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Misleading to label perps safe to be bought through ATMs

AS A professional investor, I disagree that perpetual securities are not complex products and that automated teller machines are a mere distribution tool. ("Don't shoot the ATM, it's just a distribution tool: banks"; BT, Apr 9)

Perpetuals are in fact so complex that there is no clarity even among professionals on whether to classify them as debt or equity and to what extent. They are also difficult to value. Futhermore, perps require hard cash for coupon payments, which means that a prospective investor needs to study the balance sheet closely to make sure the issuer is able to service the debt.

To expect "mom and pop" investors to be conversant with sophisticated balance sheet analysis seems to be an unrealistic assumption on the part of the regulators. The ATM screen and the prospectus should have had a specific warning in big bold letters that investors could lose all their capital, not just the coupons. This itself would have caused many to rethink their investment (not good for the bankers, of course).

Does MAS really think it has protected unsophisticated investors simply by asking them to read a complex document that even professionals have difficulty understanding? Should we not be adhering to the spirit of the law rather than the mechanics?

ATMs may be another distribution tool but the misleading signal sent to investors is that perpetuals are safe and reliable enough to be bought through ATMs. There is a reason soft drinks and candies are sold through vending machines but not cigarettes and alcohol.

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Bobby Jayaraman

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