INTERNATIONAL BANKING

The coursework assignment consists of two parts, Part A and Part B. You must select one of two options for Part A; Part B is compulsory for all.

PART A: (70 marks) – Choose one of the following two options.
Last year, DBS acquired the wealth management and retail banking business of ANZ Bank in five markets, namely Singapore, Hong Kong, China, Taiwan and Indonesia. 

 

For your assignment, you are to conduct a detailed analysis of DBS Bank’s internationalization and acquisition strategy for the last three years.

 

• You should therefore:

 

• Critically evaluate the key environmental considerations that would affect the bank’s internationalization and acquisition strategy;

 

• Examine the critical resources needed and factors that would affect the bank’s internationalisation and acquisition strategy;

 

• Identify and discuss the major risk factors that could weaken the bank’s strategy and measures undertaken to overcome

 

• In addition, you should read a Bloomberg News dated 26th Sept 2016 regarding “How Singapore’s No-Really-Rich have been burned by Swiber Bonds”. Apparently, the bonds issued by Swiber Holding Limited had been arranged and underwritten by DBS bank. You should therefore:
• Critically discuss the issues and challenges facing DBS bank when it arranged the bond issue for their customer, Swiber Holdings
• Critically examine the issues and challenges facing DBS bank when it persuaded its depositors to purchase the Swiber’s
• Critically analyse the relevant academic theories and concepts (i.e. asymmetric information, potential conflict of interest and agency costs) and support your essay with reasoned analysis, justifications and

 

(*)      Requirements:

• You are required to collect and analyse the data and information through secondary sources (although primary sources of information is preferred) in order to ensure the accuracy of the report and successful completion of this assignment. You might need to read the study material for modules which you had completed earlier

 

 

 

 

 

For your assignment you need to read the story (as below) of a bank that had undergone massive derivative trading in one of the banks in Singapore.

 

After having read the story, you are to critically analyse the following issues for the benefit of your friend who is a financial journalist for a major newspaper:

 

• Explain clearly the nature of risks which the bank is engaged in derivatives trading and the nature of operational controls and other controls that should have been in place to prevent the bank from suffering huge losses from such trading

 

• Critically evaluate the effectiveness of the bank’s operational risk management policy if they are in compliance to Basel III Operational Risk Measurement requirements and support your analysis with well-argued analysis and

 

• Clearly discuss the consequences of the losses for the bank’s balance sheet and what the bank might now need to do to remove concerns about its financial

 

• Critically examine the concerns of the financial markets regulators about the situation facing the bank and the extent to which the regulator might be in a position to take remedial

 

Background Story of the Bank in question

 

Towards the end of 2016, Bloomberg announced in the financial news report that Monte Carlos’ Bank, an international bank surprised the global financial markets that the bank had incurred losses amounting to S$10 billion. It attributed such massive losses to derivative trading by one of the rogue traders in the bank who traded in the Singapore Future Exchange (SFE).

 

Since then, the news has generated public interest and some members of the public has expressed concerns about the bank’s financial position. You know of a friend who is a financial journalist and has approached you for help in writing an article in the banking journal in Singapore. You are to explain the nature of capital and derivatives markets and the role played by commercial banks and other participants in these markets.

 

When the article was published in the banking journal, it generated lots of interest from the banking professionals and public. Your journalist friend who would like to write a follow-up article that goes into greater details about the problems of risk control at the bank and the implications of the bank’s losses itself and the financial markets as a whole. Your friend further tells you that there is a lot of surprise how a single trader could have been allowed to expose the bank to incur such huge losses. Some attributed the losses to the bank’s system of bonus payments for traders on the basis of the profit they earn, and how incentive schemes appear to encourage excessive risk taking by traders. Others thought the failure was the management lack of understanding and appreciation of the risk undertaken by its rogue trader.

 

About a month’s later, Monte Carlos’ Bank announced that its balance sheet needs to be strengthened following the losses incurred and rumours that bank could be vulnerable to a merger and takeover eventually. The financial regulators and the bank itself have both made announcements that there is no risk for depositors but there are unofficial reports that many customers have already moved their accounts to other banks. Monte Carlos’ Bank has promised to publish the results of a management investigation, expected shortly, into the failure of the existing internal risk measurement and controls within the bank.  There has also been some criticism of the financial markets regulator, with claims that regulation of the financial markets is ineffective.

 

 

Your journalist friend has asked for your views of the issues that might need to critically consider the risks, effectiveness of operational risk policy, concerns and consequences arising from the situation as mentioned above.

 

Requirements:

 

You are encouraged to read additional articles relating to internal control systems (and weaknesses in those systems) in banks and the role of the financial market regulators in trying to ensure that internal control systems are robust. You might find it useful to visit websites that contain details of the Baring Brothers or Societe Generale “stories” when writing your coursework. You might need to read the study material for modules which you had completed earlier on.

 

 

PART B: (30 marks) – Choose any two banks, one must be from either of the countries, namely: UK and USA.

 

In recent years, an increasing number of banks in UK and in USA have been approached by the country’s regulators to strengthen the capital adequacy, liquidity and leverage position of the bank. Explain the importance of bank’s capital in light of the recent global financial crisis and critically analyse each of the bank’s capital adequacy, liquidity and leverage position in meeting the Basel III capital adequacy requirements in UK and in USA.

 

The Lecturer will select any one of the banks from each of the countries below:

 

From UK

 

• Barclays Bank PLC

 

From USA

 

• Bank of America

 

FURTHER NOTES:

 

 

1. Assignments should not exceed 5,000 words. You ought to allocate 3,000-3,500 words for Part A and 1,500-2,000 words for Part B. Please include a word count at the end of each Part of the assignment as well as the total word count at very end of the

 

Title page, TOC, bibliography and further appropriate and relevant appendices do not count towards the word limit.  A 10% deduction (pro-rata) will be made from your mark for every 1,000 words over this limit (i.e. 1% if 100 words over limit etc).

 

 

 

 

Bloomberg New – Investor’s Perspective

 

Bloomberg News

 

How Singapore’s Not-Really-Rich Have Been Burned by Swiber Bonds?

Chanyaporn Chanjaroen September 20, 2016

A man rides an escalator past an electronic screen at the Singapore Exchange Ltd.

When Elaine Tham signed an “accredited investor” form with her bank in Singapore

two years ago, she took a fateful step toward losing all the money she had set aside for her children’s education.

 

Based on her financial profile and investment priorities — her need for S$150,000 ($110,000) to pay university fees — a local branch of HSBC Holdings Plc had initially categorized her as a “medium risk” investor. But because the value of her property and car entitled her to “accredited” status, a category reserved for wealthy investors, Tham says she was persuaded to take a riskier path. She agreed to invest S$250,000 in the bonds of a small Singapore energy-services company, Swiber Holdings Ltd., which said in August that it won’t be able to repay its bondholders.

 

Tham is one of many Singaporeans who lost money by investing in Swiber, which sold an unusually high proportion of its bonds to the wealthy clients of banks in Singapore. Amid signs last week that more local energy-services companies are being dragged down by the prolonged slump in global oil prices, some are urging quick action to plug loopholes in Singapore’s investor-protection rules.

 

“It’s time for Singapore’s regulators to rethink how they define the accredited-investor regime,” said Christopher Chen, an assistant law professor at Singapore Management University. “Here, if someone happens to own a landed property, likely that person will become an accredited investor. If investors are really rich, it’s not a problem. But some people are semi-rich, or look rich on paper.”

 

 

 

 

 

A Singapore-based spokesman for HSBC declined to comment on Tham’s case, referring inquiries about the sales practices of the bank’s relationship managers to its 2013 annual report. In that report, HSBC said it stopped linking wealth-management relationship managers’ incentives to sales volumes for the U.K. and France that year, and would make that effective in most markets by 2014.

 

Singapore law allows banks to automatically classify individual investors as “accredited” if they have at least S$2 million of assets or earned at least S$300,000 in the previous 12 months. By entering the category, the wealthy are given a greater range of investment choices but lose some of the key protections offered to ordinary investors — such as restrictions on selling them certain riskier products. Swiber bonds were only available to accredited investors or those investing a minimum of S$250,000, according to Robson Lee, a Singapore-based partner at the U.S. law firm Gibson, Dunn & Crutcher LLP.

 

Property Riches

 

As property prices surged over the past decade, many middle-class Singaporeans entered the accredited investor category due to the high value of their homes. A mass- market 1,000 square-foot suburban apartment was worth S$1.26 million on average  in the second quarter, Savills Plc data show, while a same-sized luxury apartment in the center of town would be  worth  S$2.34  million.  About  20  percent  of  Singaporean households live in private housing, government data show.

 

“They are wealthy by technical definition, but in reality they may not have enough disposable assets to withstand such losses,” said Lee at Gibson, Dunn &  Crutcher. “There are many Swiber bond investors who are left high and dry as they were persuaded by their bankers to buy such high-yield products with money they can ill afford to lose.”

 

More than 80 percent of some Swiber bond issues were sold to clients of Singapore private banks, which cater for the wealthiest investors. Swiber is currently under interim judicial management and missed a payment on a bond coupon in August,

 

which triggered cross defaults on all its issues.

 

Legal Changes

 

Asked about the implications of the Swiber default for investor protection, the Monetary Authority of Singapore said it’s proposing revisions to the law which will prevent banks from assigning accredited investor status to those whose wealth is mostly in property. The changes will also require that individuals be allowed to decide if they wish to “opt in” to accredited status and thereby forgo the protections afforded to ordinary investors. The MAS plans to introduce the revisions to Parliament by the fourth quarter, it said Sept. 2 in an e-mailed response to questions from Bloomberg News.

 

Allowing wealthy investors to opt in to the accredited investor regime will bring Singapore up to the investor protection standards of Hong Kong and the European Union, the MAS said in its proposed amendments to the law.

 

Regardless of investors’ status, “private banks are expected to adopt fair business practices and act in the best interests of their clients,” the MAS said.

 

Hong Kong introduced safeguards earlier this year for wealthier people in the “individual professional investor” category, requiring banks to ensure that products they sell are appropriate for a client’s risk profile and financial situation.

 

Lehman Losses

 

Regulators in both Singapore and Hong Kong have sought to boost investor protection after mis-selling scandals at the time of the 2008 global financial crisis caused investors millions of dollars of losses. The most notorious was the sale of structured products linked to Lehman Brothers Holdings Inc. — investments that soured rapidly following the U.S. bank’s collapse in September 2008. Sixteen Hong Kong banks were forced to repay about $800 million to investors, while 10 financial services institutions in Singapore were banned temporarily from selling structured products.

 

Regulators had been “too relaxed” about the selling process back in 2008, said David Webb, a Hong Kong-based shareholder activist and deputy chairman of the city’s takeovers panel. “Just because someone is wealthy it doesn’t mean that they are also sophisticated as investors. Regulators need to adopt an approach which can handle both ends of the spectrum of sophistication.”

 

The growing signs of stress in Singapore’s domestic bond market suggest wealthy investors may face further losses. Last week, Rickmers Maritime and Marco Polo Marine Ltd. said they are having difficulty with bond repayments, as their operations have been hurt by weaker oil prices.

 

The wealthy are especially vulnerable because of their large exposure to the local bond market. Private-bank clients bought about 44 percent of Singapore-dollar bonds issued in 2014, the most of any investor group, MAS figures show. By comparison, private banks and retail investors accounted for just 11 percent of purchases of U.S. dollar- denominated Asian credit in the same year, according to a Deutsche Asset Management presentation.

 

 

 

The revisions to the law proposed by the MAS might have helped another Singaporean bondholder, Sandeep Kapoor, who says he is facing losses after buying S$250,000 of Swiber bonds in 2014. The 50-year-old engineer said he only found out he was an accredited investor last month, some two years after the purchase, via his relationship manager at DBS Group Holdings Ltd.

 

Under the proposed revisions, he would have been given the chance to opt in to accredited investor status, rather than being automatically assigned to the category because of his wealth.

 

In an e-mailed reply to questions, DBS said: “Our relationship managers are focused  on investor suitability and go through a robust process to ensure that our clients fully understand the product before making their investments.” The bank’s accredited investor clients “are kept informed of their AI status at various stages, including at the time of account opening, account review, and after every trade conducted,”  DBS  added.