Up to $200 million of these notes were sold to a gullible retail public who probably thought they were buying a five-year bond issued by six leading banks that paid a 5 per cent coupon per year but were in reality, not only exposed to the US housing market but also to a complex credit default swap arrangement whose substantive party was the now-bankrupt Lehman Brothers.

The cover of the Pricing Document prominently stated that the issue was credit-linked to six financial institutions, namely Barclays Bank, Citigroup, Deutsche Bank, Goldman Sachs, UBS and UOB - these banks being defined as Reference Entities or REs.

Much was made of the fact that the viability of the notes depended on whether these six banks or REs would go bankrupt and there are repeated warnings to this effect throughout the document. Investors were given plenty of information on the credit ratings of these six REs and links to their websites while Lehman is listed only as the Arranger in small print.

The fine print at the bottom of the cover, however, states that Lehman is also Swap Counterparty, besides being the arranger. Not many retail investors would have seen this, and if they had, few would probably have understood the importance of this information. More on this later.

Investors, however, were urged to read the Base Prospectus in conjunction with the Pricing Statement. In the former's page 24, it is stated that 'the Notes are intended to provide investors with a coupon for assuming exposure to the credit risks of companies or of sovereign states, that is, the Reference Entities'.

'By acquiring the Notes, investors can gain exposure to the credit risks of the REs without directly holding debt obligations of the REs, for example, bonds issued by the REs.'

Note that the language used creates the impression that gaining exposure to the credit risks of the six REs is something desirable - and, by extension, this suggests that the notes are good investments - when in reality, the key to the whole issue is in the words 'without directly holding debt obligations' of the REs.

In other words, the six REs are not participants in the notes, receive no money from the issue and are not issuers of the notes. Instead, the next sentence reveals all: 'This (exposure) is achieved by linking payment of the principal and/or interest on the Notes to an RE's default.'

Who provides this link? In all the documents, this is given as Minibond Ltd but this is a special purpose vehicle with only US$1,000 in capital. The substantive party behind Minibond Ltd is most likely Lehman Brothers. Here's how it works.

Lehman most probably owned securities in the six REs. In order to hedge itself against default by any of these REs, it set up Minibond to offer notes to the public. Minibond offered these notes with attractive terms and because of clever marketing and pricing collects a certain amount of cash from retail investors.

This money is then used to buy securities - in the case of Series 3, it was collateralised debt obligations (CDOs), most probably on US mortgage instruments. Minibond then collects the cash flows from these CDOs. In order to pay investors the quarterly coupon and to ensure no problems with currency/interest rate fluctuations, it swaps these cash flows with counterparts, which is Lehman. It is stated elsewhere that if the swap deals fail in addition to a RE default, the whole issue will be terminated. Thus, since Lehman has failed, so has the issue.

The crux of the entire deal appears on page 17 under Credit Default Swap where it is stated that Minibond has an agreement with Lehman in which Lehman pays Minibond a premium for insuring Lehman against credit losses on the REs.

In effect, the money that Singapore retail investors exchanged for the notes were not for any bonds issued by the six names that appeared on the cover of the prospectus but instead, went towards insuring Lehman against losses in its portfolio.

The quarterly coupon investor received was not interest from the six REs but instead, Lehman paying an insurance premium, partly financed by cash obtained from CDOs.

In short, Lehman structured a synthetic derivative product to hedge its own exposure to various instruments and linked it to the default likelihood of six major banks.

Should the true nature of the instrument have been disclosed upfront? Yes, especially since it was marketed to retail investors - though it has to be said that many other notes and products have been sold in a similar manner and the only reason that the poor disclosure of this particular series of notes surfaced is that Lehman went bust. Had it not, or had it been rescued, the coupon payments would have continued as per normal and no one would have been the wiser.

Moreover, while it is possible to piece together the actual substance of these notes from the documents available, it is a tedious process and arguably not within the ability of the average retail investor.

There are many issues also unresolved - for one thing, how many other similar products are out there? How could the authorities allow the conflicts of interest inherent in one party from being the arranger, issuer and swap counterparty?

How is it that, if Lehman alone performed all these functions, there was virtually no disclosure of Lehman's financial position or credit rating? Instead, investors' attention was focused on the six REs - wrongly, as it turned out.

Finally, if disclosure was weak, then so was knowledge among distributors. Some brokers did not understand the true nature of the instrument and sold it as a bond. Maybe the name had something to do with it, though as investors have now found out painfully, what they had bought was not a bond but a convoluted swap-based instrument.

Thus, should such products be allowed to continue to come into the retail market?

Hitting the panic button on insurance policies is almost always a mistake.

But first on Minibonds and their ilk. Over the last few years, structured products worth billions of dollars have flown off the shelves of banks and brokerages to investors that barely understand the instruments that they are investing in.

Structured credit, usually packaged as relatively safe, bond-like instruments, are particularly insidious. This is because as far as the investor is concerned, he should get the coupon and principal at the end. So far so good - it looks and smells like a bond.

But the truth is far different. In reality, the investor has last priority in the case of a 'credit event' - an euphemism for a default or credit downgrade. The investor actually does not invest in bonds.

Instead, issuers use derivatives to artificially create an instrument with regular coupon payments and one single maturity date.

In many such instruments, including the Minibond, the arranger fashions a credit default swap. The swap counterparty which is likely to hold the bonds or securities in his books pays a premium to protect his assets from default.

The premium is then paid to the investor in the form of coupons.

Effectively, the investor has sold protection; his funds are used to protect the swap counterparty from any default in the latter's holdings of bonds. This is a far cry from the investor's belief that he has bought protection, or a bond where the principal at maturity should be paid back.

In the Minibond case, disaster has struck not in the form of a credit event in any of the credit names to which the numerous issues were linked to. Instead, the bombshell is the failure of the arranger and swap counterparty - Lehman itself.

That is ironic because prospectuses usually devote pages to explain the risks of the credits to which a structure is linked, giving details of various credit ratings. But explanations of the counterparty and issuer risk are sometimes dispensed with in just a paragraph or a page at best.

Segregated funds Minibond investors will have to resign themselves to a steep loss. Typically, there is a recovery value when a credit structure is unwound. But liquidating assets at this time fetches only distressed prices.

The situation that AIA policyholders face, however, is far different. The crisis snowballed when AIG sought US$40 billion in funds to stave off a liquidity crisis; it has posted US$18 billion in losses from guarantees that it wrote on mortgage derivatives.

First off, AIA last night issued a statement that its insurance funds here are segregated from its parent AIG Inc. That should allay any doubts over whether its assets can be seized by AIG Inc as collateral to help shore up its liquidity crisis.

On the issue of its stability and financial strength, AIA has more than enough capital to meet policy obligations. In an interview last October, AIA general manager Mark O'Dell told BT that its aim was to maintain a capital adequacy ratio above 200 per cent - 'which is well within the strongest band'. 'We're easily within the 230-240 per cent range,' he said then. The MAS's required minimum is well below that.

Of course, insurance funds are not shielded from market risk or loss. But AIA could well be the most conservative of local insurers. As at end-December last year, its participating fund was valued at $14.8 billion. Almost three-quarters of that is invested in fixed income securities. Only 10 per cent is in Singapore equities and 4 per cent in mutual funds and foreign equities.

As for policyholders who have put money into investment-linked AIA products (ILPs), there is even less of an issue in terms of the vulnerability of their assets to AIG Inc's problems. ILPs are effectively unit trusts where investors own the units and bear the market risk.

Of course, the asset values of those funds will reflect the mauling that global markets are currently enduring. But panicking and redeeming units at this time will only exacerbate the falls in the funds' asset values.

Insurance - particularly policies with substantial sums in protection value - is a long-term commitment where the decision to terminate should not be made lightly. This is because an individual in poor health may not be able to secure protection elsewhere.

What's more, the contracts are structured with long breakeven periods. So, early termination is usually done at a heavy loss.

AIA's policyholders should sit tight. This crisis is painful, but it will pass.

One 52-year-old customer told The Straits Times: 'I received a call from my relationship manager late Tuesday night. He told me that...my investment may amount to zero.' The man had invested $50,000 - savings he had earmarked for retirement.

A customer in her late 40s said: 'My relationship manager called and told me to be prepared to receive a letter from the bank...[it] would say something to the effect that my investments in products like High Notes 5 may be totally gone.' She invested $50,000 and US$30,000 (S$43,000) in two separate transactions.

Investors are mostly clients of DBS's priority banking unit, DBS Treasures.

The product - DBS High Notes 5 - is a 5-1/2 year structured product linked to eight underlying shares, including Goldman Sachs, Morgan Stanley, Merrill Lynch, Macquarie Bank and Lehman.

Customers who invested in Notes 5 said they were sold on the relatively high 5 per cent annual payout by DBS. But now they just want their money back. 'What we do not understand is: How can the fall of one bank cause our funds to just vanish when there are seven other stocks within the product that are still trading?' said a man whose elderly aunt invested $50,000 in DBS High Notes 5.

According to a person familiar with the matter, the largest single investment made on High Notes 5 was $2 million, although this could not be verified by DBS.

DBS confirmed that it took immediate action to notify customers once it learned of Lehman's chapter 11 bankruptcy filing.

'As soon as the news broke we immediately started communicating...to our retail investor customer base,' the bank said in an e-mail reply to The Straits Times. 'We are very concerned and understand the anxieties our customers face as they wonder what will become of their hard-earned money.'

DBS said the Lehman collapse has triggered a 'credit event' and the bank called for a redemption of the notes on Monday. It said unwinding of the product has begun and it will be at least 30 business days before clients learn of the final payout. But DBS also confirmed that investors in High Notes 5 may - 'in the worst-case scenario' - not get back their entire principal amount invested.

The product's prospectus also indicated that in a credit event such as bankruptcy, the notes 'will be terminated and the investor will receive zero payout'.

The bank said the product does not contain a guarantee that the principal will be protected. It also told The Straits Times it would 'fully investigate' claims by some customers that High Notes 5 was in fact sold on such a promise.

Meanwhile, UOB and OCBC Bank said that though some customers have invested in Lehman-linked products, the volume was 'modest' and 'negligible'. 'Since news of Lehman filing for Chapter 11 broke, we have taken a proactive approach in updating clients on the latest developments,' said UOB's spokesman.

OCBC's spokesman said in an e-mail that its securities unit has advised customers to wait for updates from Lehman.

WSJ:

In a sign of how the financial crisis is hitting small investors, a huge money-market fund, the Reserve Primary Fund, announced Tuesday that it lost money as its net asset value fell below the hallowed $1-per-share level, the first time one of these conservative funds has had a loss in 14 years.

The culprit was debt securities it holds issued by Lehman Brothers Holdings Inc.

The news raised the prospect more losses might be in store for other money-market funds holding paper from Lehman, which collapsed Monday, and from other problem-ridden firms. As of Friday, the Reserve Fund had assets of around $62 billion, but they have fallen considerably since.

The development "is really, really bad," said Don Phillips, one of the founders of Morningstar Inc. "You talk about Lehman and Merrill having been stellar institutions but breaking the buck is sacred territory."

The Reserve is a New York cash-management firm that prides itself on creating the first money-market fund. It has dubbed itself "the world's most experienced money fund manager" with $125 billion in assets through June. It didn't return calls for comment.

The Reserve Primary Fund isn't the only money market fund that's struggling:

On the heels of the Primary Fund's announcement, Standard & Poor's cut its credit rating from the highest for money-market vehicles, AAAm, to Dm, the lowest.

One much smaller money fund under the Reserve's banner, the International Liquidity Fund Ltd, also dropped below the $1 standard. That fund is available only to offshore investors. Separately, a money-fund-like investment pool for municipalities not managed by the Reserve, Colorado Diversified Trust, also "broke the buck," but S&P reported that it will be folded into another Colorado entity. S&P downgraded both the International Liquidity and Colorado Diversifed funds as well, from AAAm to Dm.

In addition, S&P put nine other money funds sponsored by Reserve Management Corp. on credit watch for possible downgrade.

Singapore's growth will probably also be affected. Exports are likely to take a further hit and the domestic economy will experience a slowdown.

However, the economists added that the situation unfolding now is not as severe as during the Asian financial crisis of the late 1990s.

Citigroup's Kit Wei Zheng said the storm in the US will 'increase the risk on the export front', leading to 'a broadening of the slowdown into the domestic economy'.

'First to be hit will be the export-oriented sectors such as manufacturing, and the externally-oriented sectors, like tourism. The slowdown will also filter through to affect domestic demand.'

OCBC Bank economist Selena Ling said: 'It's a confidence crisis more than anything else. The biggest question now is, who's next in line?'

The economists pointed to the way this week's dramatic events could reach down to affect the man on the street.

Consumers are likely to tighten their belts and cut spending and investment in light of plunging equity markets.

That will mean corporate bottom lines will be dampened, and firms will in turn be more cautious about expansion, resulting in fewer jobs created.

These are likely to be accompanied by falling property prices, leaner bonuses and smaller salary increases.

Banks will also turn more defensive, limiting loans for cars, homes or business expansion.

The economists noted that the impact of a giant insurer such as AIG going under would be greater than that of an investment bank like Lehman Brothers.

Ms Ling said: 'That's because insurance cuts across both companies and consumers. If an insurer goes under, consumers will be affected via auto, personal policies. It'll have a greater economic impact.'

Nanyang Technological University economist Choy Keen Meng said the maelstrom will result in fewer jobs for the financial sector.

But he added: 'I don't think the deterioration will be substantial...I don't think we're anywhere close to the 2001 recession scenario...unless the whole world goes into a recession.'

Other economists also aired the view that the crisis is nowhere near as bad as during the Asian financial meltdown.

Mr Kit said: 'Asia's not at the epicentre of this crisis, so I don't think it'll be that severe. The region has restructured and is more resilient. We're not looking at a meltdown.

'But what it'll mean is that the slowdown in Singapore will be a lot more painful than what people were expecting at the start of the year.'

Ms Ling added: 'Asia's still growing now - that's the key distinction as compared to the previous period. The crisis is more concentrated in the US, and is spreading to Europe and Japan.'

And economists are not all scampering to trim their 2008 growth forecasts in the wake of Wall Street's mayhem.

Standard Chartered Bank's Alvin Liew said: 'We are still fairly comfortable with keeping our full-year 3.5 per cent forecast unless the third-quarter prelim GDP growth turns out much worse than the 0.4 per cent year-on-year projection we made.'

But not everyone is as optimistic.

Mr Kit said: 'The current situation reaffirms our bearish view over the next 12-18 months. The 4-5 per cent Government growth forecast range may not be realistic any more, and growth could fall under 3 per cent this year and the next.'

SUB-PRIME STARTED IT

MOST of AIG's problems were caused when, like banks and other financial firms, it entered into the sub-prime markets - building up a huge exposure to dodgy loans made to US house-buyers with little or no proof of their ability to pay.

Various divisions of the company were buying sub-prime mortgages, selling mortgage insurance for borrowers, insuring packages of debt linked to sub-prime mortgages, and investing premium dollars in mortgage-backed securities as well.

Then the US housing bubble burst, home prices fell and delinquencies and foreclosures surged. This led in turn to the credit crisis as the market value of everyone's mortgages and mortgage-related securities tanked.

As AIG's packages started to go bad and its loans were not repaid, losses swelled.

In the last three quarters, the insurer has suffered US$18 billion of losses, tied to guarantees it wrote on mortgage- linked derivatives.

Said BusinessWeek: 'The insurance business is all about risk - understanding it, minimising it, pricing to compensate for it. But AIG, the biggest insurance company in the world, seems to have had very little concept of the risk it held in its own businesses.'

It added: 'The job of an underwriter is to spread risk around. If you write earthquake insurance, you don't write it only in California as that could leave your entire business exposed to one terrible turn of events. AIG appeared to ignore that practice when making just such a dangerous bet on sub-prime mortgages.'

Incidentally, Mr Maurice 'Hank' Greenberg, 83, who ran AIG from 1968 until 2005, becoming a billionaire in the process, was forced out after the firm was accused of exaggerating its financial performance with dubious transactions and improper accounting.

DOWNGRADES AND SWAPS

AIG's position became more precarious yesterday because of downgrades to its credit ratings - an event that would force AIG, in effect, to meet a US$14 billion margin call on credit-default swaps it has insured.

The swaps are essentially insurance coverage to protect investors against defaulting bonds or debt.

As a seller of the swaps, investors go to AIG to insure bonds or debt they hold. As part of those swaps, AIG must maintain certain credit ratings. If AIG's ratings are cut, the insurer must put up more collateral or repay the contracts. The credit ratings clause is essentially a hedge against failure by AIG to pay out any claims on the swaps.

AIG has insured US$441 billion worth of credit swaps as of June this year, according to a regulatory filing.

Then yesterday, AIG was hit by a series of credit-rating downgrades. Standard & Poor's, Moody's Investors Service and Fitch Ratings all dropped AIG's debt ratings at least two notches.

AIG has estimated a one-notch downgrade by both S&P and Moody's would force it to post US$13.3 billion in extra collateral to cover swaps.

The cash-strapped insurer must now put up more collateral or repay the contracts, which, of course, it does not have the resources to do.

Lehman Brothers' bankruptcy has also worsened AIG's troubles.

AIG had already bled more than US$25 billion in the value of credit default swaps from its balance sheet by the end of June this year. But it may suffer writedowns of US$30 billion for the period ending Sept 30, resulting in its 'worst quarter yet', if Lehman's bankruptcy leads to distressed sales of mortgage assets, Citigroup Inc analyst Joshua Shanker said yesterday in a note.

CORE BUSINESSES WEAKEN

ADDING insult to injury, AIG's core business has begun to falter. Its property and casualty insurance divisions, part of the company's main underwriting operations, remained profitable, but showed signs of weakness. Other core operations, such as general insurance, performed poorly. The commercial insurance business was hit by rising competition.

CATCH-22

LIKE Bear Stearns and Lehman Brothers before it, AIG is also caught in a vicious downward spiral as it bleeds red ink and searches for US$70 billion of capital infusions it needs to survive.

Bank of America credit analyst Jeffrey Rosenberg calls it a 'circular dilemma facing financials with capital concerns' - the lack of capital-raising prompts a downgrade, further worsening the credit risk of the company, and further constraining the capital-raising potential.

This downward spiral also extends to the company's share price. The sliding stock price makes it harder to sell stakes in the company because of cost of raising capital and the potential dilution of current shareholders, while the inability to raise capital further pressures the stock price.

Yesterday, AIG's shares continued to plummet as the credit downgrades severely jeopardised its efforts to raise the massive amount of cash it needs to survive.

What will happen with AIG could be catastrophic. The repercussions on the global financial system of AIG crashing would dwarf that of Lehman Brothers.

Between the $29 billion the Fed pledged to swing the Bear Stearns sale to JPMorgan in March, $100 billion apiece to rescue mortgage finance firms Fannie Mae and Freddie Mac, up to $300 billion for the Federal Housing Authority, Tuesday's $85 billion loan to insurer AIG and various other rescue deals and loans, taxpayers are potentially on the hook for more than $900 billion.

"They pretended they were drawing a line in the sand with Lehman Brothers but now two days later they're doing another bailout," said Nouriel Roubini, a professor at New York University's Stern School of Business.

"We're essentially continuing a system where profits are privatized and...losses socialized," Roubini said, adding that auto makers, airlines and other struggling businesses would no doubt be asking for government help too.

The government was hard pressed to say no to AIG because of concerns that its collapse would harm thousands of companies around the world and cause chaos in the $62 trillion market for credit default swaps, where it is a big player.

Many on Wall Street were clamoring for a rescue earlier on Tuesday, and AIG's share price swung wildly throughout the day as rumors swirled of an on again, off again government rescue.

But Roubini said instead of handing out money to firms that made bad bets -- which could inadvertently encourage more risky behavior if companies think they have a safety net -- the government should be buying up mortgages and rewriting the terms so that households are not buried in debt.

STRINGS ATTACHED

To be sure, the Fed attached quite a few strings to its AIG funding deal. The loan carries a high interest rate, the government can veto any dividends, and AIG is expected to sell assets over the next two years to repay its debt. Senior management will be replaced.

But the central bank also followed a pattern established with Bear Stearns in March and repeated with Fannie and Freddie earlier this month of essentially wiping out shareholders while protecting those who held debt.

Some economists warned that investors had caught on and were betting on future bailouts by selling stock and buying bonds in struggling firms. That ends up pushing down a company's share price, which can exacerbate its troubles.

"If the message is that any time something like this pops up we're going to wipe out the equity and coddle the bondholders, that is its own sort of moral hazard," said Michael Feroli, an economist with JPMorgan in New York.

"I don't think you have to be a die-hard free market advocate to be at least a little bit concerned."

BERNANKE ON THE HILL

Fed officials said that they needed to act because of AIG's extensive involvement in financial markets. Through its insurance, risk and asset management businesses, AIG has dealings with many thousands of companies all over the world, so a bankruptcy would have had huge global repercussions.

RBC Capital Markets analyst Hank Calenti pegged the market impact of an AIG failure at more than $180 billion, or about half of the total capital that financial firms have raised since the beginning of the credit crisis last year.

But JPMorgan's Feroli said the Fed could have chosen to let AIG fail, just as it had done with Lehman.

"We don't know if the disease would have been worse than the medicine," he said. "We'll never know. But we know we lived through Lehman."

He said the central bank needed to clearly explain when and why it would act to salvage a company in jeopardy or face the prospect of a long line of companies seeking bailouts.

Fed Chairman Ben Bernanke, who has stayed out of the public eye during the Lehman and AIG drama, is due to testify before a congressional committee next week and can expect some pointed questioning, Feroli said.

"He needs to provide some sort of clear demarcation of what is or is not a systemic risk."

"Of the many unconventional actions taken by the Fed in the current crisis, this may likely prove to be the most controversial and should make Bernanke's...testimony on Capitol Hill an interesting event."

At noon, the waiting line to get a queue number snaked all the way to the back of the centre. To cater to the swelling crowd, AIA extended its customer services to the ninth floor of AIA Tower building, next to its customer service centre.

One concerned customer was AIA policyholder Ms Karen Tan, 45, who planned to surrender a whole life plan that she has held for 20 years.

'The policy has broken, so I might as well surrender it now. Even with the bailout by the US government, everything is still so uncertain. I'm afraid I won't get anything if AIG collapses,' she said.

Another customer, who declined to be named, said that despite the rescue efforts of AIG, no one knew 'how big the hole is.'

To allay the fears of customers, AIA staff were seen displaying newspaper articles assuring customers that AIA can meet all its obligations, as well as copies of press releases giving the latest updates on AIG.

Still, there were some in the crowd who were unaware that AIG has managed to successfullly secure financial help from the US government.

One AIA customer, who wanted to be known only as Mr Sim, had earlier planned to terminate four endowment policies but decided to re-consider after The Straits Times informed him about the latest action by the US government.

Said Mr Sim, 66: ' I have three more years to go before my policies mature. Now that I'm clearer of what's happening in the US, I will check my cash values now and re-consider my decision to terminate them today.'

For the past 18 years, he has been paying total premiums of $30,000 annually for his four policies.

By late afternoon, the Singapore office could not handle any more queries and asked hundreds of customers to come back on Thursday.

The Monetary Authority of Singapore on Tuesday night said AIA has sufficient assets in its insurance funds to meet its liabilities. It also urged customers not to terminate their policies hastily as they may stand to lose cover and suffer losses.

Some Singaporeans are concerned that AIG could be the next financial giant to fall after Lehman Brothers.

With regards to AIG, MAS said: "The value of these assets is not linked to AIA's or AIG's financial condition, but like all investments, their value may be affected by general market conditions."

The MAS assured the public that "AIA currently has sufficient assets in its insurance funds to meet its liabilities to policyholders".

It advised policyholders not to act hastily to terminate their insurance policies as they may suffer losses from the premature termination and lose insurance protection.

MAS explained that there are regulatory requirements, ensuring that all insurance companies maintain statutory insurance funds, including an investment-linked fund. This fund is segregated from its head office and other shareholders' funds.

Within these funds, insurance companies must maintain sufficient assets to meet all its liabilities to policyholders, which include participating policies and investment-linked policies.

MAS monitors the situation closely, and requires insurance companies in Singapore to manage their investment risks carefully.

There have been queues at AIA's offices in Singapore since Tuesday morning.

A few long-term AIA policyholders told Channel NewsAsia that they wanted to surrender their policies, despite incurring losses for premature termination.

Some waited for up to three hours to be attended by staff who were overwhelmed by requests since the office opened on Tuesday morning.

One policy holder said: "I just want to cash out the policy, and I have no intention of putting my money here anymore."

Another said: "I contemplated surrendering it a few years ago, so I guess it's about time."

A third noted: "AIG was mentioned in those reports, so we just wanted to make sure that whatever we have is going to be safe."

Lehman, the fourth largest US investment bank, filed for bankruptcy protection yesterday, finally falling to the United States' sub-prime mortgage crisis.

When The Straits Times visited the bank's Singapore office yesterday, security was tight and the media were refused access by Lehman.

But a canvass of the cigarette-smoking crowd at Suntec Tower Five painted a picture of gloom and uncertainty.

'We're prepared for the worst,' said one of Lehman's Singapore-based employees. 'You can imagine the gloom around the office.'

'It's a really bad time for us, especially when we don't really know what's going to happen to us here,' explained another who also declined to give his name.

'All we are authorised to say now is that it's still business as usual upstairs,' added a third staff member before stubbing out his cigarette and walking away.

'I just returned from a holiday and have no clue what's going to happen,' said another staff member who was seen leaving Tower Five with a trolley bag. 'But I guess I may now have to start looking for a new job - got any vacancies at The Straits Times?' he quipped.

Judging from the fact that a headhunter from recruitment firm Robert Walters was also spotted in the same lobby, at least some staff may find other work soon. But when approached, the headhunter reluctantly said that she was just there for 'a meeting'.

Local banks here also could not shed more light at press time - most preferring to adopt a wait and see attitude. An OCBC spokesman said the bank currently has no updates, but would be 'closely monitoring developments in the US and global financial markets'.

United Overseas Bank also said it is waiting for further clarification from 'the relevant parties' before it can assess the implications of Lehman's fall. But its spokesman said the bank's exposure to Lehman remains 'very small and insignificant'.

Although Singapore's largest lender DBS Group Holdings also said its direct exposure to Lehman is 'insignificant', it could not say the same for some of the investment products it used to distribute.

'On the retail front, some investment products DBS sold in the past, such as High Notes 2 and High Notes 5, have Lehman exposure,' said a DBS spokesman.

Other small retail investors holding Lehman's products such as its Minibond series should also brace themselves for a big hit on their wallets, sources say. Lehman's Minibond series are structured products widely held by retail investors in Singapore because of its previously high regular payment rate of about 4.8 per cent. But according to industry experts, a Lehman default would result in investors getting back only about 30 US cents for every US$1 invested.

Now, six years later, she has only $30,000 left, after suffering a 40 per cent loss.

Mrs Ong claimed that despite the bank employee's explanation, she did not understand what the fund was about at the time, but was under the impression that she was opening a fixed deposit.

Mrs Ong told The New Paper: 'I was frightened to death when I realised how much I had lost. I'm so angry with myself for making this mistake.'

She had no inkling of the huge loss that she suffered until last week when she went to the bank to withdraw the money.

What is worrying, is that Mrs Ong is not the only customer who has lost money as a result of such investment products.

Be transparent

A check with the Consumer Association of Singapore (Case) revealed that there have been 28 cases of misleading claims by banks reported since last year.

Of these, seven involved elderly and illiterate people.

Case President Yeo Guat Kwang said banks need to exercise special care when recommending investment options to senior citizens or illiterate consumers who do not understand the risks involved.

Families should also tell elderly parents that they should not sign any agreement before consulting them.

Said Mr Yeo: 'The bottomline is that all financial institutions should be transparent, adopt fair trading practices and should not mislead or make misrepresentation at all.'

In Mrs Ong's case, she had gone to the POSB bank at Beauty World in September 2002 intending to open a fixed deposit account.

She claimed a bank employee then told her that leaving her money in a fixed deposit would earn her little, and advised her to invest in the unit trust fund instead.

After the bank employee allegedly reassured her that she would get her principal investment back after five years, Mrs Ong signed the papers, even though, she claimed, she did not understand what was written on them.

She claimed she had asked for Chinese copies of the documents, but was told by the bank employee that they could not provide such copies.

She did not tell her husband or her children about her investment, because she assumed it was a normal fixed deposit.

She said: 'I didn't want my children to worry about me, and my friends tell me that we do not need to let our husbands know how much we have.

'I realise now that kind of thinking is wrong. We should always let them know.'

Although the bank had sent her quarterly updates on how the fund was doing, Mrs Ong said she was unaware of her losses as she did not understand the letters, which were written in English.

She also did not pass these documents to her children.

Mrs Ong had needed the money to pay the deposit for a $300,000 resale HDB flat in Bukit Panjang that she and her husband wanted to buy.

To her horror, she found out that there was only $30,000 left in her account.

Worried, she called her eldest daughter to tell her what had happened to her savings.

Her daughter, a 38-year-old hawker, said: 'This was money that my mother had saved since she was 24 years old. It was her life savings.'

Mrs Ong was so affected by the incident she claimed she could not sleep for days.

She said: 'I never dared to splurge on myself, or to spend on expensive food and clothes, so that I would have enough savings to get by in my old age.

'It was such a waste to have my hard-earned money lost like this.'

She has not only closed her accounts with the bank, but has also withdrawn all her other savings which had been placed with another bank.

Worried that another person would go through the same ordeal, Mrs Ong decided to share her plight.

She said: 'The bank was wrong for not explaining the investment more clearly to me, and I was also wrong for not finding out more.'

When asked about the details of Mrs Ong's case, a DBS spokesman said they could not comment as investigations are ongoing.

The spokesman said: 'In general, the bank's process is to conduct a fact find to understand the client's financial needs, risk tolerance, investment time horizon, prior to recommending any investment product to a client.

'Features of the product, the risks involved, fees and charges, etc will be explained to the client.

'For all unit trust investments, relevant prospectus will also be given to them.'

Said Mr Choo: 'It was a bold statement to make, but my intention was to let people know that I could live comfortably without any financial worries. I think I have achieved that.'

Silenced critics

Mr Choo left his full-time job as an advertising sales manager at a publishing firm in April last year. He was then drawing a monthly salary of about $2,800.

Since then, he has not looked for another job, but instead has been trading in the foreign exchange market.

In the last year, Mr Choo has made a tidy profit of over $100,000, or an average of $10,000 a month.

Not bad for someone who was considered a deadbeat by his peers.

Said Mr Choo: 'It was a message to my peers that I could survive without holding on a full-time job and taking the traditional route of being a salaried worker.

'When I quit my job, I faced a lot of scrutiny from friends and relatives who thought I was a slacker for not looking for a new job. A friend commented that I was not really working and not taking care of my career. I got angry and started the blog. I felt like an outcast then.'

The National University of Singapore (NUS) graduate, who has a degree in Applied Mathematics, has always preferred the road less travelled.

His parents wanted him to be a maths teacher, or work in a bank, but he would have none of that.

He first started options trading in 2004, as a first-year student at NUS. But he lost $25,000 within two months. Undeterred, he pressed on and recovered his losses.

A year later, he started his own publishing firm, Pixie Media, which produced the magazine Snag in September 2005.

But it bombed about a year later in December 2006, due to poor circulation and advertising, incurring a debt of over $70,000.

It was a big blow to Mr Choo.

'I had to borrow money from my younger brother. It was quite pathetic and I also had to ask him to treat me to lunch from time to time,' he said.

Mr Choo, who graduated in June 2006, then took on a full-time job in February last year as an advertising sales manager but left after two months.

'I went to see a new $1.3 million condo in town. I was calculating the initial deposit of about $260,000 and realised that it would take me a very long time to save that kind of money.

'After realising that there is an income ceiling as a salaried worker, I decided to call it quits,' he said.

Humble background

He has been jobless since last April.

Mr Choo, who is single, currently lives in a three-room HDB flat in West Coast with his parents.

His father, 54, is a welder while his mother, 47, is a factory operator. His 23-year-old brother is a business undergraduate at the Singapore Management University (SMU) who's also runs his own online sea shells business.

Mr Choo then turned to forex trading. He also started a trading academy in May this year to teach investment strategies.

His lessons are conducted both online and in a serviced office, but he was quick to add that there are risks.

Mr Choo's mother, Madam Yong Siew Lan, said she always had faith in her son.

She said: 'He has always been driven since young. I wanted him to be a teacher but he has his own path to follow.'

So she decided to play Cupid, distributing his business card to other parents.

It was the first parents' matchmaking session, organised by dating agency Clique Wise which had taken up a suggestion by Prime Minister Lee Hsien Loong.

PM Lee had floated the idea of having parents play matchmaker for their children in his National Day Rally speech last month.

He described how thousands of parents in Beijing secretly sought out spouses for their children at such sessions, commonly held in parks, and suggested Singapore parents try it too.

Yesterday, they did. Parents took matters into their own hands, saying their children were too busy for a social life.

Many like Mrs May Jow, 60, came without their children's knowledge. 'I took my daughter's photograph from the drawer without telling her,' she said.

The matchmaking process was simple: Parents exchanged details of their children like age, education and current job, and asked to see a picture of the 'candidate'. Some whipped out passport-sized photographs, others 4R-sized pictures. One parent came with an 8R computer printout of the family posing with the candidate in a graduation gown.

Parents were not only scrutinising the candidate's looks, but also sussing out the candidate's parents to see if they came from similar backgrounds. If all goes well, they exchange phone numbers.

Some parents like Mrs Jow were on the lookout for candidates who matched their children's height and age.

'The age difference should be about three to four years and he has to be at least 1.76m tall,' said Mrs Jow, whose daughter is aged 30 and is 1.68m tall.

Parents hunting for a son-in-law also wanted someone with a higher educational qualification and a stable career.

Said housewife L.H. Heng, 55: 'My daughter has a polytechnic diploma. Her spouse cannot have any lesser than that.'

The session's organiser, Ms Lydia Gan, said the event was held at Speakers' Corner as the older generation was familiar with Hong Lim Park. It was also free.

All Ms Gan had to do was register online with the National Parks Board, since rules were eased to allow outdoor demonstrations at Speakers' Corner from Sept 1.

While the matchmaking session was registered as an exhibition, and not a demonstration, it did draw onlookers like odd job labourer Jeff Tan, 60. He had dropped by after shopping in nearby Chinatown, thinking he would catch a protest in progress.

But there was none. So far, only non-profit group Hearer of Cries has held a demonstration, staging a 10-minute protest against employers who abuse maids.

Mr Tan said: 'I wouldn't come here specially. I work in Changi and I'm living in Tampines. It's too far.'

'If you are well-dressed, people will think you have self-discipline. And if you dress poorly, people will think you're very lazy.

'If someone can't be bothered about their own appearance, how can they be trusted with other things?'

Looks matter, especially when it comes to relationships.

Ms Choo said: 'When guys first see you, they don't care about your character. Only your looks.'

So what does beauty mean to her?

'Silky hair and big eyes with long eyelashes,' she replied.

For Ms Choo, Japanese actor Takashi Kaneshiro is the most beautiful person in the world because 'his eyes are very expressive' and 'he looks humble'.

Most of Ms Choo's beauty inspirations come from the movies, where she notices what the stars wear and how they are made up. Inspiration also comes from people-watching at Orchard Road, the Shenton Way area, and even at her neighbourhood coffee shop.

For Ms Choo, beauty is the source of her confidence, and although she doesn't like men staring at her constantly, she wants them to look at her 'a little'.

Ms Choo who spends $200 a month on three to four dresses, said: 'It's not just for the guys, lah. It's also for me. When I look good, I feel good.'

When asked if she would consider other definitions of beauty, she replied: 'No. It's just my personality. I just like nice things.'

She said: 'Honestly, I feel that people who enter this (Aware) competition are deceiving themselves a bit. Maybe at this point in time, their presentation might not be important to them.

'But later on, surely they will find a reason to be beautiful. Don't tell me they don't want to look good on their wedding day?'

This is up from about 12,200 in December 2006, according to SP Services, the customer service arm of utility company Singapore Power.

The bulk of these families live in rental flats and smaller one- to three-room ones. But social workers say they are astonished that many families who cannot pay their bills live in larger flats.

Those interviewed say this is an indication of how rising prices and stagnant incomes are affecting more people.

MP Halimah Yacob (Jurong GRC) said: 'If you look at it, inflation has also affected not only the low-income group, but also the lower-middle class.'

The high numbers, they added, point to a Singapore phenomenon: Of being 'asset rich but cash poor'. With little savings, such households are affected by sudden changes, such as when the breadwinner loses his job, or the economy starts slowing down, as it is doing now.

Mr Shawn Koh, centre head of Pasir Ris Family Service Centre, said: 'Inflation and bad times do not discriminate according to flat types.'

Social worker Sophie Cheng added that some Singaporeans buy larger flats without thinking 'very hard' if they can afford them - a point also made by National Development Minister Mah Bow Tan in February.

The pre-paid metering scheme, called Payu, for Pay As You Use, involves replacing conventional power meters with special ones that work only if an account has sufficient credit in it.

Users can top up amounts from $10 to $250 into their accounts. As electricity is used, the sum is drawn down and has to be topped up. Twenty per cent of what they top up goes into settling their outstanding balances with SP Services.

Madam Noorfarizan Abdul Rahim, 30, went on the scheme after failing to pay her bills for three months. Her family owes SP Services over $400, but with four children to feed on a single income of $850 a month, putting food on the table, not paying bills, gets top priority.

Madam Noorfarizan, whose husband is a cleaner and whose children are aged between eight months and 10 years old, said: 'The price of rice has gone up, the price of cooking oil has gone up and everything has gone up.'

To help a little go a long way as far as energy is concerned, she restricts activities like watching TV. Social workers say that other such families also resort to leaving their flats in darkness. Many throw doors and windows open to catch available light from common corridors.

Madam Noorfarizan topped up her Payu account with $10 a few days ago, but just $3 remains. She will head to the Post Office today to top up another $10 - good for 'two to three days of power'.

Help for some of these families, meanwhile, is on the way. Two Community Development Councils - North West and South West - have started a scheme that gives utility vouchers to help residents whose power supply has been cut off or is danger of being cut off.

Separately, sources suggested that up to 200 information technology (IT) jobs could go at Citi's Singapore operations.

In the internal memo, obtained by The Straits Times yesterday, New York-based Mr John Havens, the head of Citi's institutional clients group, urged employees to be much more frugal in their expenses. 'All new BlackBerrys will require pre-approval,' Mr Havens stated in the memo that originated from Citi's New York headquarters.

He added that the managing of expenses is a 'critical aspect' of the bank's strategy - and of employee's jobs.

He said Citi is trying to slash photocopying and printing costs. 'Colour presentations are unnecessary for internal purposes; therefore going forward colour copying and printing should only be used for client presentations.'

The memo also flagged a major review of the 'very substantial temporary workforce' at Citi. 'We will be conducting a detailed review of all our temporary workforce engagements to understand more efficient ways to fulfil our needs.'

The memo also said Citi would review its use of management consultants to determine if there are 'more efficient sources' to fill its needs.

'Going forward, all new management consulting engagements will require pre-approval,' Mr Havens wrote.

Citi has been hit by billions of dollars of losses in the wake of the US sub-prime mortgage crisis and credit crunch.

Sources at Citigroup's Singapore office said yesterday that the memo, dated Aug 15, was mainly circulated to the bank's institutional clients group, including trading and investment banking as well as hedge-fund management.

These measures aside, sources say a significant part of the cost savings at Citi is still likely to come from staff layoffs. They say that in Singapore, as many as 10 per cent of Citi's estimated 2,000 staff working in the information technology area - about 200 people - could be asked to leave the bank soon.

However, this could also happen through natural attrition as a number of staff here are keen to leave bank due to poor morale, they say.

A Citi source said the mood at the bank was similar to the gloom that took hold after the Sept 11, 2001 terrorist attacks. 'A lot of good IT people have already left for the likes of Barclays Capital and the attrition will continue,' he said yesterday.

He said the IT staff affected by this restructuring exercise could include those at the operational level, such as project managers, and vendor management and client management staff.

When contacted, Mr Adam Rahman, head of corporate affairs at Citi Singapore, stressed that the bank 'remains committed to investing in growing the business in key markets'.

'Managing expense and reviewing of cost structures is an ongoing exercise that helps to increase efficiency and productivity, and reduce waste,' he said. 'Given the current global environment, we are evaluating a tighter set of expense policies across our businesses.'

He did not comment on the question of the possible job losses.

Singapore is a key hub for Citi in Asia with about 9,000 staff, the bank said.

Across the industry, banks including Citi are not just chopping jobs and bonuses, but are also taking away perks.

The New York Times reported that analysts at Swiss banking giant UBS are now flying economy class on domestic flights, while Deutsche Bank employees were told they will not be reimbursed for 'adult entertainment of any kind'.

Meanwhile, Goldman Sachs traders in the US no longer get free water and soft drinks, it said.

Among defaulting on credit card bills, growing bankruptcy and gambling, young adults aged between 21 and 29 are notorious for living it up.

The common reason given for getting caught in the debt trap: Materialistic desire for the high life, although most could not truly afford it.

That need is driving us into a hole.

Credit Counselling Singapore, which advises debtors, revealed that under-30s formed 9 per cent of all cases it handled in 2006, leaping to 15 per cent in the first three months of this year.

This age group is also forming a bigger percentage of those who become bankrupt, says credit analysis firm Amequity.

Talk about throwing it all away.

Gaining more financial freedom, and not knowing how to manage it, is a lethal mix that is propelling young people on the highway to destruction.

Personally, I have been guilty of overspending. When I first started earning money, I began to splash on expensive nights out. Weekly shopping sprees were a way to reward myself for working hard. Spa packages costing thousands of dollars? Not a problem, I simply whipped out my credit card.

My friends were the same way. Frequent overseas trips - up to three times a year - were fairly common. One even bought a car shortly after starting work.

Managed rightly, the empowerment of financial freedom can set us up for the future. Wrongly, and our mistakes will follow us into our 30s, 40s and even beyond.

Yet this is what many young adults in their 20s are like: incapable of managing money, let alone be ready to get married and have babies.

We are lost, all right.

As a friend lamented to me, he does not know where his career is headed. His tuition fee loans have barely been paid off. The figures in his bank account are a joke. He is not sure whether that someone is special enough for marriage. How does the Government expect us to get married and have babies early, he asks? I can't help but agree.

With newer and more responsibilities on the horizon, how can youth mature into adults, with their bank accounts intact? We need people with more worldly experience to impart it to us. Parents should be teaching children the value of hard work and thrift, from an early age.

Schools should educate students on setting goals and making choices before they get pushed out into the corporate jungle. And perhaps companies could hold workshops or programmes to teach us how to manage or invest our money properly.

Start the young early on how to live wisely and they will gain the advantage.

Abby Wilner and Alexandra Robbins, authors of the book, Quarterlife Crisis, The Unique Challenges Of Life In Your Twenties, said that though the youth of the past faced the same questions as the youth of today, the difference is that this generation has a lot more options.

The big question is: How to make the right choice from the myriad of options, and not have it haunt us for the rest of our lives?

The 20-something years are when our ability to make decisions is drastically challenged. It is a phase filled with much turmoil, indecision and angst. In many ways, it is worse than adolescence.

For me, it is the new adolescence.

The bank is declining to confirm details of the offering.

The sources said UOB yesterday unveiled a 'soft launch' of the issue of securities for deep-pocketed investors priced at $50,000 per lot via several brokerages.

But the market sources say that the preference shares are also likely to be made available later in smaller amounts. They will be sold via UOB's channels and through an ATM tranche.

The bank is the third lender after rivals DBS and OCBC to offer preference shares to raise cash and strengthen its tier one regulatory capital base. This tier one capital is used as a buffer against the loans that a bank issues.

It is not clear how large the share issue will be. However, brokers reckon it is likely to be at least $1 billion, given that DBS Group Holdings had raised $1.5 billion earlier, while OCBC is looking to raise up to $2.5 billion in two separate offerings.

But a check with a few brokerages showed that the response had been rather muted yesterday.

Brokers noted that the appetite of wealthy investors for these perpetual securities had already been largely satisfied by the DBS and OCBC offerings, which dangled higher interest rates.

DBS' shares offer an annual rate of 5.75 per cent, while OCBC's pays 5.1 per cent a year. UOB's preference shares are understood to pay a fixed dividend of 5.05 per cent, payable twice a year. They may be redeemed by the bank in the fifth and 10th year, subject to approval from the Monetary Authority of Singapore, the sources said.

UOB refused to give details in response to The Straits Times' queries. A spokesman said only: 'We are always exploring opportunities and monitoring the market.'

Reits turned in 'decent results' in the second quarter and should see better earnings in the near term, the bank said in its report.

Reits are listed funds that buy properties and collect rental income, which they distribute to unit holders like dividends.

Credit Suisse said three Reits, in particular, surprised with better-than-expected results: Mapletree Logistics Trust, Suntec Reit and CDL Hospitality Reit. But another three - Frasers Centrepoint Trust (FCT), Lippo-Mapletree Indonesia Retail Trust, and CapitaRetail China Trust - were disappointments, it reported.

The bank noted that quarter-on-quarter, office trusts delivered the strongest growth in terms of earnings, while hospitality Reits turned in the weakest performances.

On a year-on-year basis, retail Reits grew the most in terms of earnings and industrial ones the least.

Overall, CapitaCommercial Trust was the only Reit expected to grow by more than 20 per cent in terms of distribution per unit for both the current and next financial year, predicted Credit Suisse.

It also said it preferred large defensive Reits in the suburban retail and industrial sectors, particularly CapitaMall Trust and Ascendas Reit.

Another bank, Citigroup, also issued some positive calls on Reits last month.

It upgraded Suntec Reit to a 'buy', forecasting high yields of over 7.5 per cent. The trust's results had come in above market expectations, boosted by strong rental renewals for its office and retail space.

Credit Suisse's report marked a turnaround of sorts for the Singapore Reit sector, which was overcast with clouds as recently as three months ago.

Ratings agency Moody's Investors Service issued in May a negative rating outlook for Singapore Reits, citing negative sentiment and short-term refinancing risks due to tighter liquidity. Some analysts followed up by downgrading or cutting their target prices for Reits on the back of rising interest rates.

Most Reits, however, have since managed to secure refinancing for their debt despite the global credit crunch. They are also now better bets than developers for their 'recurrent income and more predictable cash flows', Credit Suisse said.

Its report concluded that the debt profile of Singapore Reits had improved and earnings were expected to be resilient in the near term.

The bank warned, though, that risks of credit availability and high borrowing costs still exist, as do concerns over asset devaluation.

For now, though, asset values are still expanding and interest rates are expected to remain low, it added.

The chief executive of wealth management firm dollarDex, Mr Chris Firth, attributes the fall-off to the 'very negative' sentiment of customers, who prefer to adopt a wait-and-see approach.

Ms Mah Ching Cheng, research manager at unit trust distributor Fundsupermart, was not surprised at the sharp decline as investors are fearful of buying into funds, particularly equity ones, after seeing so much carnage this year.

'Negative news on further bank write-downs, high oil prices, and worries over inflation are just some of the many concerns that investors have over the second quarter,' she said.

Another reason for the sharp fall is the lower inflows for approved products under the CPF Investment Scheme, following rule changes that kicked in on April 1.

There were some signs of hope. The net flows into equity offerings in the second quarter hit $212.7 million - a big turnaround from the first quarter when there was a net decrease of $85.7 million.

This was because of attractive valuations in various markets after a series of market fallouts, said Mr Suthee Luangaramkul, research analyst at fund tracker Lipper Inc.

Ms Mah believed that investors are starting to see that equities are looking attractive after the big falls that have occurred.

The MSCI Emerging Market Index fell 22.5 per cent in the second quarter while the MSCI World Index fell 16.9 per cent.

'We do see higher fund volumes for both Asian equity funds - such as India and China funds - on the Fundsupermart.com website for the second quarter,' she said.

Oil prices have been showing signs of weakening, with prices hovering at US$115 a barrel, and investors are on the lookout for other signals that may point to an early phase of market recovery.

This would be when volatility starts to ease and that will likely happen when improvements in the US housing indicators, such as reduced foreclosure rates and lower home inventory levels, are seen.

'When banks start to report earnings that are similar or higher than what market analysts estimate, you might even expect a small rally,' added Ms Mah.

Meanwhile, cashed-up investors are advised by Ms Mah and Mr Firth to get into the markets through dollar-cost averaging.

This involves investing the same dollar amount at regular intervals, say monthly, into a diversified investment portfolio. This way, prices paid for the shares or unit trusts are averaged out.

UBS will repurchase all US$18.6 billion of the securities it sold and pay a fine of US$150 million as part of an investigation led by New York Attorney General Andrew Cuomo into whether banks misled customers about the safety of the securities.

Mr Cuomo said in an interview that his investigation into the troubled securities is continuing. Of the two settlements reached in as many days with UBS and Citigroup, he said: 'We tend to start with the largest because that can make the greatest impact'.

As part of its settlement announced on Thursday, Citigroup will also pay fines of US$100 million.

The bond-like investments were widely held by many institutional and individual investors and were seen as highly liquid, money market-like investments. However the market for them collapsed in February amid the downturn in the broader credit markets.

The US$330 billion auction-rate securities market involved investors buying and selling instruments that resembled corporate debt, except the interest rates were reset at regular auctions, some as frequently as once a week. A number of companies invested in the securities because they could treat their holdings almost like cash.

Regulators have been investigating the collapse in the market to determine who was responsible for its demise and how to make investors whole.

'What we've established is the institutions are responsible', Mr Cuomo said. 'People will get their money, and get it back in the immediate future'. More than 80,000 investors nationwide are affected by the two agreements.

UBS agreed to repurchase all of the auction-rate securities it sold to retail customers, charities and small and mid-size businesses beginning Jan 1.

That group holds about US$8.3 billion in securities. Within that group, customers with less than US$1 million in assets at UBS will be able to sell the securities back to the bank beginning Oct 31.

The bank will begin repurchasing securities from institutional investors - worth a total of about US$10.3 billion - beginning in June 2010.

Any customers who sold the securities at a loss after the market failed Feb 13 will be reimbursed.

The settlements with UBS and Citigroup provide parameters to other banks on how to resolve situations surrounding their sales of auction-rate securities, Mr Cuomo said.

Bank of America and Bank of New York Mellon have both disclosed they received requests for information about the sale of auction-rate securities, and Merrill Lynch & Co has said it will voluntarily repurchase US$12 billion of the securities from clients.

Mr Cuomo noted Merrill's repurchase programme falls short of the steps agreed to by UBS and Citigroup, and his office will continue to investigate the bank.

Both UBS and Citigroup will take charges tied to the repurchase of the securities because they will be forced to price them at their current market value and not at the par value being paid to repurchase them.

UBS said it will take a charge of about US$900 million on a pretax basis based on the difference between the par value of the securities and their current market values and the cost of the regulatory fine.

Half of the US$150 million fine will go to New York, which led the investigation and where UBS's US headquarters are located. The other half will be distributed to other states, including Massachusetts and New Hampshire among others.

In reaching the settlement, UBS did not acknowledge any wrongdoing.

UBS will record the charge in its second-quarter results, which are scheduled to be released on Tuesday.

Citigroup said it will take a pretax charge of about US$500 million because of its settlement.

That wheel is the 150m-diameter Singapore Flyer which reversed its direction last Monday, amidst other new features introduced at the Marina Bay attraction.

While in most cases it might have taken months of discussion and much persuasion to bring about such an about-turn, all it took in this instance was a few Feng Shui masters and four months of study.

Some of these practitioners had approached the management of the Flyer, Great Wheel Corporation, and alerted them that the wheel was turning the wrong way although it was sited perfectly.

According to them, the wheel was bringing fortune out of the land, instead of towards it, because it faces the financial district and then turns around towards the east and open sea.

The company was convinced and, after spending a six-figure sum, reversed the wheel and made it rise up on the eastern side and then turn towards the financial district - supposedly a sign of bringing fortune inwards and flowing to the city.

Of course, it was no mean task to make the 165m-tall structure spin the other way. Sensors had to be reinstalled and other technical implications had to be resolved.

Whether the change will bring queueing hordes to the attraction remains to be seen but, definitely, the attraction's recent achievement - at the beginning of this month - of selling one million tickets within four months of its official opening could not be credited to the turnaround.

Now, we'll see when the next million will come.

Executives at Citigroup, JPMorgan Chase and Bank of America began reviewing the bundles of mortgages, known as collateralized debt obligations, that their companies hold on their books. Those companies may have to lower their valuations, and take additional charges, if their assets are similar to those sold by Merrill.

Still, U.S. financial stocks rallied Tuesday, as investors hoped the deal at Merrill signaled that the troubles plaguing banks' balance sheets might be coming to an end.

"This is setting some sort of precedent for these prices," said Stuart Plesser, an analyst with Standard & Poor's Equity Research.

Merrill's deal also shined a light on the desperate measures banks are taking to clean up their balance sheets. As Wall Street firms negotiate deals to sell troubled assets to private equity funds and hedge funds, they are offering generous loans to potential buyers.

For Merrill, this meant lending $5 billion to Lone Star Funds toward the $6.7 billion purchase price. If the assets deteriorate below their current marks, Lone Star loses the first $1.7 billion, then the losses move to Merrill. So Merrill could lose up to $5 billion, though the bank may have protections on the deal that it has yet to disclose.

Analysts were skeptical.

"It's not truly unloading the risk," said David Trone, an analyst with Fox-Pitt Kelton. "I mean from an accounting standpoint, it's gone, but from a real risk standpoint, it's still there."

Merrill is not the only company that has made loans to seal a deal.

Citigroup and Deutsche Bank made similar loans in the spring when they sold billions of dollars in loans used to finance corporate buyouts.

And, in May, when UBS sold mortgage bonds to a BlackRock investment fund, the Swiss bank lent $11.25 billion of the $15 billion purchase price. That deal left UBS on the hook for any losses of more than $3.75 billion.

"Essentially, what you've done is you've taken a write-down, and you've put it back on your balance sheet as a loan," said Brad Hintz, an analyst with Sanford C. Bernstein. "What they're trying to do is to clear the balance sheet."

The round-about pattern of these sales raises more confusion over the actual value of mortgage assets. In the Merrill case, the collateralized debt obligations were originally valued at $30.6 billion before the credit crisis. By the end of the second-quarter, Merrill had written them down to $11.1 billion. And then it sold them for $6.7 billion, sugar-coated with a loan package.

Still, Merrill's price of 22 cents on the dollar was held up Tuesday as the new measuring stick, as analysts whipped out predictions for Merrill's peers. Several focused on Citigroup, a bank with large exposure to collateralized debt obligations.

An analyst from Deutsche Bank said the new benchmarks might cost Citigroup up to $8 billion. An analyst from Merrill Lynch said the write-down at Citigroup would probably be closer to $6 billion. And at Ladenburg Thalmann, an analyst said the marks would be much smaller.

Citigroup declined to comment.

Citigroup's chief financial officer said during the company's second-quarter earnings conference call that many of the bank's collateralized debt obligations were created before 2006. Those assets are valued at 61 cents on the dollar, for now.

Other mortgage assets at Citigroup known as mezzanine collateralized debt obligations and high-grade collateralized debt obligations are already marked closer to Merrill's 22-cent level.

This is not the first time banks have watched large mortgage sales in the market translate into losses on their own books.

A sale by Peleton Partners in February forced several firms to write down mortgage assets.

Bob Stickler, a spokesman for Bank of America, said the bank was taking Merrill's sale into consideration. Bank of America values its comparable collateralized debt obligations at 44 cents on the dollar.

But Stickler cautioned that the quality of these debts varies, especially based on when the debts was created.

"You can't compare anything of high quality to the toxic waste they sold," Stickler said, referring to Merrill's sale. "That's not even comparing apples to oranges."

Despite my eagerness to start 'playing the market', I waited three years after I had turned 21 - the age when one can open a direct securities account - before I began.

This was due partly to procrastination, but more accurately because I didn't have enough money saved up yet.

In the first year that I started work, my paltry salary barely paid my bills. So when I got a decent bonus at the start of this year, I knew the time had come.

For the first time, my bank account looked full of promise. The trading counters on the Singapore Exchange (SGX) website suddenly danced with life, seducing me with its changing red and green arrows.

I had big dreams of making sky-high returns, doubling my bonus by playing the market and using my well-invested money to do all sorts of amazing things, like making a down payment on a flat or going for a year-long holiday.

After all, I thought, I'm a reasonably intelligent person; how difficult can choosing some good stocks be?

Alas, seven months since my foray into the market, my naive notions of the stock market became brutally apparent when my shares came crashing down on me. I've since retreated from the perils of trading to declare 'cash is king', while nursing untold financial losses on paper.

So what went wrong? Well, several things, in hindsight - but mainly, penny stocks were my downfall. Like many young investors, I had some cash but not a huge amount, so I could either buy a miserable one or two lots of a blue-chip stock or 10 times that of a penny or small-cap stock.

The temptation to ride on the price movements on these cheap counters was too great to resist.

The problem was, I had underestimated the risks involved in this type of shares, which can be dangerously high.

This was proven when bad news first came trickling down from the United States in January, and they were the first to tank.

When their prices started to dip, I should have dumped them to cut my losses, but I had this stubborn belief, which I believe is symptomatic of all virgin investors, that my shares would recover.

So when wave after wave of bad news - from the near collapse of Bear Stearns in March, to the recent crisis at US mortgage lenders Fannie Mae and Freddie Mac - crashed upon Singapore's shores, I stubbornly held on.

I even stopped checking my online brokerage account to avoid thinking about every dollar of that hard-earned bonus that was being whittled down in value day by day.

For comfort, I kept repeating to myself 'I'm a long-term investor' so I could sleep at night, reasoning that if I held on long enough, the stock prices would bounce back up again.

But if I could go back in time, there would be so many things I would do differently.

In good times, you can get away with doing superficial homework, but in downtimes, nothing short of thesis-worthy research is required, I've realised.

The fatal flaw in my investment approach was my blase regard for fundamentals.

I would look at a company's prospectus and/or balance sheets, check the industry outlook and convince myself it was good.

My boyfriend even suggested that I base my stock picks on frivolous reasons, such as whether its name was similar to mine. (I did invest in JES International, but not because of its name.)

And looking back, I really did not give the counters I had invested in the hard look they deserved.

I had a big appetite for risk, was prone to impulsive buys and, in my eagerness, had failed to understand the high stakes involved and the diverse factors behind a stock's performance.

Perhaps it was my mother's influence. She has never been known to check the price-earnings ratios or fundamentals of a firm. She made her money based on 'observation and feeling'.

'Aiyah, too much research no use; just observe, then buy,' she'll say.

Perhaps she's one of those lucky few who have the 'knack' for good picks.

But as a young player who cannot afford to leave it to Lady Luck, and who cannot afford expensive, blue-chip stocks, I've found that going back to basics - doing homework - is the best safeguard.

This applies to investing in any stocks - and especially, in penny stocks, if they are the only ones you can afford.

So when my friends come to me for advice these days, thinking I have gleaned some wisdom from my job on the business desk, I give the best advice I can give and say, as in the old days when we were in school: 'Don't be lazy. Go do your homework.'

Temasek did not confirm or deny the report yesterday. It said it 'does not comment on speculation from dubious sources'.

But The Straits Times understands that Temasek has in fact not sold half its stake - it only appeared to do so due to a reporting glitch.

A source said that a mistake was made in a routine filing with the United States Securities and Exchange Commission (SEC) on Tuesday, which was intended to show that Temasek held 86.95 million shares in Merrill.

This stake was unchanged from what it had declared in May. The announcement would not have raised eyebrows as the current holdings are just a few million shares fewer than that disclosed in an earlier filing in January.

But a data entry error made it appear that Temasek held 87 million Merrill shares, after earlier disposing of another 87 million, said the source.

The erroneous information was picked up by a California-based firm Mutual Fund Facts About Individual Stocks, which cited the filing in a brief public statement.

This sparked off a furore yesterday among Singapore investors and bloggers, who noted that Merrill's share price has fallen about 46 per cent since Dec 24 last year, when Temasek announced its purchase of the bank's stock at US$48 per share.

Reuters said the market rumours even prompted a dip in the US dollar against the yen and the euro.

Temasek spokesman Myrna Thomas said: 'Investors and the interested public are advised to refer only to official sources of information for announcements on major transactions'.

A check by The Straits Times found a Jan 3 SEC filing by Temasek showed that the company held 91.67 million shares, or 9.4 per cent of Merrill, as at Dec 24.

Then, on May 15, Temasek made another filing stating that it owned 86.95 million shares in Merrill as at March 31. That represents a stake of 8.85 per cent, according to Bloomberg data on June 30.

So, in other words, Temasek did not sell 87 million Merrill shares, but more like five million.

The Straits Times understands that Temasek had to trim its total stake after it exercised the option to purchase an additional 12.5 million shares in February.

This is to keep below the 10 per cent threshold for foreign investors' shareholdings in a US financial institution, mandated by the authorities.

So it may have sold off a few million shares to meet the requirements, say sources.

Temasek had invested a total of US$5 billion (S$6.8 billion) to buy a stake in Merrill. It was among a handful of sovereign wealth funds from Asia and the Middle East that have injected capital into global banks bleeding from huge losses related to the US sub-prime mortgage crisis.

Merrill Lynch last week reported a bigger-than-expected loss of US$4.65 billion for the second quarter. Its shares closed at US$29.04 on Thursday in US trading.

US Securities and Exchange Commission (SEC) chairman Christopher Cox surprised investors on Tuesday with a plan to curb illegal short selling in 19 major financial company shares, including embattled mortgage giants Fannie Mae and Freddie Mac.

Short sellers were widely blamed for bringing down the stock price of Bear Stearns in March, which in turn hastened the brokerage's demise. The jump in the number of shorted shares of Fannie Mae, Freddie Mac and investment bank Lehman Brothers has triggered accusations that short sellers are now trying to drive these companies into ruin.

The SEC suspects that some short sellers are ganging up on these stocks, engaging in naked shorting while spreading rumours that the companies are in dire straits.

In a short sale, a trader borrows stock, usually from a brokerage's inventory, and sells it, expecting the price to decline. If the bet is correct, the trader can buy new shares later at a lower price, repay the borrowed stock and pocket the difference between the sale price and the repurchase price.

Shorting is legal, unless traders are ordering stock sales without having arranged to borrow actual shares - 'naked' shorting, which is illegal. But the rule against such stock plays has not been much enforced.

The SEC's new plan is a crackdown on naked shorting amid what has been a severe hammering of the shares - to the point where investors are beginning to question the firms' survival.

Beginning on Monday, the SEC will require that 'any one effecting a short sale in these securities arrange beforehand to borrow the securities and deliver them at settlement'. The emergency rule will be in effect through July 29, but it may be extended until Aug 21, the SEC said.

Mr Cox said the agency eventually expected to cover the entire stock market with the new rule.

For the 19 stocks on the list, the change means that brokerages will no longer be able to take a short seller's word that he actually has borrowed the shares he wants sold.

And that, in turn, could curb situations in which multiple short sellers are expecting to borrow the same shares for sale - similar, say, to five different people putting the same car up for sale, knowing that only one of them can deliver the vehicle.

With the US financial system under enormous strain, regulators are facing pressure to show that they are on top of the situation. On Sunday, the SEC announced an immediate probe of rumour-mongering intended to manipulate share prices.

Yesterday, reports said the commission had subpoenaed Wall Street firms, including Deutsche Bank, Goldman Sachs and Merrill Lynch, and more than 50 hedge fund advisers, as it investigated suspected manipulation of Lehman and Bear shares.

Veteran short sellers say regulators are looking for scapegoats for the problems that financial companies have brought on themselves.

Legitimate short sellers bet against companies whose shares they believe are overvalued. Short sellers find out things that companies often prefer their shareholders do not know.

For the long-term health of the market, 'you don't want to restrict people's ability to invest on negative information', warns Professor Jill Fisch, a securities law professor at Fordham University.

Professor John Coffee, a securities-law professor at Columbia Law School, said the risk the SEC faced in targeting illegal short selling was that the move could appear to be panic-driven, which might heighten investors' concerns that the market decline was spiralling out of control.

The regulatory Office of Thrift Supervision said it had placed the Pasadena-headquartered bank, worth an estimated 32 billion dollars, under the control of the Federal Deposit Insurance Group.

The bank will re-open next Monday as the IndyMac Federal Bank, the Office of Thrift Supervision (OTS) said in a statement.

OTS regulators said the closure was prompted by withdrawals of 1.3 billion dollars made by the bank's customers since June, when doubts were raised publicly about the institution's long-term viability.

"The institution failed today due to a liquidity crisis," OTS director John Reich said Friday.

The decision had been anticipated after IndyMac's share price collapsed. The company announced this week it had halting lending and was planning to shed 3,800 jobs, more than half of its work force.

At its peak in 2006, the company, which had been reeling under the foreclosure crisis, employed 10,000 people. The latest lay-offs would have reduced the work force to around 3,400.

IndyMac bank had been sent into freefall after comments by Democratic Senator Charles Schumer last month concerning the bank's health prompted a flood of customer withdrawals.

"The OTS has determined that the current institution, IndyMac Bank, is unlikely to be able to meet continued depositors' demands in the normal course of business and is therefore in an unsafe and unsound condition," the OTS said in a statement.

Reports said IndyMac's collapse was the second biggest in US history behind the 1984 failure of the 40-billion-dollar Continental Illinois Bank.

Like stock markets across the globe, the Singapore Exchange (SGX) has been badly affected by the fallout from the United States sub-prime mortgage crisis and the resulting drying up of credit.

The total value of the SGX's 782 companies was $677.4 billion when the market closed yesterday, down 15 per cent from $797.8 billion six months earlier. This fall is closely mirrored by the Straits Times Index's (STI's) decline this year of 14.95 per cent.

Much of the damage was done last month, as global inflation worries intensified and oil prices soared further. On May 31, the total value stood at $739.6 billion and fell 8.4 per cent, or $62.2 billion, in June alone.

Among Singapore's 20 largest companies, only five - Jardine Matheson, Jardine Strategic, Dairy Farm, Great Eastern and Noble Group - managed to raise their share value.

Noble, Asia's largest diversified commodities trading firm, was the best performer in terms of percentage gain in share value, on the back of strong demand for commodities from developing nations.

SingTel retained its status as Singapore's largest company. But it has lost some shine as a defensive play, with its market cap down 9.5 per cent this year to $57.6 billion.

Palm oil giant Wilmar International and banks DBS Group Holdings and United Overseas Bank retained their positions at No.2, No.3 and No.4 respectively, but with mild value erosions.

OCBC Bank fell one spot to sixth, swopping places with Jardine Matheson.

Property heavyweights CapitaLand and City Developments lost 8.5 per cent and 23.5 per cent in market cap respectively, as the property market slowed.

Bourse operator SGX has suffered a 48.4 per cent dive in value since Jan 1 to $7.37 billion, sending it down nine places to 21st spot.

The counter, whose fortunes are tied to market turnover, has resumed its decline since rebounding to $9.57 in May. Average daily trading value has fallen from last October's peak of over $3 billion to $1.4 billion. Merrill Lynch and DMG, for instance, have cut earnings forecasts for SGX, given lower volumes.

A Citigroup report estimates that every 10 per cent increase in oil price cuts domestic economic growth by 0.4 percentage point and raises inflation by 0.5 point.

Transport firms are particularly hard hit by high oil prices. 'Near record-high jet fuel and diesel prices are pressuring already thin operating margins for the airline and land transport sectors,' said Citigroup of Singapore Airlines (SIA) and ComfortDelGro.

SIA's market cap is down 15.4 per cent to $17.4 billion amid slowing ticket sales and rising competition.

Meanwhile, earnings downgrades are expected to continue due to inflationary pressures and higher interest rates, particularly for transport, health care, and chemical and textile stocks, said DBS Vickers' Ms Janice Chua in a report. The impact, however, is likely to be less severe than previous downgrades.

Despite such discouraging signals, it is not all doom and gloom. Analysts maintain that Singapore's economy is more resilient than other regional economies in the face of rising cost pressures, due to its relatively low oil use and strong public finances.