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Scientist’s Suit Against Deutsche Bank Moves to High Court

Written By: Tiang Chuan on October 27, 2010 No Comment

The lawsuit between renowned Taiwanese scientist Dr Chang Tse Wen and Deutsche Bank has began in the High Court. The case was first report in The Straits Times on 03th September 2009. Dr Chang is suing Deutsche Bank for breach of legal duties and misrepresentation after the bank sued him for $1.8m of outstanding sum. The financial instrument central to this law suit is the infamous Accumulators. More info on Accumulators can be found in my previous post.

According to The Straits Times, Dr Chang claimed that he was “an inexperienced investor and that the bank recommended him products that were not suitable for people with low-risk profiles like him“. He also claimed that it was his first encounter with a private bank. The Business Times reported that the bank “allegedly failed to warn him of ‘substantial risks involved in margin financing of derivative products'”.

Deutsche Bank counterclaim that “Dr Chang was in fact a ‘sophisticated man’ who ignored the advice of his banker to diversify his investments“.

Again, there are 2 totally different accounts of how things have happened. One thing is for sure – telephone recordings, documents and disclaimers signed will be produced in the High Court.It will be really interesting how this law suit develops.

Accumulators is a form of structured product. Not all structured products are bad. It depends on how they are structured. But after levels of commissions and charges, many of them will loose their attractiveness.

If my understanding of the newspaper articles is correct, other than involving a structured product, leverage in the form of margin is also used. Why would banks lend you money? Because it can earn interest on the borrowed sum. In a bull market, everyone is happy. Investors who leverage will have enlarged returns. The banks will earn more money from interest and commissions from the sale of even more products bought from the borrowed sum. When the bad time comes, guess who is left holding on the baby? It’s not the banks definitely. You are the one who borrowed. You are the one who have invested. The banks have made their interest and commissions. And now, you owed them money because you borrowed from them. Like what Warren Buffett said –  Only when the tide goes out that you discover who has been swimming naked.

Next time when someone offers to lend you money – Be afraid. Be very afraid!

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