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.

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.

Recently, there was an event of default in the underlying assets of some of the Pinnacle Notes. There was a notice sent out by Morgan Stanley saying that Pinnacle Notes Series 1 is likely to have a forced redemption as a result of this default.

Other Pinnacle Notes Series 2, 3, 5, 6 and 7 have also been negatively impacted.

The respective notices can be found on the Morgan Stanley Pinnacle Notes website.

As of 8th May 2009, the indicative price quoted by Morgan Stanley for the various Pinnacle Notes Series are as follows (based on face value of $100):

• Pinnacle Notes Series 1 – No quote available (likely 0)
• Pinnacle Notes Series 2 - $0.32 for Tranche A and $0.23 for Tranche B
• Pinnacle Notes Series 3 - $0.36 for Tranche A and $0.40 for Tranche B
• Pinnacle Notes Series 5 - $2.87 for Tranche A and $2.88 for Tranche B
• Pinnacle Notes Series 6 - $2.93 for Tranche A and $3 for Tranche B
• Pinnacle Notes Series 7 - $2.73 for Tranche A and $2.96 for Tranche B
• Pinnacle Notes Series 8 - $84.05 for Tranche A and $81.78 for Tranche B
• Pinnacle Notes Series 11 - $79.28 for Tranche A and $72.11 for Tranche B
• Pinnacle Notes Series 12 - $78.73 for Tranche A and $71.36 for Tranche B
• Pinnacle Notes Series 15 - $77.24
• Pinnacle Notes Series 16 - $74.12

Posting this message on behalf of the Pinnacle Action Group

The Pinnacle Action Group wishes to write to MAS to investigate into the Pinnacle product that was engineered by Morgan Stanley. The group has consolidated some findings in series 9 and 10 and has identified several questions and they wish to get the regulator (MAS) to investigate.

They need the support from noteholders of the Pinnacle Series 9 and 10 to sign electronically on a letter to be sent to MAS. They like to ask the noteholders to write to pinnacle.action.group@gmail.com with their name and email address.

The details of this last meeting for all credit linked notes investors (DBS High Notes, Jubilee, Minibond, Pinnacle) at Hong Lim Park are as follows:

Date: Saturday 27 December 2008
Time: 5 to 7 pm

Agenda
1. Update of complaints to financial institution, FIDREC
2. Update on collective legal action
3. Speech by lawyer organising the class action

This will be the last meeting to be held at Speaker’s Corner. Subsequent meetings will be organised by the group leaders for the various notes, and will be held at other venues.

Special Meeting for Pinnacle Note Holders

The committee of Pinnacle action group wishes to meet all pinnacle notes holders this Saturday at the same venue. The agenda is to explore alternative ways to seek relief for losses incurred by the Pinnacle notes.

Those who are unable to attend can email their particulars to pinnacle.action.group@gmail.com to be kept in the loop.

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