'Unbridled Greed' Behind DBS Private-Wealth Dispute, Says Judge

  • DBS ordered to pay compensation for financial crisis losses
  • Plaintiffs included ICBC’s Zhang Hongli and his wife

Singapore’s DBS Group Holdings Ltd. lost part of a case over losses on millions of dollars of investments for the family trust of a wealthy Chinese banker and his wife during the global financial crisis.

The plaintiffs were Industrial & Commercial Bank of China Ltd. executive Zhang Hongli, his wife Ji Zhengrong, the trustees of their family trust, and the trust’s investment company.

In a ruling in Hong Kong’s High Court on April 13, Justice Mohan Bharwaney ordered the bank to pay compensation to the trustees and the investment company, with the amount to be determined at a later date, saying two DBS entities were negligent in approving investment decisions by Zhang’s wife on behalf of the family trust.

“Unbridled greed” played a role in the case, when the unfolding crisis in 2008 should have deterred some of the risky investment decisions which led to the losses, the judge said.

A Zhang family trust account manager at DBS, Linda Liu, “was clearly driven by the wish to enjoy bigger and bigger bonuses,” while “Ji was no less greedy,” Justice Bharwaney said. “The evidence shows clearly that Ji was demanding, proactively and oftentimes aggressively, larger and larger credit lines."

The judge dismissed claims against Liu, or Liu Hiu Hong, and other DBS staff and entities. He criticized the “carpet bombing" litigation style of the plaintiffs, resulting in what he described as complex, costly and prolonged litigation and some spurious allegations.

Zhang, who is also known as Lee Zhang, is a former China head of Deutsche Bank AG who joined ICBC in 2010 and serves as a senior executive vice president. He also sits on the board of ICBC, China’s largest bank. He left it to his wife to deal with DBS, the judge said.

Decumulator Purchases

The ruling stated that two DBS entities, DHJ Management Ltd. and DBS Trustee H.K. (Jersey) Ltd. -- now Nautilus Trustees Asia Ltd. -- should between them pay “equitable compensation," after the Zhang family trust’s investment company made losses on purchases of US$83 million of Australian dollars and of three foreign-currency products called “decumulators."

The two DBS entities had the power to override Ji’s investment decisions, the judge said.

A DBS spokesperson said that “we have carefully considered the judgment and are obtaining independent legal advice." Liu and other individuals named as defendants in the case are no longer DBS employees, and the two related trust companies are no longer part of DBS Group, the spokesman added.

Zhang didn’t respond to a request for comment. Nathan Dentice, a lawyer acting for both Zhang and his wife, didn’t respond to a request for comment. Liu couldn’t be reached for comment.

The court proceedings, dating back to 2011, featured lengthy transcripts of client-banker phone calls and thousands of pages of documents.

’Whopping’ Credit

By January 2007, the Zhang family trust’s investment company was the biggest client of the DBS private banking division in Hong Kong, according to evidence cited by the judge. In July 2008, DBS increased a credit facility for the company to a “whopping" $100 million from a previous $58 million, to fund purchases of the Australian dollar, just when severe jitters were rippling through the financial world, the judge said. DBS Trustee was negligent in approving the increase, according to the judge.

The judge rejected the argument that purchasing the decumulators -- leveraged structured products linked to exchange rates -- made rational sense, saying that they weren’t designed to serve as a hedge for currency purchases.

The “unbridled greed of the main players of this drama led to a course of action that drove them to the eye of the perfect financial storm,” Justice Bharwaney said.

In order to determine compensation, he called for an expert report on how the family trust’s investment company would have fared if the money had gone into other investments.

The case is Zhang Hongli and others v DBS Bank (Hong Kong Ltd.) and others, HCCL 2/2011 in Hong Kong’s Court of First Instance.

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