Singapore banks to compensate 'vulnerable' investors sold inappropriate products

Singapore-based banks DBS, Hong Leong Finance and Maybank have stated that they are in agreement with the Monetary Authority of Singapore (MAS) and are prepared to compensate vulnerable investors who lost money buying Lehman Minibonds and DBS High Notes 5.

The MAS had previously urged financial institutions to give priority to vulnerable customers and to take full responsibility in cases where the product was clearly inappropriate given the customer's profile and circumstances. Meanwhile, the trustee for the Lehman Minibond Programme has received two proposals from financial institutions that are interested in restructuring the notes.

DBS Bank, which sold the High Notes 5 - first-to-default structured products that used Lehman as reference entity - told investors it will not hesitate to compensate where its standards of service were not met. The Singapore bank, which sold a total of S$360 million to 4,700 investors in Hong Kong and Singapore, has agreed to prioritise vulnerable customers. It is estimated that customer compensation will total S$70-80 million.

Similarly Hong Leong Finance proposed to purchase Minibond Programme notes from its elderly and less well-educated customers if the main account holder was 62 years or older at the time of investment and is educated to a standard no higher than primary school. In exchange for the notes the bank will offer, without any admission of liability, full payment of the original investment amount net of all interest paid to date. Maybank, another distributor of Minibonds, has also begun the compensation process.

Meanwhile, the trustee for the Lehman Minibond Programme, HSBC Institutional Trust Services (Singapore), has informed the MAS that it has received two proposals from financial institutions showing interest in restructuring the notes so they can run until maturity. Both proposals are from international financial institutions licensed by the MAS to operate in Singapore. The proposals are confidential at this stage and once finalised, the trustee will contact all noteholders, who will then vote on whether or not to accept the proposals.

However, there is some doubt about whether the proposed swap counterparty replacement proposal will in fact succeed, as the process must be resolved by the October 31 deadline.

"The information on the pricing of the underlying collateral of the products has been very slow in coming out," says one structured product issuer. "People have been dragging their feet and to a large extent the trustee was completely wrong-footed and hadn't planned for this eventuality."