A Milken Moment : To Whom, The Duty Of Care ?
This post was written a week ago for www.hnworth.com, a site targeting high net worth individuals in Singapore.
Have fun reading…
********************************
A good friend of mine runs a pretty popular local investment website on bond markets. She has since given up on her personal crusade to educate, elucidate and enlighten local readers on the nooks and crannies in what she considers a flawed marketplace, and has, ironically, gone back to work in that place.
To what and to whom did she owe the duty of care ? Nobody. She just felt an obligation to speak up when others would not or could not and the need to share some of her views and observations with the public, to nurture a community of investors and hopefully breakeven in her efforts.
The subject matter of the duty of care is a deviously limp one, no matter how much effort is spent on drilling the concept into bankers or rather, spent on drilling the idea into the marketplace that the concept has been drilled into bankers. Pardon the cynicism.
Legally, the “duty of care comes” with the protection of “just and reasonable grounds”, which is hardly definable by rules of any sort and provides a big cover for certain levels of genuine ignorance which we are sure that cannot be main criteria for the selection of customer facing bankers after the the usual criteria of personal grooming or the more important criteria of the customer pool ?
Ignorance is no excuse, however, to the disadvantage of the ignorant clients who cross the line over to become accredited investors whose ranks are swelling as commercial banks join in the race on the client acquisition rampage after the success of private banks in the wake of the financial crisis.
“On the home front, Singapore is seeing an explosion in the “mass affluent segment” with previously ordinary bank accounts now targeted by the wealth management business. This segment is generally recognised as accounts holding between $100k to $ 2 mio and local banks have seen their incomes from wealth management triple since 2010. http://www.channelnewsasia.com/news/business/singapore/wealth-managers-in/1842432.html
Shareholders demand it, noting that with Credit Suisse’s new CEO Thiam, “Pundits and analysts reckon Mr. Thiam will bolster Credit Suisse’s capital, and shrink its relatively expensive investment bank to focus more on wealth management. That kind of program would mirror changes in recent years at UBS AG, which has earned Credit Suisse’s Zurich-based rival plaudits and a stronger share price performance.”
Branches are closing, investment banking units shuttered, trading desks shrunk down as banks hire more private bank relationship managers, better and more pleasingly termed now as wealth managers.” https://tradehaven.net/the-new-era-is-in-private-wealth-and-the-power-of-the-unburnt-class/
Rolling the red carpet to the former retail investor, giving them a relationship manager, all out to please, and the perks such as, limo rides to the airport, has been mighty successful not only for banks’ incomes but profitable for customers who find a whole new array of products opened for them to invest in.
All is well when times are good and the rising tide lifts all boats but Singapore was rocked this week by the announcement of the potential debt restructuring of a SG dollar bond, something which has not happened before, except for Lehman Brothers SGD bonds (and some Bintan debentures), in her short bond market history. Clients comfortable in their little SG dollar bond world where only the sophisticated would get burnt by those nasty high yield bonds in USD and other currencies.
Accusation and insinuations flying, we hear stories of how the Trikomsel bonds were mis-marketed to clients who were awarded high levels of leverage to buy them; and insinuations that some “preferred” clients were actually tipped off to sell their holdings when were then hawked to clients of other bankers as many banks themselves cannot buy this paper.
With S$ 215 million worth of bonds out there and an estimated 90% held by retail and private bank clients, the Singapore bond market would appear to be on the brink of her own mini Milken moment (more on Michael Milken : https://en.wikipedia.org/wiki/Michael_Milken).
I remember how my friend lamented to me last year that her suggestion to buy a new HDB 7Y 3.008% bond last year went mostly unheeded, for only 2 people went in. This was mainly due to the fact that virtually no retail folks were aware of the deal which did not pay a sales commission to bankers. Her friend’s father only managed to buy the paper because he questioned his banker about it. Ironically, HDB secured a Aaa rating from Moody’s on the 15th of October, the same day Trikomsel announced their potential restructuring. The bond has since returned over 8% in 18 months, which is just as good as any high yield bond.
To give credit to the private bankers, most of them were also unaware of the HDB bond deal because it paid no commission and far removed away from the market as they are, for private bankers sit at desks and not dealing rooms, they just did not get word about it. All they receive are daily summaries and “axes”, which are stuff that are priced to sell or buy, backed by recommendations which could also include bonds that traders did not want.
As far as the duty of care responsibility goes, that it sufficient to stand in anybody’s eyes. And it a fine balance between driving profits for the bank and the client.
Good private bankers command big AUMs and these days, it takes about US$ 250 mio to get a director level job. These private bankers hobnob with company owners themselves with their connections just as there are private bankers to bankers, bank traders and such. The bigger clients are the bread and butter accounts and it is justifiable that bigger clients get better service, just as an unverified story goes that a company owner managed to get rid of an impossible-to-sell bond the other day, when other clients have been waiting for many weeks to sell their holdings.
The preferential treatment exists everywhere as one high frequency fund tells me that they pay the SGX a fee for priority execution status and other exchanges in the world offer such services which can extend to precious seconds during a turmoil.
to continue reading…..
A Milken Moment : To Whom, The Duty Of Care ?
This post was written a week ago for www.hnworth.com, a site targeting high net worth individuals in Singapore.
Have fun reading…
********************************
A good friend of mine runs a pretty popular local investment website on bond markets. She has since given up on her personal crusade to educate, elucidate and enlighten local readers on the nooks and crannies in what she considers a flawed marketplace, and has, ironically, gone back to work in that place.
To what and to whom did she owe the duty of care ? Nobody. She just felt an obligation to speak up when others would not or could not and the need to share some of her views and observations with the public, to nurture a community of investors and hopefully breakeven in her efforts.
The subject matter of the duty of care is a deviously limp one, no matter how much effort is spent on drilling the concept into bankers or rather, spent on drilling the idea into the marketplace that the concept has been drilled into bankers. Pardon the cynicism.
Legally, the “duty of care comes” with the protection of “just and reasonable grounds”, which is hardly definable by rules of any sort and provides a big cover for certain levels of genuine ignorance which we are sure that cannot be main criteria for the selection of customer facing bankers after the the usual criteria of personal grooming or the more important criteria of the customer pool ?
Ignorance is no excuse, however, to the disadvantage of the ignorant clients who cross the line over to become accredited investors whose ranks are swelling as commercial banks join in the race on the client acquisition rampage after the success of private banks in the wake of the financial crisis.
“On the home front, Singapore is seeing an explosion in the “mass affluent segment” with previously ordinary bank accounts now targeted by the wealth management business. This segment is generally recognised as accounts holding between $100k to $ 2 mio and local banks have seen their incomes from wealth management triple since 2010. http://www.channelnewsasia.com/news/business/singapore/wealth-managers-in/1842432.html
Shareholders demand it, noting that with Credit Suisse’s new CEO Thiam, “Pundits and analysts reckon Mr. Thiam will bolster Credit Suisse’s capital, and shrink its relatively expensive investment bank to focus more on wealth management. That kind of program would mirror changes in recent years at UBS AG, which has earned Credit Suisse’s Zurich-based rival plaudits and a stronger share price performance.”
Branches are closing, investment banking units shuttered, trading desks shrunk down as banks hire more private bank relationship managers, better and more pleasingly termed now as wealth managers.” https://tradehaven.net/the-new-era-is-in-private-wealth-and-the-power-of-the-unburnt-class/
Rolling the red carpet to the former retail investor, giving them a relationship manager, all out to please, and the perks such as, limo rides to the airport, has been mighty successful not only for banks’ incomes but profitable for customers who find a whole new array of products opened for them to invest in.
All is well when times are good and the rising tide lifts all boats but Singapore was rocked this week by the announcement of the potential debt restructuring of a SG dollar bond, something which has not happened before, except for Lehman Brothers SGD bonds (and some Bintan debentures), in her short bond market history. Clients comfortable in their little SG dollar bond world where only the sophisticated would get burnt by those nasty high yield bonds in USD and other currencies.
Accusation and insinuations flying, we hear stories of how the Trikomsel bonds were mis-marketed to clients who were awarded high levels of leverage to buy them; and insinuations that some “preferred” clients were actually tipped off to sell their holdings when were then hawked to clients of other bankers as many banks themselves cannot buy this paper.
With S$ 215 million worth of bonds out there and an estimated 90% held by retail and private bank clients, the Singapore bond market would appear to be on the brink of her own mini Milken moment (more on Michael Milken : https://en.wikipedia.org/wiki/Michael_Milken).
I remember how my friend lamented to me last year that her suggestion to buy a new HDB 7Y 3.008% bond last year went mostly unheeded, for only 2 people went in. This was mainly due to the fact that virtually no retail folks were aware of the deal which did not pay a sales commission to bankers. Her friend’s father only managed to buy the paper because he questioned his banker about it. Ironically, HDB secured a Aaa rating from Moody’s on the 15th of October, the same day Trikomsel announced their potential restructuring. The bond has since returned over 8% in 18 months, which is just as good as any high yield bond.
To give credit to the private bankers, most of them were also unaware of the HDB bond deal because it paid no commission and far removed away from the market as they are, for private bankers sit at desks and not dealing rooms, they just did not get word about it. All they receive are daily summaries and “axes”, which are stuff that are priced to sell or buy, backed by recommendations which could also include bonds that traders did not want.
As far as the duty of care responsibility goes, that it sufficient to stand in anybody’s eyes. And it a fine balance between driving profits for the bank and the client.
Good private bankers command big AUMs and these days, it takes about US$ 250 mio to get a director level job. These private bankers hobnob with company owners themselves with their connections just as there are private bankers to bankers, bank traders and such. The bigger clients are the bread and butter accounts and it is justifiable that bigger clients get better service, just as an unverified story goes that a company owner managed to get rid of an impossible-to-sell bond the other day, when other clients have been waiting for many weeks to sell their holdings.
The preferential treatment exists everywhere as one high frequency fund tells me that they pay the SGX a fee for priority execution status and other exchanges in the world offer such services which can extend to precious seconds during a turmoil.
to continue reading…..
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