Source :30 APR, 2011, 10.24AM IST, NISHANTH VASUDEVAN,ET BUREAU
Nearly three months after a rogue banker at Citi duped wealthy investors, some rich clients of another multinational lender, Standard Chartered, have alleged that they have been short-changed by the British bank.
Standard Chartered, the foreign bank with the largest presence in India, sold debt securities to private banking clients with a promise to buy them back, according to sources in the wealth management industry.
The products on offer included debentures of real estate firms and a Delhi-based education company. Investors were attracted by the buyback option-something not allowed under current regulations-and higher returns.
Around Rs 150-200 crore of such debentures were sold by Standard Chartered relationship managers to their private banking and wealth management clients, said two people in the wealth management industry.
In a response to an email query by ET, a Standard Chartered spokesperson acknowledged there was a problem, but described the estimates of Rs 150-200 crore as a "gross exaggeration".
"We are investigating a small matter involving four customer accounts and are in the process of resolving it. We can assure you that your guesstimate on the amount involved is a gross exaggeration-as indicated, the matter involves just four clients. For reasons of client confidentiality, it will be inappropriate to comment any further."
Standard Chartered did not comment on whether some of the investors were funded by the bank for investing in the debentures.
The trouble began when some of the investors tried to sell the papers back to Standard Chartered. According to a source in the wealth management industry, the bank declined to honour such 'deals' because buyback or repurchase of corporate bonds cannot be carried out between a bank and a private client. Currently, repurchase, or repo in technical parlance, of corporate bonds can take place only between institutions like banks and bond houses that are regulated by the Reserve Bank of India (RBI).
"These clients were keen to raise funds before March 31 financial closing, but were unable to do it. Some of them have threatened to lodge an official complaint. As of now, only a few clients have realised the irregular nature of the transaction," said the person.
Standard Chartered has asked some officials to quit following investigations by the compliance department. Ashish Shankar, head of investment advisory at Standard Chartered Private Bank, is learnt to have gone on leave. According to sources, the bank is trying to make good the losses of clients who were misled by its relationship managers who had promised to buy back the securities, a promise Standard Chartered is not in a position to meet.
Standard Chartered, the foreign bank with the largest presence in India, sold debt securities to private banking clients with a promise to buy them back, according to sources in the wealth management industry.
The products on offer included debentures of real estate firms and a Delhi-based education company. Investors were attracted by the buyback option-something not allowed under current regulations-and higher returns.
Around Rs 150-200 crore of such debentures were sold by Standard Chartered relationship managers to their private banking and wealth management clients, said two people in the wealth management industry.
In a response to an email query by ET, a Standard Chartered spokesperson acknowledged there was a problem, but described the estimates of Rs 150-200 crore as a "gross exaggeration".
"We are investigating a small matter involving four customer accounts and are in the process of resolving it. We can assure you that your guesstimate on the amount involved is a gross exaggeration-as indicated, the matter involves just four clients. For reasons of client confidentiality, it will be inappropriate to comment any further."
Standard Chartered did not comment on whether some of the investors were funded by the bank for investing in the debentures.
The trouble began when some of the investors tried to sell the papers back to Standard Chartered. According to a source in the wealth management industry, the bank declined to honour such 'deals' because buyback or repurchase of corporate bonds cannot be carried out between a bank and a private client. Currently, repurchase, or repo in technical parlance, of corporate bonds can take place only between institutions like banks and bond houses that are regulated by the Reserve Bank of India (RBI).
"These clients were keen to raise funds before March 31 financial closing, but were unable to do it. Some of them have threatened to lodge an official complaint. As of now, only a few clients have realised the irregular nature of the transaction," said the person.
Standard Chartered has asked some officials to quit following investigations by the compliance department. Ashish Shankar, head of investment advisory at Standard Chartered Private Bank, is learnt to have gone on leave. According to sources, the bank is trying to make good the losses of clients who were misled by its relationship managers who had promised to buy back the securities, a promise Standard Chartered is not in a position to meet.
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