Posted: 22 Oct 2008 10:19 PM CDT

DBS has decided to compensate investors in their press release on 22 Oct 2008. In it, DBS admitted that,

…we have found that a number of cases did not meet the standards DBS upholds and the Bank will be compensating these customers with effect from tomorrow.

Evidently, the bank has confirmed that there were some mis-selling although the language used is far more ambiguous. The fact that DBS would be compensating the customers says a lot.

Of course, the debacle is far from over as it is still not clear who will be compensated and how much although it would be to the tune of $70-80 million out of $360 million sold to investors in Singapore and Hong Kong. That means that likely each investor will get 20%+/- back from their risky Lehman Brothers related investments assuming all investors are compensated. However, until more details are released, the public won’t know the extent and nature of the compensation packages.

Living Happily Ever After

The Lehman Brothers debacle has tarnished DBS’s reputation. Will they be able to walk away from this debacle in a fairy-tale manner and live happily ever after?

More importantly, given that two-thirds of the product were sold to Treasures (i.e. Private Banking/High net worth) customers. Would these people be able to trust DBS again?

Only time will tell, but based on how the debacle has turned out, it is unlikely that the bank will be able to regain the trust of its customers especially when it comes to investment advice for financial products that are beyond pure vanilla current, savings and fixed deposits. While there has been mention that banks have also been selling unit trusts and technology funds that have tanked, the difference then and now is that people understood unit trusts far better than they understand structured deposits or credit-linked derivatives.

Do The Right Thing

There has been calls by the Monetary Authority of Singapore to banks to “do the right thing” after Mr. Tan Kin Lian called for the same earlier. What exactly is the right thing?

The right thing is not so clear cut depending on who you talk to.

Investors would want 100% money back (or close to it) on grounds of mis-representation or negligent mis-representation in being sold a product that is far riskier than even equities under the guise that it was similar to a fixed deposit.

The MAS would want banks to treat customers fairly and basically address their complaints without having to drag the regulator into the nitty gritty details.

The banks would want to incur as little losses as they can while doing damage control on their reputation and integrity to their brand name. They would also want to avoid MAS’s explicit or implicit sanctions with respect to regulatory requirements.

Where can all three interests coincide?

So far, I can see one concerned private citizen Mr Tan Kin Lian doing the most for the affected investors even though he has no duty to help them.

Perhaps, Mr Tan Kin Lian has “done the right thing”.

Be well and prosper.

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