Hong Kong authorities have come to an agreement with DBS HK on the amount of compensation to customers who bought Lehman-Link notes structured by DBS. $651 million Hong Kong dollars or about S$115 million will be paid out to some clients who bought these products.

The 2160 low risk customers who accept the resolution scheme will receive their full investment back together with interest. The rest who have a higher risk profile will have their cases reviewed on a case by case basis.

In Singapore, some DBS customers were sold a product High Notes 5 that lost all its value when Lehman Brothers went under. According to a July 2009 MAS report, a total of $103.7 million worth of HN5 were sold to 1,083 retail clients between 30 March and 30 April 2007.

These investors were not so lucky as their Hong Kong counterparts when it comes to compensation. Even though all of them had their cases reviewed individually, the amount of compensation DBS paid out to them amounts to only S$7.8 million out of their original investment of S$84.1 million.

DBS HK unit agrees to pay HK$651m to clients who bought Lehman-linked notes (Channel News Asia)

There will be another gathering this Saturday for affected victims of structured products (Minibond, DBS High Notes, Pinnacle, Jubilee) organised by Tan Kin Lian.

Date of Gathering: 22nd August 2009
Place: Speaker’s Corner, Hong Lim Green
Time: 5.00 pm

Activities:

1. Speech by Tan Kin Lian
2. Hold placards with messages
3. Sign petition (for those who did not sign online)
4. Talk to other investors at the gathering

In a surprise move yesterday, Great Eastern Life (GE) made a voluntarily offer to do an early redemption of their Greatlink Choice (GLC) products from 18,000 of its investors.

The Greatlink Choice products were sold in five tranches between 2005 and 2007, collecting $594 million in premiums. It was marketed as a safe kind of investment with an annual payout of between 3.5% to 4.9% of the capital invested.

It is a similar class of product to the Minibond, DBS High Notes and some of the Pinnacle notes which have been widely sold to other investors. While none of the Greatlink Choice has defaulted yet, their current market valuation ranged from 19% to 61% of the original capital.

Owners of the Greatlink Choice products will now have an option to opt for a full redemption of their Greatlink Choice investment at their original capital less the total payouts they have received to date. This option will be available to them from now till 28th Aug 2009.

GLC policyholders will receive a notice from Great Eastern on the procedure for acceptance of this offer. GLC policyholders who have questions on the offer may also call Great Eastern’s Customer Service Officers at 1800-248-2888 or contact their personal GE life planners.

I applaud this move by GE as it gives investors of the Greatlink Choice products an early exit option. I am sure many of these investors who thought Greatlink Choice was a safe product would have been having sleepless nights seeing the value of their investments plummet. This is especially so for the Greatlink Choice products which are maturing in 2012/2013 and have a higher risk of default.

From the perspective of GE, I am sure this helps to generate tremendous market goodwill. And while they will have to spend $250 million making this early redemption, if you think about it, this $250 million is not exactly a loss at all.

Remember that none of the Greatlink Choice has defaulted yet and if it stays the same way, GE would have to refund 100% of the premiums at maturity back to investors anyway. And in giving this early payout, they would be redeeming at less than 100% of the capital as it is net of total payouts received.

Of course, if there is a default subsequently, then GE would have to bear the loss themselves.

Overall, I think this move is a win-win for both GE and their GLC customers.

I am sure investors of Prudential’s Pru 3Plus and Yield 15/20 will be casting an anxious look at Prudential and see whether they will offer something similar.

A group of more than 200 DBS High Notes 5 investors have commenced legal action against DBS. The group of investors is understood to have lost about S$17 million and are suing for a total refund of their investment money.

Yesterday, a legal notice was served on DBS by legal firm Premier Law. The claim was based on the prospectus and pricing statement relating to the DBS High Notes 5.

A DBS spokesman said the bank remains confident that the case is without merit and will defend themselves.

This legal suit against DBS will no doubt attract a lot of interest as it is the first “class action suit” bought against a financial institutional as a result of the massive losses incurred from structured products linked to Lehman Brothers.

Yesterday, MAS released their 99-page report on the selling of structured products by ten financial institutions.

It detailed the process by which each financial institution sold the products, a tabulation of the amount of compensation received by investors, as well as actions taken against the financial institutions.

Punishments include a ban of structured products selling for a period of 6 months to DBS Bank, ABN Amro, Maybank, DMG & Partners Securities and UOB Kay Hian; 1 year to CIMB-GK Securities, Kim Eng Securities, OCBC Securities and Phillip Securities; and 2 years to Hong Leong Finance.

This ban appears to be of limited significance as some of the financial institutions have already suspended their selling of structured products to retail investors anyway. Note this ban DOES NOT include the private banking units of DBS and ABN Amro Bank.

Among the compensation offered to investors, Hong Leong Finance gave the most. In fact, the amount of settlement that they offered exceeded the total of the 9 other financial institutions put together. Ironically, they were also the only financial institution that had the longest ban of 2 years imposed.

Reports can be downloaded below:

MAS Structured Products Investigation Report

Structured Products Compensation Table

MAS Acts Against 10 Financial Institutions (news report by Straits Times)

For those who are taking legal actions against the financial institutions, note the following paragraphs by MAS:

38) Although section 64 of the FAA provides that the failure of any FI to comply with the Guidelines issued under the FAA may be relied upon to establish liability against the FI in any criminal or civil proceedings, any such failure does not by itself render the FI liable for criminal sanctions or civil damages to an individual investor. Section 27 of the FAA also requires that, for an investor to make out a claim for damages where a recommendation was made without a reasonable basis, the investor must show reliance on the recommendation and that it is reasonable, having regard to the recommendation and all other relevant circumstances, for that investor to have purchased the Notes in reliance on the recommendation. Similarly, a claim in tort or contract for misrepresentation has to show reliance on the misrepresentations complained of. Whether an investor bringing an action against the FA can prove that there was such reliance, whether such reliance was reasonable, and to what extent, if any, the recommendation could be shown to have affected the investor’s actual decision to invest is a matter that would need to be established by each investor based on the specific facts and circumstances at the time of purchase. Establishing such a case in law would depend, among other things, on the oral and documentary evidence as to what transpired between the client and the representative of his FA and what documents the client signed as part of the transaction process.

39) All clients investing in the Notes were generally provided with, or asked to acknowledge receipt of or sign, documentation containing risk warnings and disclaimers in respect of the liability of a seller of the Notes.

42) The Distributors generally take the view that the documentation signed by clients mean they do not have any legal liability to the client and, accordingly, afford them a legal basis not to offer redress in many cases. The Distributors also take the view that they were not liable for statements of opinion expressed in good faith. Additionally, the Distributors highlighted their fiduciary obligations to shareholders and other stakeholders which as a matter of law they needed to take into account in making offers of settlement.