* Wealth managers address concerns over conflict of interest
By Daniel Stanton
SINGAPORE, Nov 21 (IFR) - Controversial private bank rebates
in Asian bond issues could soon become a thing of the past,
after UBS stopped indulging in the practice and banks
in Singapore started disclosing details of the incentives they
Bookrunners routinely offer one-off rebates of 25 cents to
one dollar per $100 in face value to encourage private banks to
study a bond offering and potentially recommend it to clients.
Sources said UBS had recently stopped accepting rebates on
bond deals it sells to PB clients. In Europe, the rebate is
passed on to clients and, in Asia, it does not accept the rebate
at all. UBS declined to comment.
In recent weeks, Singapore banks have also started telling
their PB clients when they stand to receive a rebate on bond
deals they market.
High-net-worth customers are especially important in Asia's
high-yield credit market and, in some local currency markets,
often take up the majority of a new issue. Wealthy individuals
are keen to chase yield and can often magnify their returns by
putting down as little as a third of the investment in cash and
borrowing the rest from the bank.
There are no strict rules on the beneficiaries of the
rebate, but it often goes to relationship managers at PBs.
That has sparked claims that the practice creates a conflict
of interest, since PBs have an extra incentive to sell the bonds
to clients and often do not disclose the extra payment they
The Association of Banks in Singapore, an industry group, said
that, "with effect from 1 Oct 2016, PBs in Singapore are
required, under the PB Code of Conduct, to specifically disclose
bond rebates to clients prior to or at the point of sale".
The Monetary Authority of Singapore is believed to be taking
the issue of PB rebates seriously. Earlier this year, it set up
a task force to examine practices at PBs, including disclosures
related to sales concessions. Tan Su Shan, co-chair of the MAS
PB industry group, is also group head of consumer banking and
wealth management at DBS.
The MAS declined to comment on the issue.
A DCM banker in Singapore said standards might need to be
set on the phrasing of communications related to bond offerings,
since it might be possible to remove the part that discloses
whether or not banks receive rebates for PB sales.
"There is some talk of putting it in the terms," said the
banker. "If it is just mentioned in an update, bankers can
remove it, but they can't remove it from the terms."
The Asia Securities Industry and Financial Markets
Association, a capital markets industry body, went as far as to
suggest the wording that banks should use to disclose such
concessions - in July 2014.
Such rebates are especially common in the Singapore dollar
market, where PB investors are often willing to buy risky
unrated bonds at tighter yields than institutional investors
After a series of defaults, however, investors have started
to question if their wealth managers are always acting in their
best interests when they recommend investments.
A bond investor said a particular Singapore dollar bond
issue in recent years had been marketed with a 25-cent PB
concession, but had struggled to attract interest due to a low
yield. Instead of raising the yield, the issuer had simply
increased the PB concession to 50 cents to motivate sales staff.
"They doubled the rebate and, the next day, the deal was
done," said the investor. "If you increase the coupon by 25
basis points, that's a recurring cost. If you increase the
rebate, that's a one-time cost."
(Reporting by Daniel Stanton; Editing by Vincent Baby and Steve