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December 29, 2010

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Banker made a promise that he couldn't keep

AN overseas bank has agreed to compensate a customer after a manager "promised" him he would stop losses in his investment account, only for the fund to decline further.

Agreement to pay 325,000 yuan (US$49,020) compensation was reached under the mediation of a local appeal court.

Judges of the Shanghai No. 1 Intermediate People's Court said banks should tell all the risks of products to investors so they can make decision after careful consideration.

An investor surnamed Yu opened an investment account with the overseas bank, which was not identified in court, in 2008 and an account manager surnamed Lu was appointed.

But Yu's fund started losing value in the second half of 2008, dropping to about 1.24 million yuan from the original figure of 1.9 million yuan by October 14, 2008.

As the fund continued to falter, Yu planned to quit but Lu, who wanted to keep his client, persuaded him to stay and signed a promise stating that his fund wouldn't lose any more money. However, the "promise" wasn't kept. When Yu finally redeemed the fund on October 28, 2008, only 880,000 yuan was left. In the time since Lu signed his promise, he had lost almost 350,000 yuan.

Yu then sued to ask the bank and Lu to compensate 350,000 yuan. He was supported in the first trial. Judges said Lu's private promise directly caused more loss to Yu and made him undertake the risk he should have avoided.

And since Lu was appointed by the bank, the bank should bear the compensation.

The bank appealed and during the second-instance trial the sides agreed that the bank would pay 325,000 yuan compensation.

"Banks should protect the interests of the investors and help them evaluate the risks when financial products lose money," said Song Hang, chief judge of the financial court of the No. 1 Intermediate court. "Besides, the text of contracts provided by overseas banks are usually too complicated as they are translated directly from English versions," Song added.


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