Me On Money Matters

The new pilot program -- which the banks hope will become permanent -- could involve as many as 50,000 people struggling with credit card debt. On an individual basis, the amount of debt to be forgiven would rise according to the severity of the borrower's financial situation, up to a maximum of 40 percent.

"There's obviously a financial benefit to the financial institutions to step up to the plate right now," said Susan Keating, president and chief executive of the National Foundation for Credit Counseling, which has 108 member organizations around the country. "We absolutely support the proposal."

In an increasingly tough economic climate, banks and other mortgage lenders already have been agreeing to modify loans of distressed homeowners to help them avoid foreclosure. Now, banks making credit card loans have reached a point where they can lose less by forgiving part of the debt than seeing the consumer walk away entirely.

Credit cards -- the ubiquitous plastic rectangles that have become an integral part of American life and the economy -- now look to be the latest domino to drop in a financial crisis that started with subprime mortgages and continually takes new twists.

Amid rising job losses, consumers -- even those with strong credit records -- have been defaulting at high levels on their credit cards. Banks already battered by the mortgage and credit crises are bleeding tens of billions in red ink from the losses. The largest credit-card banks each set aside between $1 billion and $3.5 billion in the third quarter for losses on card loans as their profits plummeted.

The biggest credit card lenders include Discover Financial Services LLC, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Capital One Financial Corp., American Express Co. and HSBC Holdings.

Credit card charge-off rates, balances written off as unpaid, rose to 6.8 percent in August, up 48 percent from a year earlier, according to Moody's Investors Service.

Americans are lumbering under about $900 billion in credit card debt, according to the latest available Federal Reserve figures. People who are in credit counseling, on average, carry seven cards.

Many of the people now having trouble making their credit card payments are in a double or triple whammy: their mortgages or car loans also may be under stress.

And for many, the torrent of envelopes bearing credit card offers at low initial rates -- much like the old "teaser" rates on subprime mortgages -- has recently been replaced by more somber notices of crimped credit lines, hikes in interest rates or even accounts being closed as lenders tighten the reins to reduce their risk.

The new proposal pitched to federal regulators by the Financial Services Roundtable, which represents more than 100 big banks and other financial companies, and the Consumer Federation of America, would allow lenders to reduce by as much as 40 percent the amount of credit card debt owed by deeply indebted consumers in a pilot program.

It recognizes that "there are some critical problems with credit card debt," said Bert Ely, a banking industry consultant based in Alexandria, Va. "We're going to see more of these efforts to try to minimize the situation."

Under the groups' proposal to U.S. Comptroller of the Currency John Dugan, whose Treasury Department agency oversees national banks, a pilot project would allow big credit card companies to sharply reduce the amounts owed by consumers in over their heads who don't qualify for the repayment plans now available.

Nearly all the biggest credit card banks have agreed to such a pilot program in which lenders would forgive as much as 40 percent of the amount consumers owe, allowing them to pay back the remainder over time.

The test program could reach as many as 50,000 borrowers, said Scott Talbott, senior vice president at the Roundtable. Borrowers would have to be in a counseling program for their credit card debt. The amount of debt to be forgiven would be determined case by case, depending on the borrower's financial condition; those receiving close to the maximum forgiveness level would be nearing a personal bankruptcy filing.

And there would be a tax benefit. Borrowers would be able to defer payment of income taxes they owe on the forgiven part of the debt until after the remainder was paid off. The lenders could wait until then to book their loss on the forgiven debt.

"Both parties win," Talbott said.

Current government rules don't allow lenders to offer repayment plans that reduce the amount of principal owed and borrowers to repay the balance over a period of several years. In cases where the principal can be reduced, under credit card settlements, borrowers normally are required to pay off the remainder over months rather than years.

Kevin Mukri, a spokesman for the comptroller's office, had no immediate comment on the new proposal Thursday. Peter Garuccio, a spokesman for the American Bankers Association, also declined to comment.

June Selby, who nearly filed for bankruptcy three years ago when she was buried under nearly $32,000 in school loans, saw both sides but said she didn't like the idea of anyone getting a free ride.

Selby, 60, worked with credit counselors to pay off nearly half the balance and is on track to be debt free by 2011.

"If (the proposal) makes it possible to maintain a sense of integrity and pay back debt without going into bankruptcy, that's one thing," said Selby, a certified nurse in Lawrenceville, Ga.

But she said she was against the idea of a free handout for people who've simply been irresponsible.

"There just has to be some accountability. Nobody is bailing me out. I had to work very hard to keep from bankruptcy and foreclosure," she said.

'This time around, we may find that there is no safety in any region because the whole world is in a slower growth trajectory,' says CIMB-GK regional economist Song Seng Wun. 'Global investment and global consumption will be adversely affected. So where can Singapore hide?'

An International Monetary Fund (IMF) study of 113 episodes of financial stress in 17 advanced economies over the past 30 years found that downturns preceded by financial turmoil tend to be more severe and protracted.

'In particular, slowdowns or recessions preceded by bank-related stress tend to involve two to three times greater cumulative output losses and tend to endure two to four times as long,' the IMF said in its semi-annual World Economic Outlook.

Taking the onset of the sub-prime crisis last July as a gauge, OCBC economist Selena Ling says she expects a recovery only in 2010. Most economists are expecting Singapore to face at least three quarters of negative year-on-year growth in 2009.

'I wouldn't rule out the possibility that the current downturn may be as painful as the Asian financial crisis, simply because the current recession story is a global one, rather than just a regional one, and the market attention has shifted from the OECD economies to emerging market risks, including Asia,' Ms Ling says.

Pain is already spreading on the corporate front through tight credit and higher costs of borrowing, eroding margins and curtailing capital spending.

Many companies here have strong balance sheets but their cashflows have become an issue because financial institutions remain skittish about lending, Mr Song notes. Some analysts are even expecting negative earnings growth for 2008 and 2009.

The knock-on effect is that wage growth will slow further, denting consumer spending and hurting the real economy.

Although the job market is still enjoying some buffer at this point from the pipeline of projects such as the integrated resorts, Singaporeans will feel the pinch from plunging stock prices, asset price deflation and slower wage growth.

During the Asian financial crisis in 1998, total wages for all employees here saw a rare dip of 0.4 per cent while private consumption spending contracted 2 per cent. Past recessions have also saw private home prices slipping, with the worst fall of 34 per cent year-on-year during the Asian financial crisis, based on Urban Redevelopment Authority data.

'With the softening of the labour market and wages, consumer sentiment is likely to weaken in the coming quarters. Consumer spending is likely to slow dramatically,' warns Ms Ling.

She is expecting private consumption, which grew 10.5 per cent in 2007, to ease to 3.3 per cent growth in 2008 and 1.5 per cent in 2009.

Higher refinancing costs and declining home values are also putting home owners at risk of negative equity when the value of their property is less than the loan taken to finance it - a plight that home owners landed in the years after the Asian crisis.

Economists reckon that the impact on Singapore this time will depend on the severity of slowdown in other Asian countries like China and India, and the policy responses from governments to assuage the downturn.

While Singapore has diversified its economic base since the Asian financial crisis, its export-oriented nature means that the impact of external problems will remain significant, given that trade revenue is still about 2.5 times its GDP.

'While diversifying the economy is well and good, it does not solve the underlying problem. I think we can never escape the fact that Singapore is a very open economy and it is essentially a parameter of global growth,' says Citi economist Kit Wei Zheng. 'The problems of the global economy, as far as GDP growth numbers are concerned, are probably going to be amplified.'

In a bid to get rich fast, Americans invested in the stock market, which did not have proper regulations on buying and selling stocks. Companies could print more common stock at whim, while many investors bought stocks on credit. Confident that a given stock's value would continue rising, an investor would put a down payment on the stock, expecting in a few months to pay off the balance of their initial investment while reaping a hefty profit.

But this was not to be. In September 1929, stock prices began to fluctuate. On Oct 24, 1929, the Dow Jones Industrial Average slid 2 per cent; four days later, it lost 13 per cent to become known as 'Black Monday'. Over the next three years, it would plunge by some 89 per cent from its peak on Sept 3, 1929.

The panic that ensued led many to take their own lives. Unemployment levels rose, sending 13 million people out of work. Between 1929 and 1932, industrial production dropped by 45 per cent and 5,000 banks went out of business.

The current crisis and the Depression

Despite the measures undertaken by governments and central banks worldwide to rein in the crisis, the battering of stocks last Friday to multi-year lows suggests that sentiment remains extremely weak - mirroring the negativity that sent share prices plunging through much of the 1930s.

In Asia, Japan's Nikkei-225 Index plunged 9.6 per cent to its lowest close in five years, and Hong Kong's Hang Seng Index fell 8.3 per cent. South Korea's Kospi index dived 10.6 per cent, its worst performance since 2005.

In Europe, London's FTSE 100 slipped 5 per cent, the Paris CAC 40 index dropped 3.5 per cent and Frankfurt's Dax lost about 5 per cent. On Wall Street, the Dow Jones Industrial Average fell 3.6 per cent.

'This crash is different from anything I've experienced and it's hard to find ways to ride out the situation,' Yuji Ogino, an executive director at Meiji Dresdner Asset Management reportedly told Bloomberg News.

Unlike the Federal Reserve of the Depression era, which maintained a tight monetary policy on the belief that there was a speculative bubble in equity values, the Fed under Ben Bernanke has chosen to do the opposite. Since the start of the sub-prime mortgage crisis in July 2007, it has lowered the federal funds rate for interbank loans to improve lending conditions. The rate is now down 2.5 percentage points to 1.5 per cent.

The fact that Mr Bernanke is not limited by the Gold Standard has further enabled the Fed to loosen monetary policy. During the Depression, the dollar was pegged to gold, limiting the Fed's ability to provide the liquidity needed to shore up credit and funding markets.

Governments around the world have also stepped in to provide billions of dollars in emergency lending and pump liquidity into the monetary system, while central banks have slashed interest rates.

This series of measures undertaken to boost confidence and thaw credit markets has led many economists to say that the impact of the current crisis is likely to be less severe than the Great Depression.

Nanyang Technological University economist Choy Keen Meng said that while a 'prolonged and severe' recession in the US and Europe is inevitable, depression is not on the cards.

'Policymakers around the world, in general, and Ben Bernanke, in particular, have learnt well the lessons of the Great Depression,' he said.

'If you look at (the US) monetary policy for the last one-and-a-half years, it's been more or less quite loose, so I think policymakers are making sure that there's enough liquidity to prevent the credit squeeze that happened during the Great Depression.' But as the latest stock market crash suggests, financial markets are not responding to the measures.

Like the Great Depression, stock and credit markets have borne the brunt of negative sentiment. The Dow Jones Industrial Average is now 41 per cent lower than its record about a year ago, when it hit 14,164.53, while stocks in emerging markets have lost more than half their value in dollar terms since May.

'The depressed sentiment of investors and consumers in the prevailing environment might be somewhat similar to the situation during the Great Depression,' said Thomas Lam, vice-president and senior treasury economist with United Overseas Bank Group. Prior to joining UOB, Mr Lam worked as an economist in New York with Vanderbilt Capital Advisors LLC and JPMorgan Chase & Co.

A further indicator that things are not righting themselves is the financial storm's impact on the real economy. Corporate earnings have taken a huge hit, with US corporate bellwethers Boeing, Merck and Wachovia reporting poor earnings for the last quarter while warning of a bleak outlook for the remainder of the year.

Retail sales in the US in September have also fallen as consumers rein in spending. This will lead to higher unemployment worldwide as the world's single largest export market tightens its belt in the face of mounting job losses.

The effects of a weak US economy are already visible. China's statistics bureau said last week that GDP grew by just 9 per cent year-on-year in the third quarter, sharply lower than the 10.1 per cent and 10.6 per cent in the second and first quarters respectively. Many economists expect economic growth in China to fall to as low as 8 per cent next year even if its government boosts spending. This has undermined hopes that Chinese demand could prop up the global economy through the financial crisis.

On Friday, Britain reported a worse than expected fall in GDP in the third quarter, a clear indicator that the country is heading into its first recession in 16 years. Britain's economy contracted by 0.5 per cent.

'This (crisis) potentially has the ability to be worse than the Great Depression. The wealth destruction is unprecedented,' said Joseph Tan, Asia chief economist at Credit Suisse in Singapore. 'We haven't seen unemployment double yet, but we're still in the middle of the crisis.'

It is not just credit card debt that has increased. Housing loans are up $6.6 billion. There was also a $2.5 billion (18.4 per cent) jump under 'other loans' to individuals which presently stand at almost $16 billion. The previous year's increase was only $584 million in this category.

Going into a recession with such high debts will push many into financial difficulties as jobs and incomes are affected.

Individuals need to make every effort to reduce or restructure their debts, especially credit cards and credit lines which are expensive and recallable. They should stop using more credit. Unsecured debts can be converted into instalment loans that can be paid over a longer period. Financial institutions should be more accommodating in approving such requests.

The problems of delinquent borrowers are exacerbated by heavy over limit and late payment penalties, which can add up to more than 50 per cent on an annualised basis. Although these penalties encourage borrowers to pay promptly, such high charges can also make it impossible for a defaulting borrower to be current again, let alone pay off his debts.

Collection procedures by creditors should exclude tactics which amount to undue harassment and intimidation. For example, phone calls during working and unreasonable hours should be curtailed. Writs of seizure and sale which are costly and usually realise little proceeds should be stopped. Lawyers should not write to employers stating that they are acting on behalf of an unnamed financial institution and asking for verification of employment and other details as this will trigger inquiries by employers which can often affect the career of the employee concerned.

A code of conduct for debt collectors should be drawn up and adhered to by lenders and their outsourced agents.

The Government should also accelerate implementation of the debt restructuring scheme, which is designed to give wage earners an alternative to bankruptcy.

Kuo How Nam
President
Credit Counselling Singapore

Already, Las Vegas Sands' share price has fallen some 95 per cent from a year ago. On Thursday, it was US$8.21, down from the high of US$148.76 on Oct 29 last year.

The company issued a statement to say that it was working with an investment bank to raise capital and that Sheldon Adelson - the company's chairman, CEO and principal stockholder - intends to take part in it, along with his family. Mr Adelson has already had to bail out the company once before, by investing US$475 million of his own money last month.

As concerns over the project increase, local banks are getting hit. BT understands that United Overseas Bank (UOB) has committed to lend almost $890 million to the project. DBS Group Holdings' exposure is in the range of $740 million while that of OCBC Bank is around $570 million. The banks themselves declined to comment on their exposure, citing customer confidentiality.

But as disbursements of the loans are progressive, according to the construction schedule, the banks are unlikely to have disbursed the entire amounts, one banker said.

'The development of Marina Bay Sands remains on track' was all that Ron Reese, vice-president, communications, Las Vegas Sands Corp, would say.

Bankers and analysts also agreed that fears of the banks' potential losses from Marina Bay Sands are overblown. If anything does happen, the project which has been touted as iconic by the government will be rescued, perhaps by one of the government- linked companies, they say.

'Indeed, given the importance of the project to Singapore, it is unlikely to fail in the development stage . . . assistance will eventually come - at a price,' said Morgan Stanley analyst Matthew Wilson.

'Hence, initial debt and equity providers may take a haircut. Since it is such an iconic project, it is a vivid reminder of just how bad things have become from an economic and credit perspective,' said Mr Wilson.

DBS closed 94 cents or 8.6 per cent down yesterday at $10.04 while UOB fell $1.72 or 12.5 per cent to $12.08, and OCBC ended 61 cents or 11.1 per cent down at $4.88. The three local banks and Goldman Sachs were the original lead arrangers of the syndicated loan. Fears that Marina Bay Sands might default stem from the falling revenues parent company Las Vegas Sands is getting as it is earning less from its casinos in Macao and Las Vegas. Recession has caused gamblers to shy away from the tables.

Repayment of interest on the bank loans is generated from the cash flows of current casino operations.

'We're expecting the turbulent economic climate to have an increasingly negative impact on the corporate gaming operators with near-term internal liquidity remaining weak,' said Michael Paladino, senior director at Fitch Ratings. 'As consumers focus more and more on necessities spending, and we enter into recession, the gaming and lodging operating environment will continue to be under pressure, causing significant challenges for issuers that have substantial near-term refinancing risk.'

In August, Marina Bay Sands said it was on schedule to open in December 2009 and about 40 per cent of the construction had been completed. And even if the parent company decides to sell the project to another outfit, there will be bidders aplenty, one banker said.

'People will compete to be here. The biggest driver of casinos is competition, the biggest fear is competition,' he added.

The Singapore Tourism Board (STB) had projected 17 million tourist arrivals by 2015, although there is now doubt if those numbers are achievable. This year's target of 10.8 million visitors may not be met because Singapore visitor arrivals are down. According to data from the board, June was down 4.1 per cent over last year, July dipped 3.8 per cent and August posted the steepest fall at 7.7 per cent.

Emerging Stock Markets

Globally, emerging stock markets have lost 60 percent of their value since May, slumping to their lowest in four years and losing 38 percent in October alone.

Russia's stock market has been one of the biggest losers, down 75 percent this year as war with Georgia, worries over government interference in investments, global problems, bank worries and falling oil prices sent capital fleeing.

Among other key emerging markets, Brazilian stocks have lost 47 percent, Indian stocks have lost 57 percent and Chinese stocks 65 percent this year.

Currencies Slump

Emerging currencies are also broadly sold off, with countries with large current account deficits and political risk suffering particularly. South Africa's rand is down 40 percent against the dollar this year, while the Turkish lira has lost more than 30 percent.

Debt Seen Much Riskier

Emerging sovereign debt spreads -- a measure of how risky emerging sovereign debt is seen relative to U.S. Treasuries -- have more than doubled this year to their widest in six years.

The cost of insuring emerging market debt in the credit default swaps market has also ballooned to several times the cost earlier in the year, with several countries including Pakistan and Ukraine pricing in probable default.

Ratings agencies have downgraded a string of countries particularly in central and eastern Europe on deteriorating macroeconomic conditions and the cost of bailing out troubled local banks.

Crisis Hotspots

Iceland's highly indebted banking sector collapsed, taking with it the currency and broader economy and leaving the country dependent on a bailout from either the International Monetary Fund or possibly Russia.

Other countries seen talking to the IMF about help include Pakistan, Belarus, Serbia, Hungary, Turkey and Ukraine.

Central and eastern European economies are seen heavily exposed, with banking sectors under increasing pressure and requiring government support.

Mr Bill Eadington, director of the Institute for the Study of Gaming and Commercial Gaming at the University of Nevada in Reno, said the share price plunges at Las Vegas Sands and two other gaming firms reflect investor concerns about the firms, reported the online version of the Reno Gazette Journal.

"Either they are phenomenally good (stock) buys, or some of these companies are not going to be around," he said.

In the worst-case scenario, if the US company goes bankrupt, Marina Bay Sands is unlikely to escape unscathed, said market observers.

"Generally speaking, if the parent company goes through financial difficulty before it has injected all the capital necessary to complete the construction, clearly that's a problem," said Mr Leon Perera from Spire Research and Consulting.

In the extreme scenario, if the parent company is liquidated, it needs to find a buyer for its stake in the subsidiary, which could affect the construction schedule, he said.

In response to a query about the impact on Marina Bay Sands' operations here Mr Ron Reese, vice-president, Communications, Las Vegas Sands Corp: "The development of Marina Bay Sands remains on track."

It said in February that it had obtained all the necessary financing - amounting to S$5.25 billion - to develop the integrated resort, which is due to open at the end of 2009.

In a day of fast-moving events, the unified response by the banks to the compensation issue was led by Maybank.

It said that it will 'give priority to vulnerable customers and to take full responsibility in cases where the product was clearly inappropriate given the customer's profile and circumstances'.

This refers to the mis-selling of the risky product to people such as retirees.

Hong Leong Finance followed suit moments later, saying it will 'purchase Lehman Minibond programme notes from its elderly and less well-educated customers who meet the two conditions'.

These are: Main account holders must have been 62 years or older at the time of investing and they should not have an education level higher than primary school.

In joint accounts, neither investor can have a post-primary school education.

Then DBS Group Holdings stated that it has found 'a number of cases did not meet the standards DBS upholds and the bank will be compensating these customers' with effect from Thursday.

It said the move could involve paying out $70 to $80 million.

There was no indication from any of the institutions about how many investors will be affected and neither Hong Leong or Maybank mentioned how much money was involved.

About 10,000 people here here put cash into the products - DBS High Notes 5 and Minibonds Series 5 and 6 - that were linked to failed US investment bank, Lehman Brothers.

Wednesday night's move by the three institutions came after weeks of high-profile protests and emotional meetings by affected investors, including many retirees who had lost much of their life savings.

Their calls for compensation were echoed by MAS managing director Heng Swee Keat last week when he urged banks to do the right thing.

Last night's news was greeted with relief by investors, who heard about the developments only when The Straits Times contacted them.

Mrs Ng Ai Hua, 58, who bought Minibonds from Hong Leong Finance, said: 'I am so relieved to hear this, thank you so much for telling me.'

I still kick myself for not seeing it coming. Or rather, not wanting to see it coming. Surely, it was all too good to be true. Stock prices were escalating to record highs every day, and it was all too easy to make money.

If the stocks I bought dipped, it was almost certain to recover in a few days or weeks. Or so I thought, until that fateful period when everything just spiralled downwards and there was no looking back.

At first it was a matter of hanging on, and then hanging on some more, and then when it was clear the s*** had hit the fan, I had no choice but to grit my teeth and suffer the paper losses.

So call it foolishness, stubbornness, optimism or greed; this was how I got burnt. I am certain the financial crisis will subside one day because, historically, there has been no financial crisis that did not; so, logically, this should be the same. For now, I'll just have to practise patience and tenacity so my paper losses will hopefully be just that.

But all's not lost either; as investment gurus will tell you, a bargain-hunting opportunity like this doesn't come by every day.

I'm reading up as much as I can to figure out how to recoup my losses. To quote legendary investor Warren Buffett: "Be fearful when others are greedy, and be greedy when others are fearful" (Mr Buffett is currently picking up battered American stocks, like GE).

Also, cut your losses early - sell when stocks fall below 80 per cent of the price you paid for them; don't put all your eggs in one basket; and long-term investments are a better option than short-term speculative buying.

On the whole, this episode has taught me some valuable (albeit expensive) lessons.

I've learnt not to be so impulsive and greedy. I've learnt it's best to let go when I still have the opportunity to do so; stubbornness does not pay.

I've learnt to invest only what I can afford to lose. And I've learnt to diversify my investments.

Fortunately, my lifestyle has never been overly indulgent, so I haven't had to adjust too much. I know it'll take some time for everything to get back on track, but I've learnt that in life, sometimes you just have no choice but to be patient and wait for the right moment.

When he went to work that Monday morning of Sept15, his fifth-floor office at Ngee Ann City was already buzzing with talk of what might have happened to Lehman Brothers over that weekend.

Shortly after noon, he found out that the 158-year-old institution had collapsed.

Soon after, he received a call and an e-mail message from his supervisor asking him and other relationship managers to go to the headquarters of DBS Bank in Shenton Way for an emergency 'townhall meeting' at 6.30pm that day.

In between receiving non-stop SMS messages from friends and colleagues about the grim news, Mr Quek was pulling out clients' telephone numbers from the bank's database: He realised with a sinking heart that those who had bought DBS High Notes5 from him were likely to be affected by Lehman's downfall.

The structured product, which the bank launched last year, is linked to eight underlying shares - including Goldman Sachs, Morgan Stanley, Merrill Lynch, Macquarie Bank and Lehman - on a 'first to default' basis.

This means that should any of these eight reference entities fail, the notes will be terminated and the investor will receive zero payout in the worst-case scenario. This, unfortunately, is likely to be a worst-case scenario.

The DBS High Notes5, to be held for 51/2years, were sold to more than 1,400 retail investors in Singapore for a total of $103million. More than half of them invested $50,000 or less. Some had invested as much as $600,000.

'It was chaos,' said Mr Quek, an engineering graduate who has been with the bank for two years and is with DBS Treasures Priority Banking, which serves customers who have at least $200,000 in their bank accounts.

'I didn't know what to expect, what the magnitude of this collapse was like and how it was going to affect the whole industry and our economy. I was also worried about my customers' portfolios, regardless of whether they had bought High Notes5 or not.'

When more Singaporeans got wind of the news, calls from panic-stricken customers came fast and furious, and some were not even High Notes5 buyers. Everyone wanted to know only one thing: How would Lehman's downfall affect their investments?

Mr Quek did not have ready answers. The management at DBS Bank was also trying to figure out what this dire turn of events would mean.

At the townhall meeting that evening, senior management met with product and markets colleagues at the bank's auditorium.

It became apparent to the few hundred relationship managers that they would have to break some pretty bad news to their High Notes5 customers.

As the week progressed, stories of retirees having put their retirement funds into the notes emerged, as well as how buyers of other Lehman-linked products like Minibonds and Merrill Lynch Jubilee Series3 LinkEarner Notes had also been hit hard.

In all, nearly 10,000 retail investors bought products linked to Lehman Brothers amounting to $501million.

Mr Quek's phone continued to ring off the hook from 8am to midnight for the next week, even as he made calls to customers, dropped in at their homes, or met them over coffee to tell them that their money could be wiped out.

Some were upset, others understanding, but luckily for him, no one turned nasty.

Those who were unsatisfied with his explanation were referred to DBS' Investor Care Centre, a new unit set up to take complaints from the Lehman fallout.

Said Mr Quek: 'People were moving funds from foreign to local banks and they were worried. 'Is DBS safe as a bank?' They were asking questions like that. It had gone to a stage that was beyond logic. Everyone was going through an emotional frenzy then.'

SELLING LIKE HOT CAKES

Structured products like High Notes5 and Lehman-issued Minibonds have been gaining popularity in the last seven or eight years and were snatched up like hot cakes by investors in Singapore.

After all, the economy was sailing along nicely after getting over the Sars crisis of 2003.

Singaporeans were cash-rich from crazy en-bloc property sales. Early last year, around the time High Notes5 was launched, Leedon Heights in Holland Road smashed the record for the largest collective sale in the country with a whopping $835million.

Financial institutions were rolling out a dizzying array of products, all calling out for people's money. At bank branch offices from Hougang to Holland, well-mannered, well-groomed relationship managers staked out potential customers.

They were all armed with rehearsed speeches on why the public should put their money in perfectly safe financial instruments, instead of leaving it in fixed deposits with near-zero interest.

In April 2006, Mr Chua Meng Teck, 40, was invited to OCBC Securities in OCBC Centre's South Tower. There, he and about 30 others were given a nice presentation by Lehman, a buffet spread and a 'marketing talk' about the investment bank's Minibonds.

Mr Chua, a financial controller and savvy investor, knows he is supposed to take marketing talks with a pinch of salt, but he was won over by the Minibonds.

They were supposed to give you fixed returns which were respectable but not too high, so how risky could it be, he thought.

He was not looking at striking rich with it anyway.

'I consciously bought it just to balance my equity investments because I didn't want to lose sleep over it. In case my shares go down, I still have this,' said Mr Chua, who sank in about $140,000.

Besides, investors were not required to monitor the performance of their investments hawkishly. They were told that they just needed to wait out the five years to get back their principal sum. It sounded pretty perfect.

Mr Chua was one of 8,000 people in Singapore who ended up buying an astonishing $375million worth of Lehman's Minibonds.

Whether DBS High Notes5 or Lehman Minibonds were being dangled, the man in the street with a humble stash of cash suddenly found himself the new darling of banks.

These banks took to modifying products - once the exclusive domain of the wealthy - and lowering the minimum investment sum.

For anything between $5,000 and $25,000, you could buy into structured products, equity-linked notes and hedge funds.

Banks say they introduced these products to meet the needs of increasingly affluent and sophisticated retail investors who were not satisfied parking their money in low-interest fixed deposits.

In Hong Kong, people were snapping up structured products, which they thought to be low-risk and linked to stocks and bonds, as early as 2002.

The Hong Kong market became so saturated - at its peak, six products were rolled out each month - that banks started turning their attention to Singapore and Taiwan.

Singapore, with some US$118billion (S$175billion) sitting in bank deposits in 2004, was ripe for the picking by structured product providers.

They were appealing, no doubt: Said to be marketed as an alternative to fixed deposits, they gave higher fixed returns at an average of 5per cent with a maturity period.

The reference entities trotted out were also highly rated players: century-old brand-name institutions like Lehman Brothers.

In fact, Lehman's Minibonds in Hong Kong and Singapore were named Best Credit Structured Deal last year by a Hong Kong-based financial magazine, The Asset.

Its treasury editor, Mr Rodney Diola, told The Sunday Times it used a scoring system based on such criteria as the product's relevance to investors and the capital market; the degree of transparency, simplicity and elegance, innovation and timeliness that characterised the product; and past performance.

'Lehman's Minibond products in Hong Kong enjoyed a well-established track record among investors,' he said in an e-mail interview.

Lehman launched 25 different Minibonds in Hong Kong after its first issue in 2003. By November 2006, the Minibonds had attracted at least US$1.1billion in investor funds around Asia, said Mr Diola.

He conceded that the product did require a sophisticated type of retail investor, and added: 'For this reason, distributors, together with the structurers, should exercise a high degree of responsibility when they are explaining the product to investors. We understand this may not always have been the case.'

Nearly 10 Minibonds were offered in Singapore, of which the values of Series5 and 6 have been determined to be zero.

HSBC Trustee, which is the trustee of the Minibonds programme, is currently trying to find a new swap counterparty to replace Lehman and is due to update investors this week of the results.

DBS Bank, too, said the climate at the time it launched High Notes5 was one of retail investors wanting in on higher-yield products.

It is a sentiment echoed by other financial institutions.

'We offer a suite of alternative investment products that range from government bonds to structured warrants with the aim of providing investors with varying solutions for diversifying their portfolios,' said OCBC Securities' executive director and general manager Yeow Chin Wee.

The firm distributed Minibonds.

And for a time, investors had nothing to complain about.

One investor who put $200,000 into High Notes5 remembers receiving payouts of $2,500 every three months since last year.

MURMURS IN THE MARKET

But by January this year, rumours of Lehman's troubles were already brewing in the financial market.

A former head of an investment bank here said that those working in the financial market had all been aware of Lehman's problem 'for some time'.

'The collapse of Bear Stearns in March, which was also active as an issurer in structured products, should have made DBS more aware of such issuer risks,' he added.

But Mr Rajan Raju, DBS Bank's head of consumer banking group, played down the market talk.

'People keep asking us, could we have predicted this? Yes, there was Bear Stearns, Fannie Mae, Freddie Mac, but nothing had gone under,' he told The Sunday Times in an interview at the bank's headquarters last Friday.

'Even the independent rating agencies hadn't downgraded the entire global or US economy.'

An investor who wanted to be known only as Mrs Tay, 49, claimed she had had a bad feeling shortly after putting $200,000 of her retirement fund into DBS High Notes5 in April last year.

She had shown the prospectus to a lawyer friend and another in finance. Both told her that contrary to what she said she was led to believe, she could get nothing if any one of the eight reference entities bombed.

'I'm the aunty who queues up at POSB with my passbook. I don't even dare to try Internet banking because I'm so scared of losing my money,' said the teacher of her zero-risk appetite.

But she said her relationship manager had ticked 'growth' under her risk profile - just one category shy of 'aggressive'.

The first-time investor had since been watching her Notes' performance with jitters.

'When Freddie Mac, Fannie Mae and Bear Stearns had their meltdowns, I called DBS. I found to my horror the underlying collaterals had these things in it. But they said, don't worry, the basket is intact,' she said.

In June, when she heard rumours that Lehman was ailing, she called her relationship manager who assured her that her investment was still 'A grade'.

While many others like Mrs Tay were also concerned about an impending crisis, some like Mrs S. K. Lim, 59, decided to keep faith with DBS.

After all, she had received letters from the bank, which repeatedly assured her and other High Notes5 investors that the declining prices of the notes until then represented only 'a paper and not actual loss'.

The letters also reiterated that the notes were 'designed to be held to maturity' along with the kicker that regular coupons or interest would still be 'paid along the way'.

The retired secretary, who invested $25,000 of her retirement funds in High Notes5, received two such letters this year alone.

'They sent one in March and another in June,' she said. 'I understood from both letters and others before that if I held on to the notes, somehow there would be a way out.'

Hold on she did. But by July, her $25,000 had been reduced to about $12,000.

'My July statement came and I saw the losses but yet I held on because of the letters. But now they tell me, my investment is zero,' she said.

CHAOS... THEN ACTION

Then, Sept15 came.

At DBS Bank, top executives spent the day looking at documents and trying to figure out what Lehman's demise meant, then drafting letters to its High Notes investors, building up FAQs for its relationship managers, and calling for an emergency meeting with them.

On Sept16, stock markets in Japan, Hong Kong, China and South Korea dived as anxious investors reeled from the carnage.

A week later, DBS Bank started an Investor Care Centre (ICC) headed by senior managers. It took care of mounting complaints about mis-selling and other grievances. It has received more than 300 complaints so far.

Some meetings with investors were civil enough, while others exploded into confrontation. One investor recounted how his meeting with a senior employee of the bank on Sept30 degenerated into a staring match.

'I felt badgered. They were butting in and cutting you off in mid-sentence. Many people found them very belligerent. Someone told an investor to go fly a kite,' said another investor who met the team.

Mr Raju, who has also spent the last month talking to affected customers at their homes or offices, is aware of such complaints.

'There have been cases where clients came back and told us that the ICC officer was not polite, or was there to defend the bank, etc,' he said.

'In my mind, I'm very clear that the bank values integrity, and if a client feels he has not been heard, not a problem. We'll get someone else to hear him out. That's what we're here for.'

Over the days, Minibond and High Notes investors started receiving calls from their relationship managers who told them to brace themselves for a big hit to their wallets.

Desperate and angry at the same time, many cried foul, charging their relationship managers with misrepresentation and criticising the banks for putting out risky products to retail investors, many of whom were financially clueless.

Minibond investors wasted no time in organising themselves. On Sept24, some 200 gathered at the National Library to sign a petition which was given to the Monetary Authority of Singapore (MAS).

Up until then, the central bank had been measured - some would say too hands-off - in its approach to the Lehman debacle.

On Sept22, a week after Lehman's crash, the regulator finally spoke up, asking banks and finance companies to make it a priority to deal with affected investors, and telling investors to go straight to their banks with their complaints.

Two days later, it took a more pro-active stance by ordering financial institutions to appoint an independent party to investigate complaints of mis-selling after similar accusations began to surface.

The gripping daily headlines disturbed one person greatly.

Former NTUC Income chief executive officer Tan Kin Lian has never been a fan of structured products, but he had no idea so many people were mired in it.

'I believe there is something seriously wrong with the creation and marketing of these products, and that there is some possible wrongdoing,' he told The Sunday Times.

He organised two petitions to pressure the authorities to investigate and rallied more than 500 investors at Speakers' Corner last Saturday and again yesterday, to cheers.

'I consider it to be a public duty. If I find that there is something wrong and so many people are affected so badly, it is my responsibility as a citizen to help them to find redress,' he said.

'I am angry that these structured products were allowed to be marketed to retail investors and that they were pushed by the financial institutions which had the responsibility to make the appropriate recommendation to the retail investors,' he said.

Investors and netizens hailed Mr Tan as a national hero, but his comeback was: 'I understand from history that many heroes died in the battle. I hope that I can survive and live to an older age.'

He has also encouraged disgruntled investors to lodge complaints with their banks.

On Friday, MAS made its strongest stance yet on the case when it called on the financial institutions to 'do the right thing' and take special care of lowly educated retiree investors during their investigations into their complaints.

It also told banks not to take an 'overly legalistic' approach when dealing with such cases.

Asked what he hopes to see happen, Mr Tan said: 'I hope that there can be a fair settlement. I hope that the financial institutions will offer to compensate the investors for 50 to 80per cent of their loss.'

Among the hundreds who gathered for the Speakers' Corner rally on Oct11 was Ms Lin Ling, 37, a China-born Singaporean who was persuaded to move $60,000 from her fixed deposit into Minibonds in July this year.

'I haven't slept well or eaten well for the past few weeks,' the part-time worker and mother of two young children said in Mandarin.

'The Chinese have always thought the best of Singapore. Now, the behaviour of these financial institutions has completely destroyed this impression. I want them to give me back my money,' she said angrily.

Perhaps buoyed by the investor activism since the episode began, a small group of frustrated investors planned a gathering outside DBS' Shenton Way headquarters last Wednesday to seek out the bank's senior management.

Their plan, however, was foiled when the police got wind of it and issued a warning that it would be illegal.

In the end, only 11 investors showed up at DBS' door. The bank was expecting them: It deployed a band of staff members armed with refreshments and welcomed them into its auditorium to meet Mr Raju and his team.

They were not alone. Marked police patrol cars and even policemen on foot were circling the buildings. Several other men, dressed in casual T-shirts and jeans but believed to be plainclothes officers, were also trying to blend into the landscape.

One investor and his wife, both retirees, said they had gone there to voice their anger at being misled into buying DBS High Notes5.

'I paid $100,000 to learn a new word called 'credit event',' he said bitterly.

'It's already so embarrassing, so please don't take my picture or quote my name,' he said as he and his wife were leaving the auditorium.

Mr Raju said DBS would take responsibility if there had indeed been cases of mis-selling, which means possibly compensating such aggrieved investors.

He said one question he asked his relationship managers at the townhall meeting was: 'Are you sure you sold it the right way?'

'At the end of the day, it's a discussion between the relationship manager and the customer. I got a 'yes' consistently. And that gave me some comfort.'

High Notes5 was sold at selected DBS branches and never made available at POSB branches since it was targeted at a more sophisticated, affluent audience, he said.

It needed a minimum of $25,000 to participate, while Minibonds were sold at a minimum of $5,000.

WHAT NEXT?

Many lessons will surely come out of this wreckage. As it is, MAS has already launched a review of the way structured products are marketed and sold here.

Banks have come out to say they will compensate consumers if investigations show there was mis-selling.

The central bank has also asked the chief executive officers of the various institutions to personally chair internal review panels to study customers' complaints.

The panels should take no longer than four weeks to decide in each case. Those still unsatisfied can go to the Financial Industry Disputes Resolution Centre, which has agreed to hear all 'deserving cases'. (It usually deals only with claims not exceeding $50,000).

Look at the losses in perspective, MAS chairman Goh Chok Tong advised at a Hari Raya dinner last night.

'The global financial crisis came without warning, like a tsunami,' he said.

'Banks have collapsed. Stock prices have plunged. Millions of people in the world, not just in Singapore, have lost money. So we must be realistic in our expectation of recovering all our losses.'

Hopefully, those who have had their fingers burnt will take heed.

It will be backed by $150 billion worth of Government reserves, said the MAS and the Ministry of Finance (MOF) in a joint statement yesterday.

The move follows similar steps taken in recent weeks by several other countries including Australia, New Zealand, several European nations and critically, Singapore's great financial rival, Hong Kong.

It comes amid a worsening financial meltdown that has put banks around the world at risk and left depositors fearful about their savings.

MAS said that the guarantees offered by a few regional jurisdictions have 'set off a dynamic that puts pressure on other jurisdictions to respond or else risk disadvantaging and potentially weakening their own financial institutions and financial sectors'.

'This is why although Singapore's banking system continues to be sound and resilient, the Government has decided to take precautionary action to avoid an erosion of banks' deposit base and ensure a level international playing field for banks in Singapore,' it added.

Prior to the MAS move, some bankers had been privately concerned that, with other jurisdictions like Hong Kong guaranteeing deposits, money could flow out of Singapore in search of 'safer' pastures.

Malaysia announced a similar move yesterday, a decision likely taken in step with Singapore. It will guarantee all ringgit and foreign currency deposits in banks, investment banks and financial firms.

Singapore's guarantee - believed to be the first in its history - significantly expands existing protection, which comes under the Deposit Insurance Scheme administered by the Singapore Deposit Insurance Corporation.

It insured all savings for up to $20,000 but now savers have Government protection on the full amount of their deposits.

And to ensure it is a true blanket guarantee, the Government will also extend protection to deposits placed with credit cooperatives registered with the Registry of Cooperative Societies.

The Government said last night that a guarantee of up to $150 billion will be sufficient to safeguard against liabilities that could arise from the collapse of any financial institution here.

Senior bankers and economists welcomed the move, seeing it more as a confidence-booster after a harrowing few weeks of bank failures overseas, and not an attempt to avert a potential crisis.

'Given the financial strength of the Singapore banks, this is clearly a precautionary measure,' said OCBC Bank's chief executive David Conner.

'What is important is that Singapore as a financial centre is now at par with the countries that have implemented similar measures.'

Citi Singapore's country head, Mr Jonathan Larsen, said the move 'will ensure the continued competitiveness of Singapore as a financial centre during this challenging period...and will reinforce the already strong standing of Singapore- licensed banks here and abroad'.

But OCBC economist Selena Ling also noted: 'The move came as quite a surprise, because earlier comments did not really suggest that they would do something like this.

'This suggests that they probably had a long debate over whether to do it or not. But for the long-term future of Singapore as a regional and financial hub, this is a concrete measure.'

Dr Chua Hak Bin, Citi's head of research for Singapore, said the move is 'prudent and necessary...and assures all individuals and companies that their deposits in Singapore are safe and sound'.

He also believed it might nudge other Asean nations to quickly follow suit.

CIMB-GK economist Song Seng Wun said that it was clear that Singapore and Malaysia were in discussions before the announcements but maintained that the measures are pre-emptive and precautionary in nature rather than out of necessity.

The other central banks will be able to borrow "any amount they wish" in exchange for collateral. The goal is to flood the financial system with much-needed dollars.

After they borrow dollars from the Fed, the Bank of England, the European Central Bank and the Swiss National Bank will provide private financial institutions with one-week, 28-day and 84-day U.S. dollar loans in the latest attempt to unfreeze credit.

"The plan allows the central banks to exchange assets on their books for more liquid assets," said John Silvia, chief economist for Wachovia. "It will then allow institutions that need dollars to conduct the business they need to conduct."

The new plan will continue through April 30, and the Bank of Japan will consider introducing similar measures.

"Central banks will continue to work together and are prepared to take whatever measures are necessary to provide sufficient liquidity in short-term funding markets," the Federal Reserve said in a statement on its Web site.

With inter-bank lending frozen, and financial institutions unable to acquire short-term money to fund daily operations, central banks have searched for methods to boost liquidity and restore the credit markets to normal operations.

"People have become extremely risk-averse because of the legacy of Lehman Brothers," said Silvia. "If a bank like Lehman can turn over and die in a matter of days, it would be hard to convince banks to lend to other institutions for any given time period."

The latest move follows last week's global coordinated interest rate cuts, as well as Sunday's announcements that European governments will guarantee new bank loans and the British government will invest $63 billion in three major banks.

Monday's plan is the first time in which central banks have issued uncapped loans to other financial institutions. Previously, the Fed had allotted $620 billion in swap arrangements with nine other central banks. That number has ballooned since December, when the Fed announced a $24 billion swap cap only with the ECB and the SNB.

The huge increase in swap funds has been especially necessary during the recent crisis, as banks have become more and more reliant on central banks to provide them with essential loans.

"Before the crisis, central banks were dealing in much smaller numbers, and banks accepted a wide array of collateral and exchanged many different currencies," Silvia said. "Now, the dollar and collateral from central banks is much more highly favored."

In a separate move, the Fed last week doubled the size of its lending facility to private banks - its so-called term auction facility - to $300 billion.

She did not mind sharing her story but only wanted to be referred to as "Jane" because she does not want her parents to know of her loss.

Jane, who holds an Arts and Social Sciences degree from the National University of Singapore, said: "If they knew, they would be completely shocked. It's so much money.

Concerned

"Two days ago, they asked me if I managed to sell my shares in time, because they heard about the crash in the news."

"I just said I was okay. 'Nothing lah'. I didn't want them to worry."

Even her two younger siblings do not know.

"That's my own investment. I won't go around telling people," she said.

"But the truth is that I'm already seeing a loss of 60 per cent compared to one year ago," said Jane, who has about $150,000 stuck in the stock market.

"It's quite sad to see your portfolio going down. So far, in my career, I've never seen something so bad."

She's been in the banking sector since 2003.

All the 12 counters in her portfolio have nosedived, some by up to 89 per cent.

For example, she bought two lots of Cosco Corp at $3.25 six weeks ago. Cosco Corp was down to $1.47 yesterday morning.

"During the past year, I've tried to cut losses by averaging, buying at lower prices. But they (the prices) became lower again.

"I expected a drop in the market, but it's falling too much already. Two weeks ago, before Lehman Brothers collapsed, we thought the market was already coming to a bottom."

The sudden plunge in the market "was a shock".

"The market suddenly turned around and I did not adopt the cut-loss strategy. I didn't cut. So when some of my counters dropped by 30 per cent, then 50 per cent, then 80 per cent, how to cut? You just hold onto it.

"A lot of the penny stocks that I bought were initially for short-term trading, but it looks like I have to hold onto them for a longer time now."

Jane said one of her friends, who has lost over $160,000, closed all his accounts a few months ago because "he feels that the more he trades, the more he loses"."

Is she thinking of doing the same?

"Maybe. I'll just wait and see. I think I'm okay, since it's just paper losses."

Although she believes prices can still fall another 20 per cent, Jane is hopeful for a good technical rebound. She will then try to cut her losses.

With the financial turmoil spreading to Europe, "even with the US$700 billion($1 trillion) rescue plan coming up, people are quite worried as to which organisation will be hit next".

By her own admission, Jane's $90,000 loss could have bought her another car to accompany her Peugeot, which she bought last year for about $120,000.

"The last few years, the market has been very good."

She earns a basic monthly salary of $6,000, and used to earn about $3,500 in commission.

"In good times, we can earn up to $10,000 a month in commission."

But now, Jane said she would be happy with $1,000, because "maybe we'll earn nothing".

She also said she would cut down on luxury goods, like Louis Vuitton bags and $600 Ferragamo shoes, from once every three months to once a year.

Cutting costs

Instead of eating in restaurants three times a week, she will do so only once a week, and "eat more at home", which is a four-room flat she shares with her parents. She gives them about $1,000 a month.

Jane also has about $100,000 in Australian and New Zealand currencies in fixed deposits, but "even that is down".

She believes that with the financial turmoil, a lot of people in the banking sector will be hit.

"Now, every month, I just wait for my pay."

A total of S$26.29 million and US$1.4 million had been sold by six broking houses at minimum amounts of S$20,000 or US$10,000.

Beside the Jubilee Series 3 notes, DBS High Notes 5 and Lehman Minibonds have gone belly up. Over half a billion dollars worth of these products were sold over the last two years to thousands of people.

According to the letter dated Oct 6 sent to noteholders from Merrill Lynch, it said that 'as the credit event redemption for both the SGD notes and the USD notes is zero, no amounts are due and payable to noteholders on the credit event redemption date.'

The credit redemption date is Oct 17, 2008.

Merrill said bids were asked from five dealers for the debt obligations of Lehman Brothers and securities which were notes whose performance is credit-linked to a pool of 120 underlying securities.

'Because Lehman Brothers Holdings Inc has filed for bankruptcy, these ...debt obligations are trading significantly below their face value... are currently valued below 20 per cent of their value value,' it said.

'The current US financial crisis has led to unfavourable market conditions in the broad credit markets which has led to significant decline in the value of the securities,' it said.

Although the proceeds came to several millions of dollars, they were less than the market value adjustment of S$20.9 million, so consequently the credit event redemption amount was determined to be zero.

Martin Lee, a financial adviser, said many investors have difficulty understanding that they will get nothing from the proceeds.

'It shows how complex the product is,' said Mr Lee.

Tomorrow, many investors of the failed structured products will gather at Hong Lim Park to listen to former NTUC Income chief executive Tan Kin Lian, who has handed a petition to the government on the matter.

The Monetary Authority of Singapore last night said it has received the petition from Mr Tan and said that it understands the anxiety of investors and is committed to ensuring a quick and fair resolution of their complaints.

One unhappy investor, who declined to be named, is sitting on a whopping $50,000 paper loss from a $200,000 Aussie dollar fixed deposit she had placed in July. That is a 25 per cent loss in just four months.

The interest rate offered was 5.765 per cent per year, almost 10 times better than the 0.6 per cent she was earning in a Singapore-denominated fixed deposit.

At the time, the Australian dollar was at a high of $1.319 to the Sing dollar. The currency fell to $1.025 to the Sing dollar late yesterday.

Now that the Australian and Singapore dollars are practically at parity, the woman, who is in her 20s, is regretting that investment.

She is holding on to the investment for as long as she can. She told The Straits Times ruefully: 'In the span of the next 20 years, hopefully the Aussie dollar will appreciate.'

Operations manager Kenneth Ang is nursing paper losses of about $8,000 on his Aussie-dollar fixed deposit.

He had put a 'large sum' of cash into a 12-month fixed deposit in a Singapore bank about eight months ago, when the Aussie was markedly stronger - trading at about $1.295 to the Sing dollar.

He said he was 'a bundle of nerves' on Wednesday when the currency fell to a six-year low of 96.17 Singapore cents, before bouncing back somewhat yesterday.

But he is not about to cash out yet.

'Thankfully, the Aussie dollar recovered the next day, and I hope it stays that way,' he said. 'I'm not going to withdraw my deposit prematurely as I don't want to fork out the penalty on top of all my losses.'

Another investor, who gave his name only as Mr Chan, has been hit by paper losses of $10,000 on his $70,000 deposit and is also planning 'to wait it out'.

Meanwhile, the Kiwi dollar fell to as low as 86.76 Singapore cents this week, down from $1.1215 a year ago.

Until this August, banks had seen steady investor interest in the fixed deposits of these two currencies. This is thanks to the relatively high rates of over 6.3 per cent for Aussie-dollar deposits and over 8.1 per cent for the New Zealand-dollar ones - a far cry from the 1 per cent on similar Singapore-dollar deposits.

These interest rates had been among the highest among medium-sized economies. The currencies' popularity was also boosted by a commodities boom, since both countries are major exporters of metals and other resources.

But now, banks say there is scant interest.

Ms Janice Poon, Standard Chartered Bank Singapore's general manager of wealth management, noted that the Australian dollar and New Zealand dollar are both likely to weaken even further against the Singapore dollar over the coming months.

That is because Australia's and New Zealand's central banks are likely to cut interest rates drastically as the global credit crisis unfolds, she explained.

Lower rates make the currencies less attractive to hold. Global investors sell them, causing them to weaken further.

Some analysts also think the currencies will drop because of weakening global demand for commodities.

In addition, experts warn that interest rates on these deposits are also likely to come down.

Earlier this week, the Reserve Bank of Australia (RBA) set the ball rolling by cutting the benchmark interest rate Down Under by a full percentage point from 7 per cent to 6 per cent.

Mr Emmanuel Ng, OCBC Bank forex strategist, noted that 'the potential for both the RBA and the Reserve Bank of New Zealand to deliver further interest rate cuts remain a very real proposition'.

'MAS is therefore shifting its policy stance to a zero percent appreciation of the S$NEER policy band,' the central bank said in a twice-yearly monetary policy statement.

'This policy maintains the current level of the policy band, and there will be no re-centring of the band or change to its width.'

It said it expected inflation to remain within the 6-7 per cent target for 2008 and forecast inflation to ease to 2.5-3.5 per cent in 2009.

Intensifying market turbulence from the global financial crisis have prompted central banks across the world to loosen policy to avoid a global recession.

All 13 economists polled by Reuters had expected Singapore's central bank to loosen policy by letting the currency rise at a slower pace.

Ten analysts had forecast the central bank to ease policy by reducing the slope of the band within which the currency trades, while three economists expected it to switch to a neutral stance.

A neutral stance means the central bank will keep the value of the Singapore dollar stable against the basket of currencies.

A check by The New Paper found that the company, which used to occupy a seventh-storey unit at the HDB Hub in Toa Payoh, is no longer there.

In its place is another company called Niu Lifestyle, which was registered on 20 Mar this year.

However, the corporate websites of Sunshine Empire, which is under investigation by the authorities, are still online, although details of its supposed property ventures have since been taken down.

The undergraduate, who wanted to be known only as Pamela, does not have the faintest clue how to recover the $66,000 she put into the multi-level marketing company.

Lured by the promise of cash rebates of up to $1,000 a month, Pamela bought a total of six packages called Gold Prime under the Sunshine Empire product line.

She paid $11,000 for each package, using money she borrowed from her parents.

She said: 'I don't know if I will ever see the money again. I was naive and foolish.

'I thought that was a smart way to earn money.'

She said her father was hospitalised some time in the middle of last year and she was in need of money. 'My friend told me about Sunshine Empire, and how I should make my money work for me,' she recalled, and started buying through her friend.

'At first, I thought it was too good to be true, but for the first two months, I got cash rebates of $4,000,' she said.

Convinced that the scheme worked, she borrowed another $44,000 from her parents to buy more packages.

She even persuaded two more of her friends to buy packages with her, as by selling the packages, she could earn 'bonus points', which could supposedly be converted into cash.

'I really thought it was easy money, and it wasn't wrong because I wasn't prostituting myself or cheating people.

'We went for motivational talks at the company, which sold us not only the packages promising good rebates, but also the idea of being able to change our lives and live our dreams.'

But in October and November last year, media reports were published about the Sunshine Empire's unsupported claims of grandiose investments in water theme parks in Malaysia and a wireless broadband project in Taiwan.

'My parents were worried and started to warn me and told me to take my money out, but I was stubborn and refused to heed their advice,' she said, her voice tinged with regret.

'My friends in Sunshine Empire said that any media publicity is good publicity and it only showed that our company was famous. I believed them.'

Only in November, when it was reported that the company was under investigation by the Commercial Affairs Department (CAD), did Pamela start to panic.

She called her 'upline' (the person who recruited her) asking to withdraw her cash, but was told that all accounts were frozen and there was no cash available.

Hounded by friends

Then, she was hounded by her two friends whom she had recruited.

'I feel very bad that I got them into the same situation as myself,' she said.

Then in March, she was told by her 'upline' that a new company called Niu Lifestyle had been set up at the former office of Sunshine Empire.

'I asked what was this company about, and I was told it was fengshui-related, but to find out more, I had to meet her there at the 'office',' she said.

'If it is a totally different company, why did my Sunshine Empire's upline tell me to meet at the same office, even when it is called Niu Lifestyle now?' she asked.

'I was sceptical by then, and it seemed that it was just a change in name.

'When I asked about Sunshine Empire, I was only told my money was stuck, but I could transfer my account to another new company called Em Max.'

Her 'upline' told her Em Max was a new start-up in Hong Kong.

'By then, I didn't believe anything I was told anymore. I was furious but I was desperate. So I made the account transfer. I don't think I will see my money again, but I am just trying anyway,' she said.

'I feel very stupid, and I felt I was brainwashed. The money I borrowed from my parents was hard-earned, and I feel guilty and that I let them down.

'My relationship with my parents have become strained because of this.

'There is no such thing as easy money,' she said ruefully.

When approached, the Monetary Association of Singapore declined to comment. It had put Sunshine Empire on its investor alert list on its website last year.

When contacted, the police said Sunshine Empire was still under investigation.

The Consumers Association of Singapore's executive director, Mr Seah Seng Choon, had earlier cautioned participants against transferring their money to Hong Kong, as it would put their investment outside Singapore's jurisdiction.

UOB declined to disclose the amount it had taken in for its $1 million minimum fixed deposit campaign targeted at the rich but a back of the envelope calculation estimated that the bank could have garnered as much as $1 billion. Sources said that such an amount was not unreasonable - it works out to $1 million from 1,000 people - given the 77,000 millionaires in Singapore.

'Our recent fixed deposit drive was part of our on-going efforts to attract potential privilege banking clients and deepen our relationship with existing clients,' said Eddie Khoo, executive vice-president of personal financial services at UOB.

'This move is especially relevant for clients who prefer plain vanilla savings products during periods of uncertainty and high market volatility,' said Mr Khoo.

'It is also consistent with our objective of introducing competitively priced products to meet the financial objectives and risk profiles of different clients,' he said.

UOB had taken out a full page advertisement on Sept24, targeting those willing to park $1 million or more with it.

It offered to pay 1.708 per cent for a 13-month fixed deposit for amounts of at least $1 million.

Amid the financial carnage, wealthy individuals have taken to diversifying their holdings and local banks seem to be benefiting from this movement.

The interest rates on offer may still be well below the inflation rate, but they are far higher than typical term deposit rates in Singapore.

And amid severe stock market volatility and a cooling property market, cash in the bank is a fairly safe investment.

Take Standard Chartered Bank (Stanchart), for example, which is dangling a rate of 1.688 per cent a year for a 100-day tenor on a deposit of at least $50,000.

If you have more money to put in the bank, you stand to reap a solid 1.958 per cent a year for a minimum deposit amount of $500,000 over two years.

This means after two years, $500,000 placed with Stanchart should return a depositer close to $520,000.

At Citibank, customers enjoy a rate of 1.65 per cent a year on a one-year time deposit of $10,000 and above if they set up a new salary credit account with the bank.

At Maybank, customers who place $25,000 to $500,000 receive a healthy interest rate of 1.9 per cent a year, for a three-year term.

Consumers even get their interest paid upfront, said Ms Helen Neo, Maybank Singapore's head of consumer banking.

'The upfront time deposit promotion is to reward our customers so that they can re-invest their interest earned. Customers would also appreciate receiving their interest earlier rather than upon maturity,' she said.

Some local banks have also got into the fixed deposit promotional rates frenzy.

United Overseas Bank, for instance, is offering customers 2 per cent a year on a three-month fixed deposit, and 1.36 per cent a year on a 15-month fixed deposit when they place a minimum of $25,000 for each deposit. This dual-term fixed deposit promotion is available only for a limited period, the bank said.

Consumers point out that these rates are attractive, given that average three-month fixed deposit rates and savings rates from banks in Singapore can be as low as 0.425 per cent and around 0.25 per cent respectively.

'I might move about $50,000 or more into one of these promotional offerings, because deposit rates are so low and inflation is eating away at my money,' said 26-year old business owner Justin Kho.

Mr Kho, who currently has a one-month fixed deposit with DBS Bank yielding around 0.325 per cent, said he would review his options with the bank, in the light of these better returns.

Analysts say it is understandable why some of these banks are dishing out these tantalising returns.

'The global credit crunch and interbank liquidity squeeze may have contributed to banks turning to fixed deposits as an alternative source of near-term funding,' said OCBC Bank economist Selena Ling.

Basically, with the tighter credit conditions, banks are unwilling to lend money to each other, and this has the effect of making money harder to borrow.

This scarcity of short-term liquidity has seen the three-month Singapore Interbank Offered Rate (Sibor) jump by one percentage point in just a month to more than 2 per cent.

With banks needing fresh capital for their operational needs or to shore up their balance sheets, money roped in from fixed deposits would certainly come in handy.

'If you're a foreign bank, you either borrow from the interbank market or tap your own deposit base for capital, but unlike local banks, foreign banks may not have such a large deposit base,' said Mr Joseph Chong, chief executive of financial advisory firm New Independent.

Phillip Securities Research analyst Brandon Ng suggested that DBS, for instance, has a huge retail deposit base. This could be one reason why the bank has not been launching promotional fixed deposit rates, unlike foreign banks.

Not surprisingly, DBS said it has not seen a rise in fixed deposits.

Stanchart consumer banking head Ajay Kanwal said that in the last month, the bank has seen a quick rise in deposit interest rates, mainly on account of the rise in three-month Sibor.

That, he said, is in turn influenced by two key factors: United States interest rates and domestic loans demand.