Thursday, 28 January 2010

OCBC, prudent banking and Madam Hwang Cheng Tsu Hsu

Once upon a time banking was a respectable profession. A reference from a banker carried such weight that it transformed itself into letters of credit and bankers acceptances. Two papers which form the basis for modern trade finance.
Respect for bankers may have been grudging but it was earned fair and square. Bankers were frugal with their signature. Loans relied not only upon mortgaged security but the character of the borrower.
Similarly, a banker was himself a person of integrity; the bedrock of the local financial community. He was an informal advisor on all financial matters for the entire community.

Alas, after having been a banker for all my adult life it is apparent that bankers are not a loved lot anymore! Between the global economic crisis and perceptions of bankers pay (I certainly didn't benefit from Wall Street type obscene salary packages!) bankers are generally a reviled lot.
For their part, bankers are no longer bankers. They are financial professionals.
A financial professional scours gullible masses and corporations for fees and commissions, payable or at least accrued here and now. His aim is pocketing an annual cash bonus. The faceless bank shareholder may worry about the quality of the transaction but for the banker compensation matters more.  
In structuring transactions, stay within the letter of the law and forget the spirit. The only spirit required is Black Label whisky drunk upon execution of the transaction (and accrual of the fees).
In the past, banks didn't even have legal departments. Bankers just used the principles of common sense to guide their behaviour. Today, bank CEOs are often lawyers. Citigroup's former CEO was a lawyer and Bank of America's newly appointed CEO being prime examples.
Hence, when I read that OCBC is defending its behaviour over the account of 94 year old Madam Hwang, a wave of nostalgia went through me.
OCBC's actions evoke images of 'old-school' responsible banking. Banking the way it used to be, in line with fiduciary principles of protecting a client's interests.
In essence, OCBC refused to convert the singly operated account of the elderly Madam Hwang into a joint account with her 44 year old adopted daughter. Following some meetings with Madam Hwang, the bank was not satisfied that Madam Hwang was capable of making sound financial decisions. It wished to satisfy itself further, especially as the instructions to alter the account came directly from the daughter.
Sounds like prudent behaviour to me. Of course, the matter is sub-judice and not all facts are available to me. Thus, my comments and judgement is based on publicly available information.
Singapore is not normally a trigger happy legal environment (thank God). In a perverse way, Madam Hwang's adopted daughter's decision to sue OCBC is good for Singapore's status as a financial centre.
The court's judgement should enhance Singapore's reputation as private banking centre; a city-state with a legal system where financial disputes will be settled in a quick and equitable manner. The case will define 'due diligence' standards for banks in accepting potentially contentious client instructions.

I suspect the court will err on the side of caution. The court should endorse OCBC's desire to obtain independent verification of the instructions from the customer. It is unreasonable to expect a bank to accept orders, signed or not, from a third party. Especially for a transaction which changes the ownership of the money.
OCBC: I may not agree with your recent purchase of ING's Private Bank but in this case I stand firmly behind you. In return, I expect a nice cake (cheesecake preferably) from one of your branch manager's on my birthday!


  1. Linked under, 'Economics'. Thanks Imran.

  2. Great - thanks! I really appreciate it.

    Kind regards,