High risk from inception

Dear Mr. Tan

One of the crucial issues that MAS has to consider is whether all these structured products that have come to grief can be categorized as high risk products from the time they were rolled out to the public. If Lehman Brothers has not become insolvent, would it make the scenario any different, with regard to the question of the underlying risks of the products?

Surely, the answer must be No. If an evaluation of these products [with Lehman being Arranger and Counter-swap Party etc] were to show that they were highly risky to investors, then the risks would remain unaltered regardless of the financial status of Lehman for much of the term of the investment, or until the investors were repaid their principal.

If the consensus is that these structured products were highly risky investments, then it was grossly irresponsible for any distributor to sell them to retail investors without making clear the risks involved, or by making misrepresentations of the risks involved, or closing the deal with the investor despite knowing, from risk-analysis, that this was against the risk-profile of the investor - let alone adopting a marketing strategy promoting them as safe or sound investments through the use of such terms like “Invest on solid foundations” and “With our Minibond Series 3 credit-linked to six major financial institutions, you can enjoy the returns you deserve with peace of mind.”

Any misrepresentations made by the RMs would of course constitute a legit ground for seeking restitution from the institution[s] they were representing. MAS should come down hard on the distributors who had mis-sold or misrepresented, instead of blurting out "This group should have understood the risks of investing in these products and take responsibilities for their actions”, clearly a prejudicial or arbitrary comment.

Richard Woo