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Tuesday, 23 September 2008

Banks gave poor advice

ASIAN retail investors who bought structured products linked to the collapsed USinvestment bank Lehman Brothers are complaining about poor advice from banks and have urged authorities to save them from losses.

Investors in Hong Kong, Singapore and Indonesia have over the past week been outraged that the bond-like products they purchased were actually complex derivatives and they stood to lose most or all of what they had invested.

The products include Lehman-linked minibonds sold in Hong Kong and Singapore, many of which offered modest returns of between 4 and 6 per cent, and DBS Group's High Notes 5 series, which offered around 5 per cent and were linked to eight securities including Lehman bonds.

After staging a protest on Sunday, dozens of aggrieved retail investors turned up at the headquarters of the Hong Kong Monetary Authority on Monday morning to seek help from authorities, complaining that banks and financial advisers did not do enough to warn them of the risks.

Mr Tan Kin Lian, the retired chief executive of Singapore insurance firm NTUC Income, who advises investors through his blog, said many investors bought such products believing these instruments were relatively safe.

'People who would not take the risk of buying shares have been asked to buy these structured products,' he said.

He also said authorities should examine the design of such products, which were often 'grossly unfair' to investors in terms the risks and rewards.

'The odds are not balanced. You have a chance of losing $1 million, but you won't win $1 million. The structure would take away most of the profits and give you very little,' said Mr Tan.

COMPENSATION

Singapore investor Archie Ong, who stands to lose the bulk of his investment in DBS' High Notes, hopes authorities would force banks to compensate investors who thought they had bought low-risk products that paid steady dividends.

'They had been marketed as a low-risk alternative to equities which are much higher risk,' he said.

A Singapore blogger, who called himself Falcon, said 'why would one take such a high risk for the potential of earning 5 per cent? Such high risks of losing everything should give a potential return of more than 100 per cent.'

DBS spokeswoman Karen Ngui said, however, that investors in its structured notes had been adequately advised of the risks. 'It's stated clearly in the prospectus and application forms and the pricing statement as well.'

DBS needed about 30 days to unwind its structured notes before it could determine the actual losses suffered by investors, she added.

Lehman declined to comment.

The failed investments in structured products linked to Lehman has also affected investors in Indonesia who had bought such instruments from Citigroup, according to a report in the Jakarta Post on Monday.

Citigroup did not respond when asked to comment on the report.

The Monetary Authority of Singapore did not immediately respond to queries from Reuters, while Hong Kong officials met with angry investors but did not pledge specific action.

'We hope that through such talks we can better understand the situation and try to find a resolution,' Financial Secretary John Tsang told reporters. -- REUTERS

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