Thursday, January 31, 2013

Banks Mis-sell 90% of Rate Swaps

In an unsurprising revelation it appears that banks have yet again been fingered for selling another "dodgy" financial product that was totally unsuitable for the hapless customers onto whom it was foisted.

This time the offending products were complex interest rate derivatives, sold to SME's.

The FSA is of the view that around 90% or more of these products, which did not comply with one or more regulatory requirements, were mis-sold.

Seemingly the banks structured these products in such a way that escape from them was prohibitively expensive.

Martin Wheatley, chief executive designate of the Financial Conduct Authority, accused lenders of selling businesses “absurdly complex products” and said many customers could now expect compensation from their banks.

Mr Wheatley is quoted in the Telegraph:
This marks significant progress in our review of these products. We believe that our work will ensure a fair and reasonable outcome for small and unsophisticated businesses.”
Lenders have seemingly set aside over £700M against potential swap mis-selling claims, with Barclays making the largest provision of £450M. Whilst it is expected that the provisions will double, the final cost may in fact hit £10BN.

Net Worth Update (January 2013) - $60k mark

Current Net Worth
% change
Savings Account 1
Savings Account 2
Savings Account 3
Investment Linked Fund
Schroders Commodity Fund
Stock Holdings
Phillip Money Market Fund
Physical cash
Market Value Of BTO Flat (to be built in 2016/2017)
Total Assets


Home Loan

Net Worth (including flat to be built in 2016/2017)
Investible Net Worth

  • Received a bursary valued at $2,900 and deposited a large portion of it into the Phillip Money Market Fund (currently yielding 0.5% per annum)
  • 8% increase in value of stock holdings due to the recent spike in Biosensor's share price
  • Expenses for the month totaled to $210 (average $6.80/day)
  • Income from tuition, paid surveys and other part time jobs contributed to the increase in cash
Net worth target of $70,000 by December 2013 is definitely achievable now. In fact, I think my investible net worth will cross the $70k mark by mid 2013. February will be another good month due to Chinese New Year Ang Pows, second disbursement of bursary valued at $400 and a potential contribution from my girlfriend's performance bonus to our joint account.

Lastly, I have updated the "Net Worth", "My Asset Allocation" and "My Stock Portfolio" pages. For your information, I will be updating these pages on a monthly basis.

Tuesday, January 29, 2013

Happy Bonus Season!

As a bleak and gloomy January draws to a close, the banksters are looking forward to awarding themselves some fat bonuses for all their "hard work" last year.

Sadly for the banksters not everyone is happy at the prospect of their self awarded largess. Step forward Unite which has demanded a meeting with UK Financial Investments Ltd (UKFI), which manages the government's (ie the taxpayer's) investments in RBS, Lloyds and UK Asset Resolution, over RBS's expected bonus payout of £250M.

As if things were not already bad enough for RBS, the Wall Street Journal reports US authorities are pushing for a settlement of LIBOR allegations that would result in the bank not only paying a fine of £500M, but also pleading guilty to criminal charges. Barclays and UBS got away with criminal charges, because they co-operated with the authorities.

RBS executives don't want to plead guilty because they fear that it will cause clients to cut off activity with the bank, and that it could increase exposure to ever more litigation.

Maybe then they should hold back on paying out a bonuses this year, lest the money be needed to pay for ongoing litigation?

Monday, January 28, 2013

The Great Green Loan Rip Off

The government has announced today, with all the usual fanfare and razzmatazz, that those wishing to improve the energy efficiency of their homes will be able to borrow money to buy energy efficient boilers and to insulate their homes etc.

However, what the government doesn't tell you is that the interest rates charged on these "green loans" will be relatively high, and that the "green assessors" (doubtless trained at taxpayer expense) who will visit your home to asses its "green needs" will charge for their services.

In other words it is a rip off!

Saturday, January 26, 2013

Maximize Stock Returns Through Share Financing

Share Financing

Share financing is a loan facility offered by banks and brokerages to boost your purchasing power of stocks. You can pledge your stocks as collateral and engage in leveraged trading up to approximately 2 times the value of your pledged shares. As a member of the mass market, I do not get to enjoy the lower rates that Banks offer to priority/private clients. However, what I can do is to search for the best deal in the market and plan my moves accordingly so that I can leverage more effectively when the time comes.

Best Deal in the Market  (Pls post a comment if any reader has a better deal)

After some research and comparison, I feel that OCBC's share financing account offers the best deal. By pledging shares, OCBC allows you to leverage up to 2.5 times. Also, it offers one of the lowest rates at 3.5% to 7.5% for different quality of stocks. For other banks such as DBS & CitiBank, they offer a rate of around 4.5 to 6% regardless of the quality of the stocks that you pledge. To enjoy the lowest rate (3.5%) from OCBC, you have to pledge stocks which are components of the Straits Times Index. If your portfolio comprises stocks of differing grades, the blended interest rate will be calculated based on the relevant interest rates which correspond to the various differing grades. However, the interest rates they offer are pegged to the prime rate and thus subject to periodic adjustments. To assess this risk, I extracted the prime lending rates for the past 20 years from the MAS website and tabulated them as shown below:

Prime Lending Rate
Prime Lending Rate

As we can see, prime lending rate has not been changing much since year 2001 and has been hovering in the 5.3% to 5.4% range. It should be safe to say that the prime lending rate will not change drastically in the next 5 years even in the event of a recession.

Also, the margin percentage (Total share value/Loan Amount) for OCBC is 140%. This means that a margin call will occur if the margin percentage falls below 140%.

Now, we have these information:

  • Lending Rate = 3.5% to 7.5% depending on the quality of stocks pledged
  • Lending Rate is 3.5% if pledged stocks are all components of the Straits Time Index
  • Rates would most probably not adjust drastically in the next 5 years
  • Margin percentage = 140%
  • Leverage Power = 2 times of pledge stocks


During the next downturn/major correction, I will acquire stable dividend stocks which are components of the Straits Times Index and yield at least 5%. By purchasing STI component stocks which yield at least 5% and pledging them as collateral, I will be able to borrow money from OCBC share financing account at the lowest rate of 3.5% and also, the dividends will be sufficient to cover the interests. This means that any potential capital gain when the market recovers will be 'free'.

The maximum leverage power I have is 2 times the value of my pledged shares. To utilize this facility without over-leveraging and risking the dreaded margin call, I will borrow only 50% of the value of my pledged shares. For example, assume that I bought $100k worth of stocks during a market recession. I will then pledge these shares as collateral and borrow another $50k to buy more. Now, the total share value is $150k and the loan amount is $50k. My margin percentage(Total share value/Loan Amount) is now 300%. Recall that we have to maintain a margin percentage of 140% or more if not a margin call will occur. So assuming prices continue to drop another 50%, the value of my shares will then be $75k while loan amount is still $50k. Margin percentage is now 75/50 = 150% (still above threshold for margin call). In this example, I acquired stocks at depressed prices during downturn and the chances of the prices dropping another 50% should be unlikely. Risk of margin call is low in this case.

In a nutshell, this strategy is to accumulate STI component dividend stocks during market downturn and pledging them as collateral to enjoy a lower rate for buying more stocks on margin. Dividends should be sufficient to cover interests and investors get to earn the capital gains.

Friday, January 25, 2013

UK Economy Flatlines

The UK economy shrank by 0.3% in the final three months of last year, and posted zero growth for the year as a whole.

Many now expect the UK to go into a triple dip recession.

Conclusions of Forthcoming EU Summit

Here, courtesy of the FT, are the draft guidelines for the conclusions of the forthcoming European Council summit to be held on 7th and 8th of February.

At the end of the document, to be added later, is the Multiannual Financial Framework (MFF) ie the European budget!

Thursday, January 24, 2013

Diamond Geezer In The News Again

The Telegraph reports that some of Barclays’ most senior executives, including former chief executives Bob Diamond and John Varley and current head of investment banking Rich Ricci, are among 104 people who unsuccessfully attempted to keep their names private ahead of the UK’s first trial related to the manipulation of Libor.

The list of 104 individuals comes from a case brought by Guardian Care Homes, which is seeking about £38M in damages from Barclays over interest rate swaps it claims it was mis-sold by the bank.

Guardian Care Homes says that the swap product it was sold was tied to Libor, which it argues was set dishonestly.

Barclays was ordered to give lawyers working for Guardian Care Homes the identities and emails of staff that it passed to regulators investigating the manipulation of the key interest rate.

Wednesday, January 23, 2013

Davos 2013 - The Grischa Hotel

The Grischa Hotel, where the "great and the good" of the world of finance are staying in Davos this year during the World Economic Forum (WEF).

Davos Live

Davos 2013

Davos is hosting the annual gathering of the "great and good" in the world of finance, more commonly known as the "World Economic Forum" (WEF).

It seems that all and sundry are worried about David Cameron's promise of an "in/out" referendum on Europe post the 2015 election if the Tories win.

They should not worry, this is political posturing designed to put UKIP's nose out of joint and to buy Cameron more time wrt his EU discussions.

There is absolutely no guarantee that the Tories will win the next election, nor that Cameron will be leading them; hence the "promise" of a referendum is a meaningless as the oft repeated assurances emanating from Eurozone finance minsters that the "crisis" is over.

Saturday, January 19, 2013


The current Egyptian debate about the sukuk draft law that had been proposed by the government and tabled in the People Assembly and passed but rejected by some shows clearly that sukuk is such a topical topic in a country where Islamic finance was tested many decades ago even before many other countries started their Islamic finance movement. During the eighties of the last century, many would remember the controversy surrounding the so-called Islamic investment schemes that were mushrooming in the country including the famous case of al-Rayyan Investment  Scheme. The difference is that the government of the day at that time had a very different attitude toward Islamic finance and about anything Islamic generally. Today the atmosphere has changed where the Muslim Brotherhood inspired parties are part of the establishment. Interestingly they were the ones who spearheaded the finance movement in Egypt during the last few decades of the last century, such that many initiatives involving Islamic investment were popularized by them.
On the other hand, the concern as expressed by the members of Al-Azhar Research Academy who rejected the draft has its own merit given the current economic problems experienced by Egypt right now. Having rejected the IMF offer of financial assistance based on sovereignty argument, it is of no surprise to see that the same argument (together with Shariah compliance issue) was put forward by the Al-Azhar scholars in rejecting the draft law. One thing significant in this context is the fact that those al-Azhar scholars seem to have properly understood what sukuk should mean when it come to the issue of the underlying assets to be used to back up any future issuance of sukuk: that to be Shariah compliant, investors or sukuk purchasers must be accorded with the true right of ownership of the assets/project on the basis of which sukuk are to be issued. If no such conveyance of ownership in its true sense, then purely from Shariah perspective the sukuk are not Shariah compliant, therefore the outcome, as feared by those scholars, is no other than the prospect of foreigners holding ownership over Egyptian assets/project; the source of concern when it comes to the issue of national interest or sovereignty. Although the argumentation put forward by the government officials involved in drafting the law centered around the positive role that can be played by sukuk in financing government public utility or development projects, some officials even tried to play down the fear as raised by the opposing side by saying that there would never be the sell out of the national assets due to sukuk issuance because they said that sukuk were just financing tools. This last argument seems to be more or less conventional in nature where in essence sukuk are viewed more or less similar to conventional bonds where tangible assets have very little role to play in the securitization as bonds are debt based. But when it come to sukuk, the equation is totally different since sukuk issuance must be backed up by real assets although at the initial stage (after collection of the investment sum from investors as per their subscription), sukuk  represent  ownership of the capital/sum collected/contributed, but once the same is used to purchase the real assets/project such ownership will thus extended to the acquired assets or project. (This is in line with the relevant Resolution by Islamic Fiqh Academy on Sukuk al-Muqaradah). To say that sukuk do not implicate ownership of the underlying assets or projects  is a clear misstatement of the whole concept.
Therefore what seems to be happening in Egypt right now as far as sukuk are concerned is that everyone is in favor of the prospect of sukuk issuance but some have wanted the process to take into account the issue of national interest or sovereignty. This attitude is understandable given the current political situations in the country that is still not stable, and as such any prospect of too much foreign influence in the economic sector is really something that needs to be well considered before any big move is taken to reform the economy.

Who Are The Supercar Owners?

KPO Cafe Bar

Whenever I walk past the 'KPO Cafe Bar' situated beside Orchard Central, the fleet of supercars parked outside the bar never fails to impress me. I have seen cars like Audi R8, Lamborghini Aventador, Ferrari 458 Italia, Nissan GTR, BMW M3, Maserati GranTurismo and different models of Porsche, BMW, Mercedes, etc parked outside the bar. It subsequently piqued my curiosity on who are the people who own them and I started stealing glances of the customers drinking inside the bar and on the open air balcony.

Here are some of my observations:

  • People dressed in their business attire can be seen drinking at the bar as early as 4-5pm
  • About 30 to 50% of the customers are Caucasians
  • Majority of them are in their early 30s to mid 40s

A first hand GTR already costs $350,000 including COE. Monthly maintenance is probably more than $4,000 including petrol, road tax, car insurance, ERP, etc. And we're only talking about a GTR which costs $350,000 here. What about an Audi R8 Spyder which costs twice as much? So who are these supercar owners? What do they do? How can they afford a supercar?

I feel that there are only a few possibilities:
  1. They are successful executives (lawyers, surgeons, bankers, etc)
  2. They are successful business owners or 2nd generation business owners
  3. Supercar belongs to father/family
  4. They are overleveraged 
However, from my personal experience, not every wealthy person owns a supercar. For example, the owner of a venture capital firm that I interned at drives a humble Toyota Camry despite having a personal net worth of more than $30 million. The father of my good friend who earns more than a million dollars a year and stays in a Good Class Bungalow owns a Audi A4 and a Volvo S80.

Living in a country with the world's highest concentration of millionaires and the largest proportion of wealthy expatriates where 54% of them earns US$200,000 or more,  I will have to work harder, save harder and invest smarter.

Friday, January 18, 2013

E.ON's 9% Price Hike

As the country is blanketed in snow and the mercury plummets what better day for E.ON's 9% price hike (announced in December) to come into effect?

Money Laundering In The Eurozone

Cyprus has put together a presentation to convince the Eurozone that it is not a haven for money laundering.

One of the slides shows how Cyprus and other Eurozone countries score wrt complying with recommendations on 49 areas evaluated by the Organisation of Economic Co-operation and Development’s financial action task force.

The highest ranking country for non compliance was Greece, scoring 13.

Thursday, January 17, 2013

Barclays Discovers Ethics

Barclays discovers that ethics is not a county near London!

Wednesday, January 16, 2013


Blockbuster has gone the way of HMV and Jessops, and has gone into administration.

Deloittes will act as administrators.

Lee Manning, joint administrator at Deloitte, said:
In recent years Blockbuster has faced increased competition from, internet based providers along with the shift to digital streaming of movies and games.

We are working closely with suppliers and employees to ensure the business has the best possible platform to secure a sale, preserve jobs and generate as much value as possible for all creditors.

The core of the business is still profitable and we will continue to trade as normal in both retail and rental whilst we seek a buyer for all or parts of the business as a going concern. During this time gift cards and credit acquired through Blockbuster’s trade-in scheme will be honoured towards the purchase of goods.”
 Blockbuster employs over 4,000 people.