In Financial competency, Media on 17/08/2012 at 8:52 am
(I’m reporting this as our constructive, nation-building media only reported this story very briefly when it became public last week. Wonder why?)
“Morgan Stanley secretly, deceptively and wrongfully invested the investors’ principal in very risky underlying assets,” according to the complaint.
The investments were described to Heong Leong as synthetic collateralized debt obligations based on the performance of major corporations and sovereign nations with high credit ratings, according to the complaint.
Morgan Stanley instead tied the notes to much riskier investments in real estate-related companies and troubled Icelandic banks, including Glitnir Bank HF and Kaupthing Bank HF.
Morgan Stanley issued the notes through a special-purpose entity it controlled called Pinnacle. Italso positioned to profit when the notes failed because it had entered into swap transactions with the noteholders through another affiliated entity, Morgan Stanley Capital Services Inc.
“When Morgan Stanley’s ’rigged’ underlying assets failed, money from customers was transferred to MS Capital,” Hong Leong said in the complaint.
In Investments on 04/11/2011 at 7:37 am
A US court has decided that it would hear a lawsuit brought by Pinnacle Notes’ investors (see below for extract of BT report). It ruled that “generalised warnings of risk and of the possibility of adverse interests” between Morgan Stanley and the Pinnacle Notes investors were not sufficient to protect Morgan Stanleyagainst all allegations of fraud.
Meanwhile the S’pore court of appeal has told DBS High Notes 5 investors to bugger-off: “In view of our decision in this appeal, we think it apposite and timely to remind the general public that, under the law of contract, a person who signs a contract which is set out in a language he is not familiar with or whose terms he may not understand is nonetheless bound by the terms of that contract … The principle of caveat emptor applies equally to literates and illiterates.”
Wonder why the investors never alleged fraud by DBS? The S’porean legal system (like that of the English) requires a very high standard of proof if the plantiffs’ allege fraud. And if they fail to prove fraud, the consequences for the plaintiffs can be very serious in monetary terms. The US system is a lot more lax.
Poor DBS HN5 investors: their Hongkie cousins were treated better by DBS http://atans1.wordpress.com/2010/08/06/what-abt-high-notes-sm-goh/
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In Accounting, Banks on 28/10/2011 at 7:02 am
The problem with a bank’s balance sheet is that on the left side nothing’s right and on the right side nothing’s left.
Think Lehman’s and Dexia’s balance sheets. One day AAA, six months’s later rubbish. That fast leh?
Profit and loss accounts are just as rubbishy. Recently UBS’s third quater profit fell to 1.02 billion Swiss francs (US$1.2 billion) in the three months ended Sept. 30 from 1.66 billion francs in the period a year earlier. The trading loss of 1.85bn Swiss francs (alleged caused by a rogue trader) and charges linked to a cost-cutting plan were partly offset by an accounting gain on the bank’s own credit of 1.8 billion francs and the sale of some investments.
Now this accounting treatment was not not only used by UBS. According to the FT’s Lex, four-fifths of the US$16bn net profits in the latest announced results of (BoA, Citi, JPMorgan, Morgan Stanley and Goldman Sachs came from using used the same accounting treatment of the banks’ own debts.
Lex describes the accounting treament thus: ” Try this on your credit card company: your creditworthiness has weakened, so you write down the value of what you owe them to reflect the greater riskthat you will not pay it back and credit the difference to your personal account. That is what exactly accounting allows”.
In Accounting, Banks, GIC on 27/10/2011 at 6:36 am
Readers will know by now that UBS, where GIC is a major long-term (and suffering) investor, is planning to reduce the scale of its investment banking operations, the source of its on-going problems since 2007.
But they may not know “What they are trying to do has never been done before,” Christopher Wheeler, an analyst at Mediobanca, said. “They want to shrink the investment bank by choice, which means unwinding positions without loss and running down their books while keeping the morale among staff, and it’s unclear who’s running the shop.”
And don’t be fooled by its latest results. Despite being hit by a 1.85bn-franc loss from deals made by an alleged rogue trader, it just made a better-than-expected third-quarter net profit of 1bn Swiss francs (US$1.1bn).
The loss was almost entirely offset by a 1.77bn-franc accounting gain that came from changes to the value of the bank’s own debt. One of these days, I’ll blog on the Alice-in-Wonderland accounting that allows this type of gain to materialise. According to the FT’s Lex, four-fifths of the US$16bn net profits in the latest announced results of (BoA, Citi, JPMorgan, Morgan Stanley and Goldman Sachs came from using used the same accounting treatment of the banks’ own debts.