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)

Last Friday, DBS introduced a “money safe” guarantee to give its Internet banking (iBanking) customers added protection and greater peace of mind.

With the “money safe” guarantee, DBS’ iBanking customers will be automatically protected when transacting online, with the bank reimbursing them in the unlikely event of unauthorised transactions on their iBanking account. Customers will still need to continue to do their part by keeping their login PINs, identity and tokens secure, to minimise the risk of unauthorised transactions.

“We believe that Internet banking is becoming an increasingly important aspect of banking of the future. Although the industry follows a set of high security standards, many still have concerns over transacting on the Internet. As the bank with the largest number of online users, we want to take the lead to give our customers greater peace of mind and assurance when they transact online with us,” said Mr Rajan Raju, Group Executive, Consumer Banking Group, DBS.

I consider this a pretty insignificant guarantee as I don’t think the bank will take liability if the customer is clearly at fault in losing his pin, etc.

For the case where the internet banking account is compromised through no fault of the customer, it would be seen as very bad PR if they try to make the customer liable anyway.

DBS has recently started taking drastic steps to gain market share in the sale of unit trusts.

They have implemented a 1% sales charge policy on the sale of any unit trusts under their platform. This rate is even more competitive than the 2% or 1.5%  found in other online unit trusts platform providers.

In fact, you can easily transact via DBS internet banking (edited: Online still shows the usual charges of 3 and 5%). A check after login to DBS internet banking shows that funds from the following fund managers can be purchased online:

• DBS Asset Management
• Deutsche Asset Management
• AllianceBernstein
• Henderson Investors Singapore
• Legg Mason Asset Management
• Schroders Investment Management

In addition, DBS has added 7 more days to the cooling period for anyone who buys from them. This means a total number of 14 days for the cooling off period.

I suspect that their sales have been hit pretty badly since the ban by MAS on selling of investment products through bank tellers. So now they have resorted to competing on price.

Will other financial institutions follow suit?

We have indeed come a long way since the old days where banks used to charge 5% for the sale of unit trusts. All these are positive changes for the consumers.

I chanced upon an advertisement for the DBS Invest Choice Account a couple of days ago. Taking a closer look at the product, I realised that it is almost the same as the POSB Invest SingGrowth Account that POSB launched back in June 2009. You can refer to the POSB Invest SingGrowth Account post for an explanation of how it works.

The reference entities and redemption conditions are all the same. The only difference is that the payout is 0.22% higher in the first year.

Here is a repeat of the earlier exercise of calculating the returns based on a $100k investment.

Case 1: No redemption event

You will collect:

End of year 1: $3000

End of year 2: $1080

End of year 3: $1180

End of year 4: $1280

End of year 5: $101380

Case 2: Redemption event occurs at end of year 2

You will collect:

End of year 1: $3000

End of year 2: $101580

Case 3: Redemption event occurs at end of year 3

You will collect:

End of year 1: $3000

End of year 2: $1080

End of year 3: $102180

Case 4: Redemption event occurs at end of year 4

You will collect:

End of year 1: $3000

End of year 2: $1080

End of year 3: $1180

End of year 4: $102780

Case 5: Redemption event occurs at end of year 5

You will collect:

End of year 1: $3000

End of year 2: $1080

End of year 3: $1180

End of year 4: $1280

End of year 5: $103380

Case 6: DBS/POSB goes bust

You will get back nothing as this product does not fall under the Singapore Deposit Insurance Act.

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The actual annualised yield for the 5 different cases are computed as follows:

Case 1: 1.59% p.a. (product matures in 5 years)

Case 2: 2.30% p.a. (product matures in 2 years)

Case 3: 2.09% p.a. (product matures in 3 years)

Case 4: 2.01% p.a. (product matures in 4 years)

Case 5: 1.98% p.a. (product matures in 5 years)

You can use the yield and maturity length as a benchmark to compare against other similar products. Of course, no one would be able to predict which of the 5 cases would ultimately happen.

The yield is slightly higher than the POSB Invest SingGrowth Account but it requires a much higher minimum of $100k to invest in the product.

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.