Wednesday, September 24, 2008

No sympathy from me for Lehman Minibonds investors

After the collapse of Lehman Brothers, Bear Stearns, and the unwinding of the credit markets over the past year or so, several Singaporean investors have found themselves burnt, having dumped significant portions of their retirement savings in credit derivatives and other similar financial instruments. One of these products in particular, Lehman's Minibonds, has been completely wiped out following the Chapter 11 bankruptcy of Lehman brothers.

Now, several of these investors (losers), are crying and complaining to the MAS, claiming that the authority did not do enough to protect them from the risks of these investments that are now close to worthless. As quoted in the Straits Times...

ST Sep 24, 2008
Minibonds worry: 'How is the layman supposed to beware when the prospectus is filled with jargon that even the sellers do not fully comprehend?'

MY WIFE and I are joint account holders of Maybank Singapore. We purchased $100,000 of the Minibonds Series 5 from Maybank's investment banker around August last year. We were under the impression then that these were supposedly very safe bonds.

Every few months, I would even call up Maybank to ask about the performance of our Minibonds and whether I should still hold on to them. Each time, I was informed that these bonds were still sound, and there wasn't any need to bail out.

Now that Lehman Brothers is bankrupt, and the public disclosure that our Minibonds investment has, in fact, nothing at all to do with bonds, but are instead Collateralised Debt Obligation (CDO)-related derivatives, we are extremely disappointed, distressed and upset with Maybank's lack of professionalism and poor product knowledge.

The investment advisers are more interested in closing the deal and going through the motions during the investors' risk-analysis.

We fully understand the concept of buyer beware. However, in this situation, how is the layman supposed to beware of what they're being sold when the 60-odd-page prospectus is filled with legalese and technical jargon that even the sellers themselves do not fully comprehend?

Ngo Chee Keong

Nice try mr Ngo, but I think people like you are idiots.

If you don't understand the legalese and technical jargon in the prospectus, WHY THE HELL ARE YOU TOUCHING THE INVESTMENT?

And, if you know that the sellers themselves do not fully comprehend the jargon, WHY ARE YOU STILL BELIEVING WHAT THEY SAY?

Anybody with any knowledge about investing will have heard one of Warren Buffett's principles of investing: Only invest within your circle of competence.


Obviously mr Ngo did not heed Warren Buffett's advice, just like thousands of other 'investors' who got burned by Lehman's bankruptcy.

And now he looks like the idiot he really is.

The minibonds saga should be a poignant lesson to everyone on why you should NEVER TRUST 'FINANCIAL ADVISORS'. Always DO YOUR OWN HOMEWORK. And DON'T TOUCH WHAT YOU DO NOT UNDERSTAND.

Those who diligently do their homework, educate themselves on financial instruments and how to invest well don’t get FOOLED by these so-called ‘financial advisors’

Any tom dick or harry can get a CFP or become a personal banker. just talk to insiders and they will tell you how selfish, mercenary and unethical these financial salespeople are. All they care about is getting their commission.


The best and only real protection for your retirement savings is to arm yourself with knowledge and financial education.

The best investors have never depended on the regulator to protect their downside.

These are universal principles of investing that will stand the test of time. Whether it was the go-go- years, the tech bubble, or today's credit crunch. Follow them and you will avoid the hazardous damages to your retirement nest.


The former CEO of NTUC, Tan Kin Lian, has now called on the MAS to be pro-active, and to 'protect' the small investors' interests:
"I hope that the Monetary Authority of Singapore or the Attorney General can take similar action on behalf of retail investors in Singapore, who had been misled into investing in the Mini-Bonds and similar structured products. These investors were clearly misled by the relationship managers into investing in these products on the advice that these investments were safe.

It is time to hold the financial institutions accountable for their mis-selling activities and for our regulators to be pro-active."

Indeed, how easy it is to point the finger at the bank, the broker, and the fund manager for misleading you. It is easy to point the finger at the regulator.

But, it looks like somebody agrees with me. here's a letter countering Tan Kin Lian's statements in the st forum:
ST Forum - Sep 25, 2008

Ultimately, it's buyer beware

I REFER to Tuesday's report, 'MAS tells banks to give priority to worried investors'.

It may be presumptuous of Mr Tan Kin Lian to assume that the banks erred in selling structured products to retail customers. These products are regulated under the Financial Advisers Act and the Securities and Futures Act. Only qualified advisers can market and give advice on such products. They must have a reasonable basis for any recommendation that is made on structured products and must provide investors with a fair description of all material information.

Be that as it may, investors looking to invest in these complex structures should exercise extra caution before entering into such financial transactions. The decision to invest should be based on your own judgment and not solely on advice given by the bank or its advisers. Before investing, you should consider whether the products fit with your financial goals, risk appetite and personal situation.

Understand the features of structured notes. Even in the case of a 'principal protected' product, the principal may only be insured by the issuer and, thus, may be lost in the case of a liquidity crisis or other solvency problems with the issuer.

Structured products are not suitable for all investors. Each product can exhibit very different characteristics as well as associated risks and rewards. They may appear to be fixed-income instruments, but may contain embedded options which do not necessarily reflect the risk of the issuing credit. These options may be 'plain vanilla' or highly leveraged exotic options.

As each is unique, the risks inherent in any one structured note may not be obvious. Hence, read carefully the prospectus or pricing statement, which explains the risks, tax treatment and other important information in detail.

Ultimately, it is your responsibility to protect your own interests. If you do not understand how the product works, seek clarification with your adviser. Don't buy anything that you do not understand.

Jag Kuo Soon Yong

No comments: