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STRUCTURED PRODUCTS SAGA 5 myths banks want you to believe By Larry Haverkamp (Doc Money) [email protected] 16 December 2008 1. Banks and brokers are repaying investors for the money they lost As of 10 Dec, Hong Kong banks had settled 60 of the 40,000 structured product cases (0.2 per cent). Investors got back $3.9 million of the $2 billion they invested (0.15 per cent). In Singapore, the amount is unknown. Our banks and brokers refuse to disclose it. 2. Both issuing banks and distributors are to blame for losses True, but issuing banks deserve more of the blame since they put the deals together. That is why DBS is at the centre of the storm. It structured the products - like High Notes - as well as sold them. Other issuing banks include Merrill Lynch (Jubilee Notes), Morgan Stanley (Pinnacle Notes) and Lehman Brothers (Minibonds). 3. Based on the high returns, people should have known they were getting into a high-risk investment What high returns? Take Minibonds, with sales of $508 million. It promised a 5 per cent return, which was only 1 or 2 per cent more than the same maturity government bond yields three years ago, when Minibonds were sold. A 5 per cent return did not trigger any alarms. It was reasonable. But the 5 per cent is a 'net' and not a 'gross' return since it doesn't include costs. Add the costs to get gross returns, which are much higher. Then it is easy to see that the structured product would need to take big risks to earn so much. The problem is, issuing banks around the world have an unspoken agreement: They do not reveal charges for credit and equity-linked notes. All costs are either buried in the initial pricing or deducted from the yield. No issuing bank will disclose them. 4. Issuing banks don't gain from investors' losses This is an issue with High Notes 5. Investors lost $103 million and a counterparty made $103 million. What counterparty? The prospectus says it is DBS, but DBS says it sold off its claim. Sold it to what party? For how much? Sold when? DBS won't say. It has taken the stand: 'Where required under regulatory or statutory guidelines, we will disclose the necessary.' 5. Sellers are returning investors' money DBS has charged $70 million against earnings to pay back investors. But there is a wrinkle. The $70 million also includes payments to Hong Kong investors, who suffered more losses. DBS won't say how much money goes to Hong Kong versus Singapore. It told me: 'As a matter of policy, we do not discuss individual cases, thus will not divulge how much will be paid to investors in each country.' It also won't say how much it re-purchases from investors at a discount, holds to maturity and then redeems for a profit. For example, DBS stands ready to buy back its High Notes 2 for 20 cents on the dollar. If it holds to maturity and redeems at $1.00, the bank makes a profit of 80 cents. In the worst case, High Notes 2 would default and the counterparty - DBS - gets the money that investors lose. Either way, the bank wins, thereby reducing the final costs to less than $70 million. DBS says it will not disclose the final costs - or profits - it expects from reimbursing Singapore investors.

I always thought the if you can buy funds with CPF funds, then the MAS or CPF board would have vetted the investment vehicle HOW come now MAS has nothing to say now and play such low key the more i read about the minibond saga, the more are more dissappointed by the hands off approach by the government I am wrong to think this way http://tankinlian.blogspot.com/ Dear Mr. Tan, I refer to the plight of a small group of investors who uses their CPF funds, namely the SRS retirement fund, to purchase Lehman Brothers minibonds. I am sure many of these investors were literate in stocks but not sophisticated enough to understand the instruments used in a complex structure like minibonds especially back in early 2006. In those days when subprime and CDO problems have not surfaced, only Lehman Brothers and maybe the distributors knew how good a product Minibonds are. And i know several of these investors keeping the sadness and hatred to themselves. Maybe they were literate and they believed in the brochure and had not read further. Some i heard are government servants and they dont want to voice their feelings. I wonder why citizens in First World countries should hide their feelings. Back in the early launch of the minibonds I and II, retirement funds were allowed to be invested. Shortly thereafter all later series of minibonds were not allowed to be invested with retirement funds. Most of these investors receive mailers (like that attached) from the distributors in their letter box. Some of them receive it month after month . Looking at the brochure itself you can tell the strong powerful entities are in bold. The small prints if there is, will refer you to refer somewhere else (you got to get) from the distributors where they will elaborate on the "junk" CDO. The brochure also shows the investor sitting safely on the shoulder of a strong gaint. Isnt all these misleading. One investor told me, after looking at the quality of the reference entities of the brochure and since he has not invested in bonds before(when most of his investments are in risker stocks), he decided to use his long term old age retirement funds (SRS) to buy some safe bonds. Yes altho he did this all on his own accord but knowing SRS is allowed for minibonds , he was more confident of the product and immediately sign up to purchase the bonds. His intention and objective of using retirement funds are definitely safe and security and long term. This is definetely not appropriate to allow retirement SRS funds to be invested in something unsafe that can have $0 value. Something totally not right to call quality bonds when they are not bonds at all . A brochure that shows you sitting on the shoulder of a safe strong gaint. That is all totally misleading. I think a caring government ought to debate on whether this group of investors who are educated but prefered something safe with retirement funds but was misled by the brochure and have kept quiet because they are afraid the government is not happy if they were to voice their opinion. I think we should ask why retirement funds was allowed for bonds I and II and why they were removed for subsequent minibonds and who should bear this responsibility. Miss W Posted by Tan Kin Lian at 8:04 PM 0 comments Links to this post

DBS to investigate claims of mis-selling of Lehman-related products By Nicholas Fang, Channel NewsAsia | Posted: 13 October 2008 2046 hrs Photos 1 of 1 Development Bank of Singapore SINGAPORE: DBS has said it would take responsibility if customers are able to give evidence of mis-selling in relation to products affected by the collapse of Lehman Brothers. In such cases, the Singapore lender said it would work with the customers on compensation on a case-by-case basis. In a statement out on Monday, DBS said customers who bought its High Notes 5 product in Singapore and Constellation Structured Retail Notes in Hong Kong will know the final valuation of the products by the end of the month. The valuation is determined by the market and DBS has warned that some customers could lose their entire investment. The bank's managing director and head of consumer banking group, Mr Rajan Raju, said over 300 customers had approached the Investor Care Centre in Singapore to express concerns about their investments

Minibond holders still grappling with outcome Retirees hardest hit; investors continue to seek answers By SIOW LI SEN (SINGAPORE) Shame, depression, anger, desperation and worst of all fear. These are just some of the emotions investors are displaying as they struggle with their savings. A month after Lehman Brothers went bankrupt, people who bought structured products linked to the failed bank continue to make the rounds of banks, brokerages and Hong Leong Finance, which sold them the products, trying to get answers. Reporters covering the stories of retirees who bought the products sometimes find themselves in the role of counsellors. Mary Kwok, 75, illiterate and blind in one eye since her 40s, said that she has thought of suicide. 'I told my MP I'll commit suicide when I run out of money and have no food,' Madam Kwok said in Cantonese. She invested $400,000 of her hard-earned money in Minibonds sold by Maybank. And now she is bewildered that her signature on forms that said she understood the products can be used against her. 'Everyone knows you have to sign when you open an account or put money in a bank,' she said. Although a Maybank executive has contacted Madam Kwok to ask how she was sold the product, she is scared the bank will twist her words. 'Now I don't want to sign anything, even holding a pen makes me tremble,' she said. 'I paid $100,000 to learn about the credit event,' a 64-year-old said bitterly outside DBS Bank's Shenton Way branch yesterday morning. He was among 11 DBS investors who turned up to complain about being mis-sold the product and found themselves surrounded by reporters and the bank's security guards. An attempt to protest outside DBS had been called off after the police warned it would be illegal. 'I'm ashamed. Losing money is not something to be proud of,' said a man who did not want to give his name, before he and his wife were ushered into the DBS auditorium. DBS staff laid refreshments in the auditorium while talking to the customers. Reporters were not allowed in and at one point were asked to leave by security guards. DBS spokeswoman Karen Ngui said that discussions went well and the investors left reassured that the bank is looking into their cases. DBS has said that it will take responsibility if the evidence shows that there was mis-selling. A Mr Lin, 78, said that he cannot rest. 'My child said no need to think too much, I will support you,' he said, before breaking down. 'I can't sleep and my child said he does not want me to fall sick.' Mr Lin and his wife had invested $100,000 in Minibonds just three months ago in July. He had bought the Minibonds from Hong Leong Finance. Over at OCBC Securities, emotions ran high in the afternoon when a dozen investors went to file complaints and found the situation surreal. A Mr Yap told BT the group was brought to a room where the heads of compliance, customer service and alternative investments met them for over two hours. 'It started off well until the head of compliance said OCBC Securities is just an order executor which doesn't give advice on whether products are suitable or not,' said Mr Yap, who invested more than $100,000 in Minibonds. He said that voices were raised when some investors felt OCBC Securities was trying to distance itself from the selling. A Mrs Lee, who was with the group, said: 'If they are not selling, and mis-selling can only come about if there is selling, so how can there be mis-selling? I found the whole thing weird,' said Mrs Lee, who bought Minibonds after attending sales briefings at OCBC Centre. The Monetary Authority of Singapore has said that about 10,000 people bought a total of $639 million of the failed investment products.

for those of you who bought minibonds, credit linked notes etc, please go and check whether Merrill, Lehman or AIG are one of the reference entities on your product as well. there could be a early redemption event coming up and the promises of capital protection may be gone. not to cause panic,but most people thought these products were 100% capital protected...