12 June 2009
HSBC Holdings will become the first lender to separate its retail banking and wealth management departments after a public outcry over tellers selling risky financial products to customers.
The move is expected to be followed by other lenders and follows recommendations by the Hong Kong Monetary Authority that banks tighten regulations on such high-risk investment products sales.
The fallout from the Lehman Brothers Holdings minibond scandal, in which banks sold highly speculative products to inexperienced investors, has put selling practices in the industry under the spotlight.
HSBC announced yesterday that three of its 100 branches in Hong Kong would separate its deposit-taking and investment service areas.
The pilot branches are at Hopewell Centre in Wan Chai, and Pedder Street and Lyndhurst Terrace in Central. The scheme will be expanded to all branches by September.
Peter Wong Tung-shun, the bank's executive director, said different designs would be used for the general banking and investment service areas to make sure customers could easily differentiate the two zones. Such clear zoning was in line with the HKMA's recommended measures and would enhance investor protection, he said.
The HKMA received more than 20,000 complaints about mis-selling by staff of 20 banks, including products that are touted as alternatives to time deposits but were in fact risky credit-linked notes.
About HK$20 billion of the Lehman products were bought by 48,000 Hong Kong investors. The products became worthless when the United States lender went bankrupt in September last year.
Sales activities within the investment areas would be audio-recorded and the tapes kept for seven years, HSBC said.
A Standard Chartered Bank spokesman said the bank was finalising its arrangements and would launch new measures by September. A spokesman for Hang Seng Bank could not be reached for comment.
The HKMA suggested banks completely separate their wealth management businesses from ordinary banking business by October 1 and record sales activities with customers by July 1.
Julia Leung Fung-yee, the Undersecretary for Financial Services and the Treasury, said yesterday the HKMA had received 500 complaints from people who had lost hundreds of millions of dollars on a complex credit-linked investment product called Octave notes, sold by US investment bank Morgan Stanley.
Two-thirds of the notes, sold mainly through 16 retail banks between 2004 and 2007, have lost more than 90 per cent of their value.
Hong Kong investors had bought HK$24.9 billion worth of structured products, including Lehman minibonds and Octave notes. Of the credit-linked products, HK$4.5 billion is still outstanding.
Thursday, June 11, 2009
SCMP:SFC may regulate all investment offerings
12 June 2009
The government is considering amending the law to let the Securities and Futures Commission regulate all investment products and prospectuses, a move that may plug the loophole exposed by the sales of the Lehman Brothers minibonds.
SFC chief executive Martin Wheatley said in a Legislative Council financial affairs panel yesterday that structured products such as the minibonds issued by Lehman or the Octave notes by Morgan Stanley were now regulated by the Companies Ordinance.
John Leung Chi-yan, a Deputy Secretary for Financial Services and the Treasury, said in the same meeting that the government might consider shifting the provisions on prospectuses and product offerings under the Companies Ordinance to the Securities and Futures Ordinance.
The government is considering amending the law to let the Securities and Futures Commission regulate all investment products and prospectuses, a move that may plug the loophole exposed by the sales of the Lehman Brothers minibonds.
SFC chief executive Martin Wheatley said in a Legislative Council financial affairs panel yesterday that structured products such as the minibonds issued by Lehman or the Octave notes by Morgan Stanley were now regulated by the Companies Ordinance.
John Leung Chi-yan, a Deputy Secretary for Financial Services and the Treasury, said in the same meeting that the government might consider shifting the provisions on prospectuses and product offerings under the Companies Ordinance to the Securities and Futures Ordinance.
Easy life in Solo, Indonesia
My friend told me that the people of Solo are easy going, without any stress. Most people are able to make a living without having much worry. They work but also have time for family and friends. Life is not as hectic as in Jakarta.
There are factory owners in Solo, but each owner runs only one factory or business. They do not own many factories or try to make a lot of money.
I will visit Solo one day, and see the quality of life there. I was in Jogjakarta last year, and had a similar impression of this city.
There are factory owners in Solo, but each owner runs only one factory or business. They do not own many factories or try to make a lot of money.
I will visit Solo one day, and see the quality of life there. I was in Jogjakarta last year, and had a similar impression of this city.
Wednesday, June 10, 2009
It is easy to be cheated (11) - Life policy with annual cash payment
In recent years, many life insurance companies have introduced a life policy with annual recurring payment. The agents sold this product actively and earned high commisison. The policy gives a very low yield to the policyholder. and is worse than an endowment policy. It is easy for the agent to sell the attraction of the annual cash payment to a consumer who is not aware that that he or she is actually taking back a part of the premium.
A endowment policy already gives a poor yield, due to the high charges. The guaranteed return is about 2% per annum and the non-guaranteed bonus may add another 1% or 2% to the yield.
The insurance company design the annual cash payment by increasing the premium rate on the underlhying whole life or endowment policy and use the increased premium, less expenses, to make the cash payment to the policy.
Take this example. The endowment policy requires an annual premium of (say) $3,000. To make the annual cash payment, the insurance company increases the premium by (say) $1.000 and makes a cash payment of $900 to the policyholder from the second year. There is no payment for the first year, as the additonal premium is used to pay commission to the agent.
Why should a policyholder take a polcy that requires an additional premuim of $1,000 and pays back only $900 a year.? Surely, it is more sensible for the policyholder to keep the $1,000 in the bank account, rather than give it to the insurance company and receive back only $900?
This type of policy does not make sense to the policyholder, but the insurance agent loves to sell it, as they can earn additional commission on the additional premium.
The yield on this type of policy is lower than for an endowment policy. It could reduce the yield (which is already low) by another 1%. I undersand that most of these type of annul cash payment policy gives a guaranteed yield of only 1%.
The insurance agent is highly trained to sell this type of product to the customer, even though it gives a poor yield. Many of the customers are not aware about the true nature of the product and can be easily taken for a ride. How sad!
Tan Kin Lian
A endowment policy already gives a poor yield, due to the high charges. The guaranteed return is about 2% per annum and the non-guaranteed bonus may add another 1% or 2% to the yield.
The insurance company design the annual cash payment by increasing the premium rate on the underlhying whole life or endowment policy and use the increased premium, less expenses, to make the cash payment to the policy.
Take this example. The endowment policy requires an annual premium of (say) $3,000. To make the annual cash payment, the insurance company increases the premium by (say) $1.000 and makes a cash payment of $900 to the policyholder from the second year. There is no payment for the first year, as the additonal premium is used to pay commission to the agent.
Why should a policyholder take a polcy that requires an additional premuim of $1,000 and pays back only $900 a year.? Surely, it is more sensible for the policyholder to keep the $1,000 in the bank account, rather than give it to the insurance company and receive back only $900?
This type of policy does not make sense to the policyholder, but the insurance agent loves to sell it, as they can earn additional commission on the additional premium.
The yield on this type of policy is lower than for an endowment policy. It could reduce the yield (which is already low) by another 1%. I undersand that most of these type of annul cash payment policy gives a guaranteed yield of only 1%.
The insurance agent is highly trained to sell this type of product to the customer, even though it gives a poor yield. Many of the customers are not aware about the true nature of the product and can be easily taken for a ride. How sad!
Tan Kin Lian
It is easy to be cheated (12) - Buying shares
There is also a risk of buying shares. Are you able to monitor the shares and make sure that the dividents are paid to you each year? If there is an administrative mistake, will you overlook to receive the dividend? Do you have the time to keep track of your personal share investments?
There is a bigger risk of making a loss, when there is a right issue. Usually, the rights issue results in dilution of the shares and a drop in the share price. If you take up the rights issue, you can get the additional shares at a lower price, so it will compensate for the drop in price.
However, some investors overlook to take up the rights issue. They may be travelling, too busy to check their mail, or the mail may have got lost. This oversight can cost a lot of money. Some investors do not have the additional capital to ake up the rights issue. They can sell their rights in the market (only if they remember to). The amount that they get for the rights should compensate for the drop in price due to the rights issue. However, if they forget to sell the rights, they will suffer a loss.
If you are too busy to monitor the shares, it is better to invest in a unit trust or exchange traded fund. The fund manager will take care of the monitoring on behalf of the investors.
Tan Kin Lian
There is a bigger risk of making a loss, when there is a right issue. Usually, the rights issue results in dilution of the shares and a drop in the share price. If you take up the rights issue, you can get the additional shares at a lower price, so it will compensate for the drop in price.
However, some investors overlook to take up the rights issue. They may be travelling, too busy to check their mail, or the mail may have got lost. This oversight can cost a lot of money. Some investors do not have the additional capital to ake up the rights issue. They can sell their rights in the market (only if they remember to). The amount that they get for the rights should compensate for the drop in price due to the rights issue. However, if they forget to sell the rights, they will suffer a loss.
If you are too busy to monitor the shares, it is better to invest in a unit trust or exchange traded fund. The fund manager will take care of the monitoring on behalf of the investors.
Tan Kin Lian
High Executive Pay
Remuneration committees of the board of directors approve high pay for CEOs on the reasoning that it is needed to attract other top talents to join the organisation.
To justify the high pay, the CEOs and top managers have to improve the profits, i.e. to "increase sharehholder value". This has led to a culture of excessive risk taking and taking advantage of customers. This is the reason for the bad business ethics that was seen in recent years.
Singapore has gone into this bad phase, which has led to a serious loss of trust in business and government institutions. I hope that corrective steps are now taken to improve the business ethics and enviornment in Singapore.
Tan Kin Lian
To justify the high pay, the CEOs and top managers have to improve the profits, i.e. to "increase sharehholder value". This has led to a culture of excessive risk taking and taking advantage of customers. This is the reason for the bad business ethics that was seen in recent years.
Singapore has gone into this bad phase, which has led to a serious loss of trust in business and government institutions. I hope that corrective steps are now taken to improve the business ethics and enviornment in Singapore.
Tan Kin Lian
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