Written by Ng E-Jay
16 November 2008
The fifth rally organized by Mr Tan Kin Lian for investors of
Lehman-linked structured products and other credit linked notes
that have fallen drastically in value drew a record crowd on Sat,
15 Nov, with investors vociferously expressing their anger and
dissatisfaction at MAS and the financial institutions for
pussyfooting and failing to provide prompt and fair redress for
their heavy losses.
Mr Tan Kin Lian began his speech by drawing attention to a new
group of investors — people who have invested in the Pinnacle Notes
series created by Morgan Stanley. Many of these credit linked
notes, which typically run for a term of around 5 years, have had
their value nearly obliterated even though they are not linked to
the failed US bank Lehman Brothers.
For example, Pinnacle Notes 1 has only 1.8% of its original
value left; Pinnacle Notes 2 has only 3.8%; Pinnacle Notes 8 has
around 69%, and Pinnacle Notes 12 has around 80% of its value
remaining as of last week.
More seriously, Pinnacle Notes 9 and 10 have had their value
completely wiped out because at least 5 of the underlying 100
financial assets have gone into default.
Why are the Pinnacle Notes affected even though they are not
linked to Lehman Brothers?
The answer is that the Pinnacle Notes are very similar in
structure to the other structured products like the Lehman
Minibonds and the DBS High Notes. Each of the Pinnacle Notes have
several reference entities. If one of the reference entities goes
bankrupt, the entire Note will go into default. In addition, each
Pinnacle Note also invests in the credit instruments of around 100
underlying financial entities. If a certain number, say 5 to 10, of
these underlying financial assets goes bust, the entire Note will
also be obliterated. The latter event is precisely what happened to
Pinnacle Notes 9 and 10.
Another question arises: What if there is a new swap
counterparty for Lehman Brothers? Will investors be able to recoup
their full principal sum at the maturity of the Lehman
Minibonds?
Mr Tan Kin Lian’s reply was that he was not sure, as the value
of the Minibonds will also depend on the performance of the
underlying financial assets. If the underlying assets go into
default, the Minibonds will be similarly affected even if all the
other reference entities are still around.
Mr Tan recapitulated that he had already sent 3 petitions to
MAS.
The first petition, dated 9 Oct and signed by 983 people, asked
MAS to carry out an independent investigation into whether the
financial institutions had breached the Securities and Futures Act
or the Financial Advisers Act. Mr Tan had also sent a personal
letter urging the Government to take action in the form of bringing
the errant financial institutions to Court or negotiating with them
to compensate investors duly, if indeed the law had been
broken.
However after one month, there had been no concrete action from
MAS, which had refused to meet or discuss the matter with Mr Tan.
MAS had only announced that they could not discuss the issue with
individual investors, but gave no indication as to whether there
would be a full fledged independent investigation.
Mr Tan asked the crowd: “Is that fair?”
To which the crowd replied loudly: “NO!”
The second petition, dated 17 Oct and signed by 277 people,
asked MAS to check on how the financial institutions had trained
relationship managers and sales representatives.
The third petition, dated 31 Oct and signed by 1017 people,
asked MAS to set up an independent unit for investors to lodge
complaints, so that investors need not approach the financial
institutions directly if they feel uncomfortable doing so. The
petition also urged MAS to push for a collective settlement for all
affected investors, rather than allowing the financial institutions
to go on a case-by-case basis which would inevitably prejudice
certain investors.
Next, Mr Tan Kin Lian brought to attention the recent remarks
made by MM Lee Kuan Yew. MM Lee had said that many educated and
young investors went into the Lehman-linked structured products
with “their eyes open“. He also said: “Higher
returns means higher risks. So when somebody tells you, ‘you get
1.5 per cent at the bank, I give you 5 per cent’, read the small
print carefully.” (ST Online, “Lehman investors ‘aware of risks’”,
11 Nov 2008)
A person using the initials S.B. had written to Mr Tan
expressing his anger at MM Lee’s comments. The writer said that an
annual return of 5% was not commensurate with the amount of risk
that the investors were taking, and that investors had been lulled
into assuming the products were all right because they were
approved by the authorities for sale. The writer admitted that he
should shoulder some responsibility for his investment decisions,
but added that MM Lee’s words sounded as if the authorities were
taking investors to task, and that the case was closed as far as
the Minister Mentor was concerned. The writer said that
this gave him the impression that the Government had already taken
the side of the financial institutions even without any solid
evidence, and that this was unacceptable action from a popularly
elected Government.
Mr Tan Kin Lian went on to mention that in his recent meeting
with some primary school teachers, the teachers were of the opinion
that the Government had done a good job by making sure older
investors were compensated. Mr Tan was quick to give these teachers
a reality check. He told them that the so-called “vulnerable
investors” who were given prompt and full compensation only
constituted less than 5% of the total number of affected investors.
The teachers were shocked when they learned this. They
realized that they had been mislead by the media into thinking many
people had already been duly compensated.
Finally, Mr Tan asked why these highly defective credit linked
Notes were only sold in Singapore, Hong Kong and Taiwan, and not in
places like the US, Malaysia, or Australia?
The answer, sadly, was that if investment banks were to sell
these defective products in places like America, they know they
would be sued and forced to compensate investors the full principal
amount, unlike places like Singapore where they have a chance of
fooling investors and getting away with it. Places like Malaysia
were also unlikely to approve these products for sale to retail
investors or unsophisticated investors in the first place.
Mr Tan ended by saying that he hoped MAS would follow the
example of the Hong Kong Legislative Council in carrying out a full
fledged investigation and summoning banks to provide the necessary
information about the sales process and the details of the
transactions. Errant bankers should also be sent to jail if and
when found guilty.
Mr Goh Meng Seng then gave a Chinese rendition of Mr Tan’s
speech, as well as his own views on the matter.
He said: “This government only cares about the big corporations,
what about its citizens?”
Mr Goh quoted the example of Hong Kong, where Minibond investors
could pressure the Legislative Council (Legco) into launching a
full probe into the banks because the Legco was not dominated by a
single party. Here in Singapore, with only 2 opposition MPs in
Parliament, the ruling party could do as it wished with flagrant
disregard for the will of the people.
Mr Goh ended his speech by imploring the audience to
“open their eyes” and “vote for the
correct party” in the next election.
http://www.sgpolitics.net/?p=1219