A Malaysian banker’s ‘doubtful’ call




by Matthias Chang





On Saturday, 10th November 2007, the StarBiz published the following story:

Booming Market For Structured Investment Funds

“Structured products offer better returns, better capital protection and wider exposure to different asset classes compared with traditional investment funds.” CIMB Bank Bhd Group Treasurer Lee Kok Kwan told StarBiz in a recent interview.

“Our focus is moving structured products’ asset class to the next level of development with emphasis on providing liquidity. This allows the investor to exit the fund at prevailing market value.

I have been waiting for some financial commentators to analyse this announcement by CIMB Bank. I did not come across any critical analysis in the main stream media. I contacted the web master of a popular website to enquire whether he was aware of this story. He was not, but to be fair to him at the material time he was swamped with other pressing and more urgent matters.

I also checked the blogs. Nothing!!!!!!!!

I was hoping that the blogger who goes by the initials “FFT” who always froth at the mouth on reading my articles and infamous for his profanities and professing to be an “expert” (but who never writes anything original) would for once have the guts to write something constructive. That way he could at least salvage what is left of his miserable life. Nothing!

I am making a reference to this “Blogger” not because he is a credible blogger, but because he is part of the filth that leaks into the internet and must be exposed for what they are – filthy scumbags that distort the truth and cover up the sleaze of their handlers. Like a dog, he barks when his handlers tells him to bark, thereafter he waits in the corner for the next howler! And like a rabib dog, he must be put down.

Structured Investment Vehicles / Funds

Since the demise of the two funds managed by Bear Stearns in June 2007, the entire global financial system has unravelled.

At the centre of this financial mess is the Structured Investment Vehicles or Conduits created by Commercial Banks and Investment Banks. It was a means to perpetrate massive fraud, one that spanned the entire globe. In my article “The Financial Rapists” and many other subsequent articles, I exposed the modus operandi of these investment funds / conduits and how the fraud was perpetrated. The culprits were none other than the blue chip bankers, Goldman Sachs, JP Morgan Chase, Bank of America, Morgan Stanley, Merrill Lynch, Wachovia, Citi Group, UBS, HSBC, Deutsche Bank etc.

The bonds which they were peddling, supposedly secured by impeccable assets and rated by their fraudulent accomplices, the rating agencies – Moodys, Fitch, Standard and Poor etc, as AAA have all turned out to be duds – toilet papers. Bear Stearns have even announced that their two funds are now worthless.

Then there were the news reports that when investors wanted to cash out of the funds, they were prevented from doing so. So the advertisement or spin that investors can opt to cash out is an illusion. So long as the con has not been exposed or that the market is not in a melt down, there is a possibility of cashing out. But not when there is a melt down.

Therefore it is extremely distressing to note that when this fraudulent scheme, “Structured Investment Vehicles/ Funds / Conduits have now been universally discredited in the “mature banking and investment markets” of the West and Japan, we find a Malaysian banker touting the benefits of such a scheme to Malaysian investors.

I stand TO BE CORRECTED. But I doubt anyone would come forward to contradict me on the following:

(1) I can say that any such agreements and or prospectus will be carbon copied from the agreements and or prospectus peddled by the abovementioned fraudulent banks, with some minor amendments which will not affect the overall scheme of things. For a fat fee, the correspondent legal firms advising these fraudulent banks in the US and the UK would e-mail and or fax such documents to our local counterparts. The local lawyers just don’t have the expertise to churn out this type of documentation. So they are copy cat crooks!

(2) Some of these agreements are standard agreements issued and published by ISDA, the International Swaps and Derivative Associations and like organisations.

Therefore, Malaysian investors better wised up and before you get seduced by higher returns etc be prepared to ask the banker some serious questions:

What Every Banker Must Tell You

1) Which model of Structured Investment Fund / Vehicle did his bank borrowed from? Specifically, ask whether it is one of the major international banks.

2) Was the local agreement and or terms of the prospectus based on any “Master” agreements or specimen agreements from one of the leading international banking institutions?

3) It is advertised that these funds are insurance protected. This is important. Ask whether the insurance company is a “related”, “associated” or a “subsidiary” company of the said bank or it is an independent third party insurance company. Is the term of the policy structured or based on policies issued to international banks as mentioned above and on similar terms? Already some of these insurance companies are folding up.

4) Ask, who is rating these “papers” and what is the basis of their rating and how much fees are paid by the banks or the structured investment vehicles to the rating agencies?

This is important because it has now been exposed that the renowned rating agencies were giving triple A ratings to such investment vehicles on demand that they be paid certain amount of fees. It was a fraudulent, incestuous and non-transparent relationship. There are now major pending litigation in USA and Europe via Class Actions (Investors, via membership of their associations or by themselves in the thousands grouping together) against Moodys, Fitch and Standard and Poor for their fraudulent and or exaggerated ratings of these investment vehicles.

5) Since these investment funds are separate legal entities from the parent bank, investors must ask, what are the assets backing these structures, what are the guarantees or support the banks are giving in the event that such investment fund suffer massive losses as happened in the US and Europe.

6) How are these commercial papers, bonds etc priced?

7) Since investors are asked to invest in these structures, which are securitised by various types of “assets” i.e. mortgages, credit card debts etc which in turn are sliced up and divided into various categories – i.e. investment grade, mezzanine and high risk, what guarantee and or comfort would the parent banks give that in the event of default, these “assets” can be realised and ownership of such assets are conclusive.

Some Recent Scary News

It was recently reported the Deutsche Bank could not foreclose by the Ohio Federal Court because they could not established proper ownership to the securities. Worse, it was reported by the New York Times, that because of the complex structures of these investment vehicles, it was difficult to identify ownership of these securities and in some cases, the same mortgages and securities are in two or three pools of investment vehicles. This is because, when these securities are traded, some other funds that purchased them, split them up and re-package them into other investment instruments etc to be traded and sold to unsuspecting investors.

Citigroup says it might not know the full extent of its losses until the end of 2008. And they are one of the key players peddling such trash. Yet we have a Malaysian Banker promoting the same toxic waste, even when the same has been exposed as duds!!!

Gillian Tett of the Financial Times had this to say:

“Never mind the fact that the risky tranches of debt have fallen 80 per cent since the start of the year; in a sense, such declines are only natural for risky assets in a credit storm. Instead, what is really alarming is that the assets which were supposed to be ultra-safe – namely AAA and AA rated tranches of debt – have collapsed in value by 20 per cent and 50 per cent odd respectively. This is dangerous, given that financial institutions of all stripes have been merrily leveraging up AAA and AA paper in recent years, precisely because it was supposed to be ultra-safe and thus, never lose value.”

Malaysian investors must therefore ask this banker, why is he promoting now this kind of investment vehicle when it has been completely discredited in the developed countries.

My conclusion is simple. He thinks Malaysian investors are all numb skulls, never read financial news and are suckers for a good story.

To those who like a good yarn, I wish you every success in your venture with this banker. For those who have some common sense, please help me to expose this scam so that innocent and ignorant hard working housewives, the self employed and pensioners would not be lured by such scams.

Matthias Chang

Kuala Lumpur

17th November 2007

Published in: on November 18, 2007 at 10:05  Comments (3)  

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3 CommentsLeave a comment

  1. Wow, Biggum, this is good stuff. Can i blog this whole sale on my site. Like MC is saying, spread the word and prevent suckers being made.


    Be my guest

  2. […] is a follow up article to the earlier posting, here and here, which is very related. An earlier article pertaining to the price hike imminence should […]

  3. Tq MC. Great article and should be disseminated to all malaysians..by all means.

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