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Saturday, July 11, 2009

Minibonds Saga - The anger runs deep

I was reading an article written by a Senior Vice President of a local bank and I thought I should let my readers read it as well.

The anger runs deep

It may take years to restore trust in banks and regulator
by a senior vice-president at a local bank
05:55 AM Jul 11, 2009

I HOLD a relatively senior position in a local bank. Last night, I was involved in an unscientifically recruited focus group discussion - which comprised nine friends and colleagues sitting down for a meal.

Other than myself, the others - four men and four women - were all Singaporeans. They are aged between 45 and 55; three are entrepreneurs and the rest are either supervisors or managers.

Several in my "focus group" are losers - well, minibond or Pinnacle Notes losers - so it was no surprise that the dinner discussion soon turned to the punishment meted out to the financial institutions (FIs) involved in the minibond debacle.

The "majority view" was that the report by the Monetary Authority of Singapore (MAS) was all very well, and preventing the FIs from dealing in certain products for a period of time was all very well, too.

But what about the "immediate past", asked one of those present. What about the money I have lost, asked several others. What many victims of the alleged mis-selling really want - is their money back.

It was clear that my colleagues were unimpressed with MAS' performance to date. They felt betrayed. They believe MAS shares the guilt.

Consider these issues: MAS had reviewed and certified these structured products suitable for sale to retail customers - yet they now blame the FIs for designating them "low risk". Weren't the FIs just following MAS' lead ? MAS was also initially slow to act and had appeared to be constantly playing "catch up", they said.

No one (other than the late Richard Stanley of DBS) has stood up and said "sorry". If a supermarket sold contaminated milk, someone senior would have apologised or been sacked.

Even though the MAS report found the various FIs "guilty" of malpractice - publicly, no pressure has been put on them to settle the claims.

The other view was that while the FIs had behaved unprofessionally, customers must shoulder some blame.

Not all investors were "vulnerable heartlanders" - many, like my colleagues, were English-speaking, university-educated people who saw "an offer too good to miss".

They realise now that it proved to be an offer too good to be true.

My colleagues shared the view that with hindsight, any product offering an interest rate four or five times that offered by the same FI's own deposit accounts must have something "special" about it, and even relatively immature investors know that return is related to risk.

Whether it was simple greed or hopeful optimism that drove the eagerness to invest is a moot point.

However, it is clear that many folk took far less care in spending $20,000 on a structured product then spending a comparable amount on, say, a car downpayment.

From the experience at my own bank, I know that significant amounts of cash were handed over in transactions lasting not more than 10 minutes.

It is also interesting to note the degree of anger that is still borne by relatively well-off and well-educated consumers.

I think both MAS and the banking industry as a whole are in danger of underestimating how deep feelings still run, and how long it will take for matters to be resolved and for trust in both the banks and the regulator to be restored.

In Britain, for example, it took almost 10 years for the public to regain their trust in the independent financial advisers who were involved in the mis-selling of endowment mortgages, which happened about 20 years ago.

The key concept of a safe investment market is simple to describe - the FI provides full and complete disclosure, customers put in the effort to understand the risk they are taking on and then caveat emptor applies.

A mentor of mine used to explain caveat emptor as, "when there is doubt, there is no doubt". He meant that if you have even the slightest doubt about an investment, there is no doubt about what to do - do not invest.

But as all women with shoes and men with cars know - buying stuff is less of a rational and more of an emotional decision. And emotions, for most of us, are notoriously difficult to control.

The anger runs deep [via]

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