Singapore Prime Minister Lee Hsien Loong expects the government-linked DBS Bank and other banks accused of “mis-selling” Lehman Brothers products to settle the matter fairly. The “banks do realise that it is in their own interest to resolve the matter quickly and not let it drag on”, he is quoted as saying by Singapore’s Straits Times newspaper.
But banks don’t always know what’s in their own interest, according to former Federal Reserve chairman Alan Greenspan. He told US lawmakers last week:
“I made a mistake in presuming that the self- interest of organisations, specifically banks and others, were such, they were best capable of protecting their own shareholders and their equity in the firms.”
Greenspan was talking about banks protecting their shareholders and their equity while PM Lee — an ex-central banker himself as former chairman of the Monetary Authority of Singapore — was talking about banks’ dealings with their customers.
But, in the end, it comes to the same thing. Banks have been losing billions of dollars not just writing off bad debt but also settling claims about misleading investors. The settlements follow action by US authorities including the New York attorney-general and the Securities and Exchange Commission (SEC).
The Wall Street Journal reported:
More than a dozen banks and securities companies, including Citigroup, UBS and JP Morgan Chase have reached agreements with regulators in recent months to repurchase more than $50 billion in auction-rate securities (ARS) at par, mostly from retail and smaller investors.
Merrill Lynch wrote off “$425 million ARS-related expense” in its third-quarter report.
UBS and Citigroup shares are held by the Singapore sovereign wealth fund, Government of Singapore Investment Corporation (GIC). One of the major shareholders of Merrill Lynch is the Singapore sovereign wealth fund, Temasek Holdings.
Of course, there is no reason why Singapore should follow the US authorities and take action against banks accused of “mis-selling” the “mini-bonds” when they are prepared to settle the matter on their own. PM Lee may feel hopeful since Singapore has not suffered a fullblown banking crisis like the US.
The question is whether that will reassure the investors. Singapore will have to pay dearly if they lose confidence, as PM Lee says.
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