Minibonds case to be handled fairly, says Singapore PM

Minibonds case to be handled fairly, says Singapore PM

Banks know it’s in their interest to resolve the matter quickly, he says

By Chua Chin Hon, China Bureau Chief

PM Lee during talks with Chinese premier Wen Jiabao in Beijing, where he also attended the Asem summit. — PHOTO: AGENCE FRANCE-PRESSE

XI’AN (SHAANXI) - SINGAPOREANS aggrieved by their investment in Lehman Minibonds and DBS High Notes 5 will have their complaints handled ‘fairly and properly’, Prime Minister Lee Hsien Loong assured yesterday in his first remarks on the issue.
He said it was understandable that some investors had reacted emotionally as they lost their money in a sudden and unexpected manner, while others felt that the risks had not been adequately explained to them.

But ultimately, the banks do realise that it is in their interest to resolve the matter quickly and not let it drag on, he told reporters in the western Chinese city of Xi’an where he wrapped up his five-day visit to China.

‘The banks have what they call reputational risk,’ said PM Lee. ‘In other words, if you do the right thing, your customers will remember you for a long time.

‘If you do the wrong thing, customers and potential customers will remember you for a long time. The banks and financial institutions know this and have every interest in sorting this out expeditiously and fairly.’

In Singapore, about 10,000 retail investors have invested over $500 million into structured products linked to now-bankrupt Lehman Brothers. DBS Bank, Hong Leong Finance and Maybank said last week that they would look into complaints and fast-track vulnerable cases, prompting some investors to worry that they would be left out.

The Prime Minister stressed the notion of fairness repeatedly during his lengthy remarks on the issue yesterday, and added that instances of mis-selling would be investigated.

Mis-selling, at its simplest, means giving the wrong advice to potential investors. Beyond that, it can also mean a failure to help clients diversify their assets, non-disclosure of risks or not completing a proper fact-find to ensure the product being sold suits the customer.

Said PM Lee: ‘Where there has been mis-selling, it has to be put right.

‘Where there has been less than professional behaviour by the relationship managers, or where things don’t measure up to the standards that the Monetary Authority of Singapore (MAS) expects when you promote the financial products, then the banks have to do the right thing.’

The MAS said on Friday that it would look into complaints of mis-selling, and added that an imminent review of the structured-products industry would address such issues as better descriptions and labelling of products, as well as more professionally trained relationship managers.

For products like minibonds, for example, PM Lee suggested that potential investors be given a prospectus that warned upfront and in the simplest language possible that these were not low-risk investments and that there was a chance of losing all their money.

Angry investors in Hong Kong, who claimed they were misled by local banks about the Lehman-backed investment products, have launched repeated street protests in a bid to get their money back. The Hong Kong government subsequently proposed to banks in the territory that they buy back the minibonds from the investors at market price.

The MAS has decided against following Hong Kong’s lead, opting instead to ask HSBC Trustee, the trustee for the Minibond programme, to consider other options which might help investors get back some of their money.

PM Lee said he did not want to compare the two approaches as circumstances in Singapore and Hong Kong differed greatly. But he cautioned in general against the pitfalls of a quick fix, saying: ‘You may get out of the immediate jam, but then what happens down the road?

‘The next time somebody will sell a product and say, ‘Don’t worry, this goes wrong, the government will look after you.’ And then more problems will come.’

The Prime Minister noted that the broader issue was not just about dealing with upset investors, but sending the right signal about Singapore’s handling of the financial industry as a whole.

‘We have to stand back and say, ‘What’s the right way to do this? What are the right rules to work with, not just in this situation, but so that everybody will know that these are the rules of the game all the time?’

‘That, I think, gives people the reassurance and confidence that we are doing the right thing (now and) in future. Because if people lose confidence in what we are doing, I think the damage to Singapore will be considerable.’

Keeping in touch and on top of things
PRIME Minister Lee Hsien Loong wrapped up his official trip to China yesterday with a visit to the historic city of Xi’an in western Shaanxi province. Earlier, during the five-day visit, he held talks with top Chinese leaders in Beijing and attended the Asia-Europe Meeting, where the ongoing financial crisis topped the agenda.
On visiting Xi’an for the first time

‘Each time I’ve been to China, it’s to the coastal areas like Guangdong, Shanghai, and Tianjin. But I have not had many opportunities to go to the interior. And I know that one of China’s growth emphasis is to ‘Develop the West’. So I felt it was important for me to understand, to come to meet the people, and to have an exchange and feel the pulse of the city.’

On bilateral ties and meeting the Chinese leaders

‘Our relations are in very good shape. The meetings I had were all good meetings, good exchanges. We understand what the Chinese preoccupations are, and we also appreciate the emphasis which the Chinese have given to developing their ties with Singapore across a wide range of areas.’

On the financial crisis and the Asem summit

‘We had a good exchange of views, so I think there is a reasonable consensus on the challenges and what needs to be done. But how specifically to do it, that will have to be worked out by the finance ministers and the central bankers.

‘Asia and Europe understand that we belong to one globalised world, we have to keep trade open, we have to keep on pushing for globalisation. We cannot close ourselves up. Asia has to be part of the solution to the problems.’

PM Lee returns to Singapore today.

Source : Business Times - 27 Oct 2008

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Oil plunges towards US$60, gold tumbles below US$700

Oil plunges towards US$60, gold tumbles below US$700

(LONDON) Commodity markets dived last week, with oil hurtling towards US$60 per barrel and gold ducking US$700 an ounce as investors eyed a global recession that could hurt demand for raw materials.

Oil: Crude oil prices hit 17-month lows as recession fears sparked renewed demand concerns, despite news that the Organisation of Petroleum Exporting Countries (Opec) will cut oil output by 1.5 million barrels per day.

Brent North Sea crude slumped to US$61.00 per barrel, the lowest point since March 2007. New York’s light sweet crude tumbled to US$62.65, which was last seen in May 2007.

‘Crude oil is heading lower again… on fears that the (Opec) cut might not be sufficient to compensate the shortfall of demand due to a global recession,’ said Dresdner Kleinwort analyst Peter Fertig. Opec said on Friday that they would slash output from Nov 1 in an attempt to stabilise plunging oil prices, despite a looming worldwide recession.

By Friday, New York’s main oil futures contract, light sweet crude for delivery in December, had tumbled to US$63.16 per barrel from US$79.96 for the November contract a week earlier. Brent North Sea crude for December slumped to US$62.62, compared with US$76.56 the previous week.

Precious metals: Gold fell heavily last week on the strengthening dollar and recession-linked demand concerns, despite its reputation as a safe haven in times of economic turmoil. The glamorous metal dipped to as low as US$682.41 per ounce on Friday - last seen in September 2007 - before clawing back ground.

On the London Bullion Market, gold dived to US$712.50 an ounce at Friday’s late fixing from US$784.50 a week earlier. Silver retreated to US$8.88 an ounce from US$9.56. — AFP

Source : Business Times - 27 Oct 2008

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GE plans to use Fed’s new funding facility - NEW YORK

GE plans to use Fed’s new funding facility - NEW YORK

(NEW YORK) General Electric (GE), the biggest US issuer of commercial paper, plans to use the Federal Reserve’s new short-term funding facility, throwing its weight behind the central bank’s efforts to unlock the credit markets. The Fed is seeking to stem the credit-market seizure and revive demand for commercial paper, short-term debt that companies use to finance their day-to-day operations, by offering to buy 90-day debt of top-rated firms.

The Fed’s Commercial Paper Funding Facility opens this week, and GE and its finance arm, General Electric Capital, have registered as users, spokesman Russell Wilkerson said. ‘There is a role for us and other large issuers to play here in demonstrating that this action is good for the market and very important for the buyers of GE paper as it provides a secondary market,’ he said.

By selling paper to the Fed, the company may ease any stigma for other potential borrowers in the programme and boost liquidity in the market by encouraging investors to buy debt of lower-rated companies. GE has not set an amount that it plans to borrow and will base that decision on commercial-paper buyers’ need for liquidity, Mr Wilkerson said.

As the credit crisis escalated this month, investors were only prepared to buy overnight commercial paper, forcing companies to return to the market for financing each day. — Bloomberg

Source : Business Times - 27 Oct 2008

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US govt may extend bailout to insurance companies-WASHINGTON

US govt may extend bailout to insurance companies-WASHINGTON

Carmakers want their financing subsidiaries to be eligible for funding

(WASHINGTON) The chase for a piece of the Treasury Department’s US$700 billion bailout programme has intensified as the government considers extending it to include insurance companies as well as banks, and the car industry has stepped up efforts to secure a share of the money.

Mr Paulson: Has rapidly shifted the focus of the Treasury’s efforts to inject money directly into banks instead
Even as the Treasury began approving capital injections for about 20 regional banks last Friday, including US$7.7 billion for a merger between PNC Financial and National City, carmakers pressed for their financing subsidiaries to be eligible for a part of the bailout fund because they provide a major channel of credit to consumers through car and other types of loans.

Bush administration officials said that they were not inclined to take equity stakes in car companies, since Congress recently financed a US$25 billion loan programme to help the carmakers develop fuel-efficient vehicles to meet new federal mileage standards.

‘We are trying to focus on financial institutions,’ said Michele Davis, a spokeswoman for the Treasury Department.

But the negotiations are unlikely to stop there. Last Friday, a top economic adviser to Senator Barack Obama of Illinois, the Democratic presidential nominee, said that Mr Obama supported the car industry’s request to be included in the bailout package.

The lobbying intensified as investors signalled that they might be hesitant to put money into a possible deal being discussed between General Motors and Chrysler unless the government provided aid to support an accord, people with knowledge of the merger talks said.

The administration originally envisioned the US$700 billion rescue programme as a plan to buy up distressed mortgage- backed securities and other hard-to-sell assets.

But Treasury Secretary Henry Paulson rapidly shifted the focus of the Treasury’s efforts to inject money directly into banks instead. And because the bailout law gave wide latitude to Mr Paulson, Washington’s interest groups mobilised to take advantage.

Administration officials said that the law instructs them to invest in financial institutions that are supervised by a federal banking regulator. The Financial Services Roundtable, a lobbying group for financial services companies, asked the Treasury Department last Friday to open its programme to broker-dealers, insurance companies, car companies and financial institutions owned by foreign corporations.

‘The institutions that are excluded play a vital role in the US economy by providing liquidity to the market,’ wrote Steve Bartlett, president of the Financial Services Roundtable.

That definition can be read to include insurance companies that own saving-and-loan companies and are therefore regulated by the Office of Thrift Supervision. Administration officials said that those companies would automatically be eligible to request capital infusions, although they would not be automatically entitled to money.

Insurance companies with affiliated thrift institutions regulated by the federal Office of Thrift Supervision include State Farm Mutual, Principal Financial Group, Prudential, Nationwide, Allstate and the American International Group. Insurers with financial holding companies under Federal Reserve supervision include Allianz, Hancock and MetLife.

Although the insurance industry is under pressure because of investment losses, some analysts said that they did not understand why insurers needed immediate government help.

Insurers are generally considered immune to run-on-the-bank panics because they do not take deposits. Policyholders cannot usually pull out their money without incurring losses. — NYT

Source : Business Times - 27 Oct 2008

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Singapore has a lot to offer China: PM Lee

Singapore has a lot to offer China: PM Lee

S’pore can provide models, schemes for China to examine and implement

By LEE U-WEN
IN XI’AN

SINGAPORE may be small, but so long as it continues to have a model that is successful, the country would continue to remain relevant to other countries, including powerhouses like China.

Favourable impression: PM Lee viewing the Terracotta Warriors of Emperor Qin Shihuang. He described his two-day stay in Xi’an as ‘important’ for him to understand the city, feel its pulse and meet the people
This was the assessment of Prime Minister Lee Hsien Loong on the last day of his five-day official trip to China yesterday, during which he witnessed the signing of the Singapore-China free trade agreement in Beijing last week, before attending the Asia-Europe Meeting (Asem) and then making his first bilateral visit to Xi’an over the weekend.

‘As (Chinese Premier) Wen Jiabao told me, our relationship is based on friendship, cooperation and innovation,’ said Mr Lee.

‘The first two, you can say about any relationship, but innovation means to break new ground, to go into new areas of cooperation, which is why we have developed an eco-city (in Tianjin) and a ‘food zone’ that we are planning in Jilin.’

Singapore may not have a solution for China all the time, but what it could offer were interesting models or schemes that China could examine and implement for their citizens, he added.

For example, the idea behind the Central Provident Fund scheme is already being used in Shanghai, while in Xi’an - the capital of Shaanxi province - there is a savings scheme for housing needs in place, similar to what Singapore has.

Yesterday evening at his hotel, Mr Lee met with Shaanxi Party Secretary Zhao Leji and Governor Yuan Chunqing.

He described his two-day stay in Xi’an as ‘important’ for him to understand the city, feel its pulse and meet the people.

‘Each time I have been back and forth to China, it’s been to the coastal areas, Guangdong, Shanghai, Suzhou, Beijing, Tianjin. But I have not had many opportunities to go to the interiors. And I know that one of China’s growth emphasis is to develop the West.’

On his biggest takeaway from the seventh Asem, which ended on Saturday, Mr Lee saw it as a ‘useful meeting’ that saw leaders from 27 European countries and 16 Asian nations gather under one roof to talk about the global financial crisis, among other pressing matters.

‘There is reasonable consensus on the challenges and what needs to be done. But on how to specifically do it, that will have to be worked out by the finance ministers and central banks,’ he said.

Asia and Europe have to both understand that they are part of the globalised world and could not afford to close its trade doors at any cost, he said.

‘Asia has to be part of the solution to the problem, because Asia makes a non-negligible contribution. . . and it has the resources to participate to help work things out, whether its for climate change, the financial crisis or terrorism.’

In a separate interview with the Singapore media, Foreign Minister George Yeo, who is part of Mr Lee’s delegation in China, said that having met with his counterparts in the US and China recently, there is ‘almost an assumption’ that China has to play a bigger role in helping to solve major problems in the world.

‘Without China doing so, the crisis that we are all finding ourselves in would be that much more difficult to overcome. In a sense, this crisis is also an opportunity for China,’ he said.

Mr Yeo added that, a decade from now, the world would look back to the year 2008 as one which the Beijing Olympics and the financial crisis marked a significant change in the direction China was moving.

Meanwhile, apart from his official meetings, Mr Lee and his delegation spent most of Sunday touring Xi’an’s main attractions, including the famous Qin Museum of the Terracotta Warriors and Horses.

Source : Business Times - 27 Oct 2008

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Singapore Govt can’t bail out every sour investment: PM

Singapore Govt can’t bail out every sour investment: PM

Look beyond current problems to prevent other Lehman sagas

By LEE U-WEN

IN XI’AN

PRIME Minister Lee Hsien Loong yesterday said that the Lehman Brothers-linked structured products saga was unfortunate, but cautioned that the government could not be expected to bail out every financial investment decision that goes awry.

Speaking in detail for the first time on the controversy surrounding Lehman Brothers-linked structured products, Mr Lee called it a ‘most unfortunate event to happen’, saying that it was time to take a step back and look beyond the immediate problems.

This would set the right stage for the authorities to draw up the best set of rules to help prevent such a saga from happening again.

The banks, too, have their reputations on the line, as failure to act quickly and fairly would affect the way their current and potential customers viewed them as respectable organisations, Mr Lee told Singapore reporters in Xi’an as he wrapped up his five-day official visit to China.

‘We have to find the right rules to work with, not just for this situation, but so that everyone knows that these are the rules of the game all the time. We must give the reassurance, the consistency, that we are able to maintain (these rules),’ he said, adding that it was crucial that the government did not lose the confidence of the people in the process.

‘You may get out of the immediate jam now, but then what happens down the road? The next time someone sells a product, they say ‘don’t worry, if something goes wrong, the government will get you out’. That’s what is called a moral hazard,’ he said.

To date, some 10,000 retail investors have pumped in more than $500 million into DBS High Notes 5, Lehman Minibond and Jubilee Series programmes, which are structured products linked to now-bankrupt Lehman.

The Monetary Authority of Singapore (MAS) has since promised that all investors who feel that they were mis-sold the product will have their complaints looked into. The regulator, which is currently reviewing the structured products industry, has encouraged banks to set up their mechanisms to deal with complaint cases expeditiously, said Mr Lee.

Already, three different financial institutions - DBS, Hong Leong Finance and Maybank - have promised that they would soon start compensating investors. DBS said that its compensation in Singapore and Hong Kong could be in the region of $70-$80 million.

Mr Lee added that the government would not take a ‘paternalistic’ approach as it further studies the issue of how people invest their money and how banks sell their financial products.

This would involve the state determining the risk level of a product, and allowing a person to buy it and giving banks the permission to sell it.

‘This is a very difficult and unsatisfactory way to do things in the long run. First of all, we should not be making decisions for individuals. It should be based on their circumstances, preferences and needs. Second, we are not in a position to guarantee what is safe and what’s not. It’s impossible.’

The best way forward, he reasoned, is to move towards a ‘freer, more flexible’ way for individuals to make choices on their own investments and take responsibility for their actions.

This would be done through a transparent selling process on the part of the banks, having a detailed fact file for every customer, and better education for investors, among other measures.

‘We have to do the right thing with this present group of people who are affected, and we have to do things fairly and properly. It will be sorted out. The banks have every incentive to do this and not let things drag on,’ Mr Lee said.

Source : Business Times - 27 Oct 2008

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Singapore Luxury condo prices come off their peaks

Singapore Luxury condo prices come off their peaks

But most units in high-end projects still changing hands at above their launch prices

By UMA SHANKARI

(SINGAPORE) Prices for some luxury and high-end projects launched in 2006 and 2007 have come off their peaks by up to about 26 per cent, anecdotal evidence shows.

Data compiled for The Business Times by property firm DTZ shows that at selected high-profile upmarket properties launched in 2006 and 2007, prices started dipping in the third quarter of 2007 and are now between some 4 to 26 per cent off their highs.

At City Developments’ The Oceanfront @ Sentosa Cove, prices have fallen some 26.4 per cent since the third quarter of 2007.

On the other end of the scale, prices at Wheelock Properties’ Scotts Square, fell 3.6 per cent between their peak in Q3 2007, and the second and third quarters of this year.

In both cases, the caveat is that the volume of transactions was relatively low. There were only about 10 transactions for each project in the second and third quarters of 2008.

‘Right now, what everyone is saying is that cash is king.’

- Knight Frank’s Nicholas Mak

DTZ’s data supports what other property consultants are saying - that luxury apartments in prime districts are harder hit by the current downturn.

Knight Frank’s in-house numbers show for example that prices of luxury apartments in Districts 9, 10 and 11 have fallen by 12-13 per cent since the start of the year.

And the fall is gathering pace, said Nicholas Mak, director of research and consultancy at Knight Frank.

Savills also reported that its in-house price index, which tracks luxury and ’super-luxury’ projects, fell 10 per cent from January to July this year. Other analysts estimate that prices at some condos are around 20-30 per cent lower than during last year’s peak.

The drop has been larger than expected. Knight Frank, for example, was expecting to see a 10 per cent fall in high-end residential prices for the whole of 2008.

Official numbers show that residential prices in the upmarket core central region started to fall in the third quarter of 2008, and has to date registered a 2.7 per cent drop. These numbers, however, take into account all property transactions.

Despite the price correction, property firms say that most units in high-end projects are still being transacted at prices higher than their launch prices. DTZ’s data supports this.

The price falls from Q3 2007 are partially due to property investors and speculators selling out, said DTZ’s senior director of research Chua Chor Hoon. ‘For some projects launched in late 2006 and early 2007, there was a lot of speculation as the market was very bullish,’ she said.

Luxury and high-end residential projects attract more investors and speculators than the broader residential market. With the current economic downturn, many of them are off- loading their properties.

Knight Frank’s Mr Mak said: ‘Right now, what everyone is saying is that cash is king.’

The availability of cheap and ready credit in 2006 and 2007 boosted property sales then. But now, banks have cut back on the amount of financing they are willing to offer to home buyers who are seen to be speculators and/or investors - as opposed to owner- occupiers, who are thought to be lesser credit risks.

In the past, most buyers were able to obtain 80 per cent financing for homes. In contrast, banks now offer speculators and investors only 60-70 per cent financing.

Ku Swee Yong, director of marketing and business development at Savills Singapore, believes that prices at projects that will soon receive their temporary occupation permits (TOPs) could go even lower.

Speculators who bought homes under the deferred payment scheme (DPS) could sell as TOP approaches. Under the DPS scheme offered by most high-end properties launched in 2006 and 2007, buyers could pay only a 10 per cent or 20 per cent downpayment, with the rest due upon completion. With TOP, these speculators will have to fork out a big chunk of the remaining sum owing.

‘So there is the danger of price drops as TOP approaches,’ Mr Ku said. ‘But how much prices fall at each property depends on the profile of the buyers there.’

Most agents BT spoke to said they have yet to see fire sales though the pressure could continue to build up.

During the Asian Financial Crisis, the official Urban Redevelopment Authority price index fell 40 per cent from Q2 1997 to Q4 1998.

‘In the next six to nine months, we are going to see downward pressure (on prices) across the board,’ said Knight Frank’s Mr Mak. ‘And how severe the chill that spreads across the property market will be depends on the real economy in Singapore, especially the employment market.’

Phillip Securities Research analyst Alfred Low expects high-end property prices to fall by 15-25 per cent in the next four quarters.

Others are more bearish. Morgan Stanley analysts Melissa Bon and Brian Wee on Oct 24 took a more aggressive approach to cutting residential prices and projected that residential prices for the mid-high end segment will fall by 75 per cent for the next three years.

Source : Business Times - 27 Oct 2008

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