyer and 2nd is for those who paid fully their houses already but still decides to take a second home loan to buy other stuffs?

For these 2 categories, then the value checkers decide to inflate the price of the houses?

Thanks for your time to explain Lucky Tan. I hope I can learn something new from this episode.


Economist with a Heart :)

zhu said...

1. so if the banks paid every single complainant $1 each they can then claim "100% compensated"? haha

2. er, dbs let those people delay their principal payments for how long? 2 years? if they cant pay now they will not be able to pay 2 years down the road when the situation is even worse. its just delaying the date the loan becomes non-performing, re-classifying things on the balance sheet to make it look nice.

3. bank job is to satisfy share holder. so it wont take on too much risk. probably to preserve capital too, so that depositors can get their money back.

if govt policy make them lend money to firms they think will fail, then isnt it exactly like sub prime? thats where govt policy said go ahead and lend,even if the home owner is cannot make it, cos we would like home ownership rates to rise.

business failure rate is govt problem, not bank problem. bank do right by refusing to lend to risky firm. but probably guilty of bad customer service with rude rejections.

but if govt want bank to lend, it will have to take all the risk. or lower whatever capital requirements and lending standards. but that'll be effectively outsourcing its problem to the banks.

Anonymous said...

Just heard from my sister, her friend invested 100k in minibonds and got a letter from DBS informing her she is getting zero back.