Will my money be safe?

By Gabriel Chen

AMID all the mayhem on Wall Street, many ordinary bank customers here are wondering: How does all this affect me?

Should I be worried if I have bank deposits, structured products investments, or unit trusts linked in any way to embattled American financial institutions?

We talk to financial experts to find out exactly what the risks are.

Q: If I have deposits with a bank here, will my money be safe?

Mr Leong Sze Hian, president of the Society of Financial Service Professionals, said: 'In the worst-case scenario, even if the bank is liquidated, you're protected up to $20,000 under the deposit insurance scheme for banks in Singapore.'

It is very unlikely for banks here to fail as they are subject to tight regulations, and are required to keep a big sum in capital as buffer against its loans.

For example, Citi is incorporated in Singapore, which means that the bank has to put up capital that is ring-fenced from its parent's.

In other words, the US bank is seen as a separate entity here. This means that if the parent firm goes belly up, that should not affect deposits here, said Mr Joseph Chong, chief executive of financial advisory firm New Independent.

Q: If I have bought a structured product - a complex investment product - such as Lehman Brothers' Minibond series, how will I be affected?

Minibond was a product offering 4.8 per cent in regular payments and attracted a lot of retail interest when it was launched due to its high payout.

It was also risky.

Experts estimate that investors will get about 30 cents on the dollar if they were to redeem their investment.

'It will be difficult to get a market price for the Minibond series because the markets for some of the underlying credits have frozen as a result of the credit crisis,' said Mr Nicholas Tan, head of group wealth management at OCBC Bank.

'Holders of these instruments will have to wait and see what the liquidation price for these assets will be.'

'It's a confidence issue. If you bought anything that is structured by Lehman, you'll be finished,' Mr Leong said.

The value of such products - typically based on derivatives, such as a single security, basket of securities, options, indices, commodities, debt issuances, and to a lesser extent, swaps - has fallen so much that there is hardly any interest in them, he said.

Q: Along the same lines, what about investment products with some Lehman exposure such as DBS High Notes 2 and High Notes 5?

The value of DBS High Notes 5, for example, is partly determined by a basket of eight reference entities, including US investment banks Merrill Lynch, Lehman and Morgan Stanley.

It is also structured on a first-to-default basis, which means that if any of the eight reference entities goes bankrupt, then it will trigger what is known as a credit event.

Once triggered, the customer could lose his investment, said Mr Rajan Raju, head of DBS' consumer banking group.

Q: I have funds managed by the asset management units of banks facing problems in the financial crisis. If banks go belly up, are my funds in trouble?

It depends on what you mean by trouble. Your assets may fall in value, but they don't just disappear overnight.

This is because the unit trust assets are held by custodians such as BNY Mellon Asset Servicing on behalf of their unitholders, so the assets in those unit trusts really belong to unitholders.

'The fund managers don't own the assets, but they just manage them for investors. Even if the custodian banks go bust, the assets still belong to unitholders,' said APS Asset Management chief investment officer Wong Kok Hoi.

Q: Given the crisis, will the value of my unit trusts fall?

Yes. Fund managers point out that any fixed income fund that is global or US-focused are likely to be holding debts belonging to troubled Wall Street firms such as Lehman and Washington Mutual.

So it really is a question of how much exposure as a whole these funds have to that particular financial firm.

If the exposure is huge, then yes, there will be a negative impact.

In Singapore, for instance, Schroder ISF US Large Cap, an equities fund, has exposure to cash-starved insurer AIG, though this is less than 1 per cent.

Of course, if a fund is heavily exposed to Lehman stock, the value of the fund is likely to have tumbled badly by now.

Q: Should I leap into the plummeting market to grab a cheaper blue chip stock or two?

It depends on who you ask. For instance, if you're a trader, you could buy at these levels and sell them at 10 per cent higher.

Dr Marc Faber, who told investors to bail out of US stocks before the 1987 so- called Black Monday crash, said that if investors are holding 100 per cent in cash, then they should be putting 10 per cent of that cash in equities now.

'But if someone's fully invested in equities, I would tell him to sell on the rally because he's overly exposed and the economic downturn could be worse than expected,' he said.


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