Chinese investor tussles over high-risk product with DBS - Finance & Markets - morningwhistle

Chinese investor tussles over high-risk product with DBS - Finance & Markets - morningwhistle

Wealthy Chinese investors are getting entangled in lawsuits with financial institutions, as concern mounts that some are making careless investments in high-risk (but potentially high-yield) products.

Foreign banks are part of the picture. The U.S. Securities and Regulatory commission is investigating eight Wall Street investment banks including Goldman Sachs and Morgan Stanley for selling financial derivative products banned in the U.S. to Chinese enterprises and moguls, leaving some with massive losses.

News broke earlier this week that a wealthy mainland investor is being sued by a foreign bank in Hong Kong for up to HK$ 90 million. She made losses on a high-risk investment product in the market crunch 5 years ago.

The South China Morning Post reports:
The case brought by DBS Bank (Hong Kong) against businesswoman Hao Ting and her San-Hot HK Industrial Company is the first known court hearing in Hong Kong in a dispute over accumulators, nicknamed locally as "I kill you later". Accumulators are an investment vehicle under which investors buy a security, currency or commodity at regular intervals at a fixed price below the prevailing market value for the term of the contract, typically a year. They make money if the market stays stable or rises but if it falls steeply, losses can be huge.

Defendant Hao Ting purchased eight accumulator products in August 2007 and deposited reportedly HK$80 million with the bank. However, the investments soon collapsed as the financial crisis took hold, leaving her indebted to the bank to the tune of HK$90 million.

The controversial point in the story is whether mainland investors car been considered professional. Jat Sew-tong SC, who works for the bank, said Hao was a "professional" and "aggressive" investor with a sizeable asset portfolio who used San-Hot, of which she was owner and director, as an investment vehicle. She even provided a guarantee for the company.

That’s significant because according to local securities regulators in Hong Kong, the sale of accumulator products to professional investors does not need its approval.

Hao had not been impressed by an investment offered to her by another bank. "She considered that the neutral fund offered by Citigold did not give her the return. She wanted more return," Jat said. DBS had introduced to her another product called callable notes, which had a lower return, but she did not like it. "She thought the return was not what she wanted and the two-year [maturity] period was too long for her," Jat said.

Meanwhile, her absence from the trial has sparked online speculation among mainland netizens that Hao Ting may be worried that the case will expose her to public scrutiny over the accumulation of her wealth. She was reportedly a director at a mainland petrol company.