THERE seems to be no end in sight to the fiasco surrounding structured investment products.
In fact, signs are pointing to a prolonged resolution process that might involve more products hitting the skids, and even more investors staring at losses.
The situation is not helped by the fact that despite the Monetary Authority of Singapore’s (MAS) reminders to financial institutions to ‘do the right thing’, some are still dragging their feet on issues like disclosure and open engagement.
For every affected investor who’s counting the losses from their prematurely terminated investments, there are many others who have been left still holding their breath.
These people’s investments are still in play, but their value is falling drastically. And worst of all, they cannot seem to get straight answers on whether their investments will turn out to be the next wayward product to fall.
At the start of the debacle, only two structured products stood out as early victims from the collapse of United States investment bank Lehman Brothers: DBS High Notes 5 and Lehman Minibonds.
By the time the MAS issued a statement on the matter, a third – Merrill Lynch’s Jubilee Series 3 Linkearner Notes – had been added to the rogues’ gallery.
And then, just 10 days ago on Nov 14, an early redemption call was made on another product, this time: Morgan Stanley’s Pinnacle Notes Series 9 & 10.
That’s 700 more added to the pool of some 10,000 affected investors here with hundreds of millions of dollars at stake in total.
The termination of Pinnacle 9 and 10, arriving almost a month after the original trio of failed investments hit headlines, showed that the situation is still very much fluid.
As companies around the world start to exhibit financial strain in the midst of the worst financial crisis since the Great Depression, the value of their debt has plummeted.
And because many structured notes are linked to baskets of companies and the value of their debt, there’s no telling which structured product will be the next to implode.
Unfortunately, jittery investors seem to be unable to do anything more but wait and pray that bad news does not hit them.
That’s because it has been painfully difficult to get information about the current face values of structured notes in Singapore.
There is also virtually no information about how many of these notes are floating around in Singapore and which of them are in danger of losing their value altogether.
For example, the word on the street last week was that Pinnacle Notes Series 1, 6 and 7 will be the next investments to tank, possibly by this week.
That was sparked off by a set of valuations for the Notes that appeared early last week on investor advocate Tan Kin Lian’s blog. But no one could verify the credibility of the information, which Mr Tan said was from ‘a source’.
People familiar with the matter now say that all three notes, as of Nov 14 are teetering on valuations of between 1.26 and 2.96 per cent of their original value. A week before that, it was between 1.71 and 4.74 per cent.
Typically, when the value hits zero, the notes terminate. If I were an investor in these notes, I would be beating down the door – any door – for daily updates.
But Pinnacle noteholders only have three hours a day, on weekdays, to call a hotline and speak to someone about their investments.
Assuming you even get through, you are first made to listen and agree to two-minutes’ worth of terms and conditions before actually speaking to a person.
And even then, some investors told The Straits Times that they were referred back to the distributors from whom they bought the product.
To compound matters, some brokers have no set guidelines about what to reveal and what not to reveal.
Some are worried about giving unofficial valuations because the MAS has cautioned against creating more panic by spreading rumours in a jittery market.
Meanwhile, Morgan Stanley says information on Pinnacle Notes is available on a new website it has recently set up. But the website does not show the prevailing valuations of the notes, you only get pricing statements and other notices.
Even the press has problems getting the valuations from Morgan Stanley. This newspaper has tried, and has been repeatedly rebuffed by the US investment bank.
In contrast, DBS – which sold about 13 other separate tranches of credit-linked notes – have posted daily valuations of all the notes online, accessible by everyone.
Although the extra effort by DBS has not provided any real outcome in terms of resolving issues of mis-selling, it has helped to some extent in placating customers hungry for more answers.
So perhaps it is time for MAS to insist on this level of openness and transparency from all of the institutions that are involved in the fracas.
Investors should rightfully be able to monitor the values of their investments whenever they want and not rely on distributors for updates.
If their investments are not in trouble, this will give peace of mind.
If they are in trouble, this type of disclosure allows investors the time to prepare mentally, as well as financially, for any disaster that may come their way.
Increased disclosure should also come at the industry-wide level, since this is now an issue that’s been put firmly on the national agenda.
How many of these notes exist? Which institutions sold them? How many investors bought into them and how much they did invest? What proportion of these investments are at risk as the financial crisis worsens?
These are questions that the MAS can perhaps answer, to give the public a real sense of the scale of the problem.
Some investors burnt by the fallen products are already convinced that the wool was pulled over their eyes when they were sold the investments by institutions which were supposed to have their interest at heart.
It would be a shame if these institutions are now allowed to think they can now simply shut the Pandora’s Box over time by again withholding vital information that has to do with the hard-earned life-savings of investors.