SINGAPORE: THE city-state’s success as a financial haven for Asia’s wealthy is turning sour as GFC fallout enters the courts
THE scene: the bar of an exclusive Singapore sports club in a pre-Christmas jolly. The clientele: a well-heeled coterie of expatriate and local private bankers, Asia’s masters of the universe – or at least their financiers – in earnest discussion about their clients.
Their conversation – critiquing Singapore’s legal system – would make the toes curl of the city-state’s control regime and guarantee the sack and a one-way ticket from Changi for the foreigners involved, and a lifetime of grief for the locals and their families similarly inclined.
What’s prompted their boozy chat is the national implication of the surfeit of litigation that is besieging Singapore’s courts some two years after the global financial crisis, which melted down the fortunes of several of Asia’s richest and most powerful people, held in accounts handled by some of these men in the city-state.
Some of international banking’s biggest names – Deutsche Bank, Paribas, Citibank and Singapore Inc’s own DBS – have been caught up in scores of lawsuits. These actions mostly boil down to who gave who what permission when they were investing their Asian clients’ billions of dollars.
These cases have caused rumours for a year as they brewed in the back rooms of Singapore’s legal fraternity. Now they have bubbled publicly into the courts, providing the public titillating detail of the lifestyles of Asia’s rich and famous. People such as Oei Hong Leong, a billionaire known as ”Golden Finger”, part of Indonesia’s extended Widjaja family and believed to be close to Singapore’s political elite. Oei took on Citibank over $1 billion in wrong-way foreign exchange bets and the revelations in the local press have horrified bankers – and their clients – in an industry that values discretion next only to excessive prosperity.
It’s also a nightmare for Singapore’s economic planners, who’ve fashioned the tiny nation after an Asian Switzerland, a prudent bolt-hole for the region’s tycoons.
But it’s not just Singapore and its backyard caught up in legal strife. Taiwanese, Japanese, Thai and mainland Chinese account holders, among others, demonstrate how successful Singapore has been in luring Asia’s private wealth to the island.
European cases are also in the works, after Singapore encouraged the European Union’s rich to spend part of their year on the island and away from European authorities.
When times were good, everyone was a winner, in particular the Singapore economy. International banks flocked to set up private banks on the island and Singapore burnished a reputation as the region’s muscular financial centre, challenging Hong Kong and the rising Shanghai.
As always, that suited Singapore’s hosting of an army of cukongs – a Bahasa-Hokkien hybrid term to describe the region’s ethnic Chinese tycoons, who invested in property, education, medical care and high-end services. Far from its straitlaced reputation, Singapore’s image-makers were then able to rebadge the island as a ”renaissance city”.
Singapore’s two massive casino projects were part of the same national strategy – build them and they would stay, play and perhaps even re-headquarter family conglomerates there, while listing on the same Singapore Exchange that hopes to buy the Australian Stock Exchange for $7 billion.
The collapse of Lehmann Brothers ended that party. Now banks have their legal teams pitted against Asia’s wounded power elite over how their accounts were mismanaged. The cases tend to focus on how much discretion account holders gave to their bank ”relationship managers” in handling their finances. That’s given rise to the embarrassing public spectacle of men famous for their business acumen, like Hong Leong, claiming they were not aware how particular investment products worked, or indeed knew what they were signing on for.
Bank legal teams have attacked those reputations by pointing out how sophisticated as investors their clients are, because that’s how they got rich in the first place. A particularly nasty product was so-called ”accumulators”, where clients signed up for an investment plan where they would build a position in a stock – sometimes that of their bank’s – or a currency. Accumulators were fine while stocks and currencies rose, but became lethal when markets slumped. Investors found themselves committed to accumulating millions worth of stock at, say $50, when the share price had slumped to under $10. Little wonder accumulators were also known as “I-Kill-You-Laters”.
Those who know the ”Singaporean system” muse about which side would be deemed of greater value to Singapore’s longer-term economic welfare and national interest – the tycoons or the international banks.
Singapore prides itself on the integrity of its legal system, a view not all share. So bankers in the know debate the national ramifications of these nasty standoffs where no one’s a winner, least of all Singapore, which is trying to forge a reputation for probity. The debate boils down to who best to burn or, better still, how to manage the outcome for Singapore’s sake.
So far the banks seem to be prevailing.
What’s also intriguing is that the cases where the losses run into the hundreds of millions – usually associated with a high-profile client – start publicly in a blaze of headlines only to soon find their way behind closed doors. From there emerges a negotiated, unpublicised settlement where clients and bankers, publicly at each other’s throats weeks earlier, emerge smiling and chummy.
It’s the smaller cases – involving tens of millions and smaller – that have sustained their days in court. The coterie of boozing bankers tends to think Singapore prefers important matters to be dealt with in such a way and that’s dangerous talk in this litigious town