SOME local investors of a product linked to bankrupt investment giant Lehman Brothers have received late-night phone calls from DBS Bank warning them that their entire stake may be wiped out. The investors have their cash in a product called DBS High Notes 5 that the bank offered wealthier clients last year. It came with a promised annual return of about 5 per cent.
But Lehman's collapse on Monday means the product will be unwound and investors may only get a portion of their investment back - or none at all.
One 52-year-old customer told The Straits Times: 'I received a call from my relationship manager late Tuesday night. He told me that...my investment may amount to zero.' The man had invested $50,000 - savings he had earmarked for retirement.
A customer in her late 40s said: 'My relationship manager called and told me to be prepared to receive a letter from the bank...[it] would say something to the effect that my investments in products like High Notes 5 may be totally gone.' She invested $50,000 and US$30,000 (S$43,000) in two separate transactions.
Investors are mostly clients of DBS's priority banking unit, DBS Treasures.
The product - DBS High Notes 5 - is a 5-1/2 year structured product linked to eight underlying shares, including Goldman Sachs, Morgan Stanley, Merrill Lynch, Macquarie Bank and Lehman.
Customers who invested in Notes 5 said they were sold on the relatively high 5 per cent annual payout by DBS. But now they just want their money back. 'What we do not understand is: How can the fall of one bank cause our funds to just vanish when there are seven other stocks within the product that are still trading?' said a man whose elderly aunt invested $50,000 in DBS High Notes 5.
According to a person familiar with the matter, the largest single investment made on High Notes 5 was $2 million, although this could not be verified by DBS.
DBS confirmed that it took immediate action to notify customers once it learned of Lehman's chapter 11 bankruptcy filing.
'As soon as the news broke we immediately started communicating...to our retail investor customer base,' the bank said in an e-mail reply to The Straits Times. 'We are very concerned and understand the anxieties our customers face as they wonder what will become of their hard-earned money.'
DBS said the Lehman collapse has triggered a 'credit event' and the bank called for a redemption of the notes on Monday. It said unwinding of the product has begun and it will be at least 30 business days before clients learn of the final payout. But DBS also confirmed that investors in High Notes 5 may - 'in the worst-case scenario' - not get back their entire principal amount invested.
The product's prospectus also indicated that in a credit event such as bankruptcy, the notes 'will be terminated and the investor will receive zero payout'.
The bank said the product does not contain a guarantee that the principal will be protected. It also told The Straits Times it would 'fully investigate' claims by some customers that High Notes 5 was in fact sold on such a promise.
Meanwhile, UOB and OCBC Bank said that though some customers have invested in Lehman-linked products, the volume was 'modest' and 'negligible'. 'Since news of Lehman filing for Chapter 11 broke, we have taken a proactive approach in updating clients on the latest developments,' said UOB's spokesman.
My comments, ever since I lost almost 50% in a unit trust (albeit small around 5K invested) I never trusted bank products.
Always remind ourselves this rule : Your banker is not your friend
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3 comments:
You are not alone, I am in the same situation, another victim!!
In early 2006 I purchased a large amount of the structured note 35 through DBS Bank in Hong Kong which is simillar rubbish to yours , because the relationship manager told me that the product was risk zero.
Two days ago I received a late night call from my DBS customer relationship manager, abruptly telling me that because the Lehman bankruptcy constituted a "credit event", I would lose my entire principal invested in this product. My reaction was one of outrage and astonishment. The person concerned was able to offer no justification or details regarding their statement.
The redemption method stated on the promotion matirial are totally deffrerent from the one stated on the addendum.it is obviously cheating!!!
The addendum was also not made available to me by DBS staff until after I had signed the documentation, whereas it should have been made available before.
In terms of the product, there appear to be conflicting and ambiguous statements on the brochure and prospectus regarding protection of interest and principal, in the event of a credit event. My understanding was that since there were 8 guarantors (of which Lehman was one), then if any one fails, you would expect in the worst case to lose the proportion of the capital invested associated that guarantor, not the entire principal. For example if Lehman were responsible for 10% of the fund, then you should expect to lose around 10% of the principal, since the other guarantors were still sound. In particular, the interest premium offered was only about 2% above bank rates at the time, and therefore one would not be expecting to assume a high risk of entire loss of capital based on such a tiny premium, we are not gambling on the roulette after all, it is not a stock either!!!
In fact, DBS bank had already known that Lehman had credit crisis back in March, but they didn't give any warning to investors about the situation, so this bank is totally irresponsible and incompetent.
I worry about the game which DBS is going to play next, can their actions be supervised by somebody on this event ???
Please, please, please please have a heart to help these cheated poor investers!!!!!
I sympathise with you on this matter. The banks are very irresponsible and have cause many innocent people to lose alot of money.
A possible way for legal recourse is if you can prove that you only received your addendum after you signed the documentation.
Take care.
well, another alternative you have is to show evidence that you relied totally on the banker's advice without having independent legal advice, or having thought about it yourself. if you want to, it would help if you could show that you are uneducated and thus relied wholly on the banker. this will also lead to a higher presumption by the courts that you were totally dependent on the bank officer and did not have full appreciation of what you were doing.
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