Tan Kin Lian's Blog: New swap counterparty

Thursday, October 23, 2008

New swap counterparty

Dear Mr. Tan,

The Minibond series is regarded as toxic product, so if we have somebody willing to take over as swap guarantor, will be toxic be removed ? I do not think so!

I bought the Minibond because I do not know so many things, eg. if one entites fail, all the capital gone !! If I had known it I will not buy. So even there is white knight is willing to take over Lehman Brother's role as swap partner, I would vote against it because the product is still toxic.

Please be reminded that the fact of the toxic had been known, and if we still vote for the white knight to take over, if there is any of the listed entities fail, there is no more recourse/protest for ignorance as is the situation now because all the risk had been made known.

HS

REPLY
If you vote for the new swap counterparty, there is a chance that the structured product can continue until the maturity date, and a higher value can be obtained from the underlying assets. During this time, there is still the risk that a reference entity may fail, or the underlying assets may fail. But, this is a risk worth taking.

If the underlying assets are redeemed now, the value will be extremely low.

20 comments:

Anonymous said...: Not only The Minibond series but all the structured products are regarded as toxic products - DBS HN series, Pinnacle Series and ML Jubilee.
The Minibond series caught the limelight is becos the swap counterparty LB went brankrupt. As for DBS HN series and Pinnacle Series, the swap counterparties - DBS and MS have yet to failed.; October 23, 2008 5:17 PM
Anonymous said...: Dear Mr. Tan,

Would you be able to help clarify some of my doubts regarding a new swap counterparty? I know MAS is till working out the details, maybe you can provide me a rough lookahead on what the deal would be like:

1. Will I continue to receive the 5% interest?
2. What if the product survive till maturity and still it worth just like now (fire-sale price), what do I stand to recover?
3. Why isn't all my principle returned to me if it can run till maturity without any further credit event?

WS; October 23, 2008 7:47 PM
Anonymous said...: If we could be compensated 60-70%, like what HK did in the banks' buy back, we would prefer to get out now.
Look like if are not in the vunerable grp, we will get very little. But this is in spore - what to do? Sad.; October 23, 2008 8:19 PM
pisces said...: That's another untold fact or "myth" of the minibond.

In the Security Notes, it actually has this:
" Repayment in full of the principal of our Notes at maturity will be dependent upon the redemption in full of the CDOs and as such the CDOs are a significant component of the risk and return profile our Notes. "

That is, if Lehman did not go bankruptcy, on maturity date, even without any credit event, we may or may not get our principal 100%. We were misled to think that we'll get our principal 100% on maturity date if no credit event happens.; October 23, 2008 8:19 PM
Anonymous said...: The basket of underlying companies must be made more transparent, we don't even know the name of these companies, and how many of them already in trouble.; October 23, 2008 9:52 PM
Anonymous said...: Yes, the risks are known now, but the risks should be lower than before the financial crisis started. now alot of weaker financial institutions have gone belly up and governments in the world are trying very hard to support the rest of the banks which means the rate of failure will be reduced substantially. But of course, there is still risk. I think one would have to look at the reference entities and the underlying securities and see whether it is worth to take on the risk.; October 23, 2008 10:24 PM
Anonymous said...: Seems to me that the most risky are the underlying securities (which all of us never knew about & still do not know) not the reference entities since many of them who are banks have been either bought over or have been "rescued" by their governments. If we have been sold a poisonous product, why should we continue to agree to take the poison? The sellers of the poison can then happily wipe their hands clean while we continue to agonize the next few years just waiting for the poison to kill us. Does not seem to be the right solution. Also, where is the justice? The authorities should deal with the poison pushers & bring them to justice. That is only right.; October 23, 2008 11:04 PM
Anonymous said...: I don't understand how we define 'toxic' products. Are structured products inherently fraudulent or has structured products become controversial because they were sold to the wrong investors?

If chances of getting a full refund is slim or that the refund is meagre, I would rather opt for another party to replace LehmanB. I'm not sure if I am comparing apples to apples here but I was caught in a similar situation ten years ago when Credit Lyonnaise filed for bankruptcy.I had bought its unit trust.Its asset management arm was not dissolved but was sold to an external party who saw its potential.There were name changes, ownership changes (a series of ownership changes in fact),but with a team of capable fund mgrs and a huge pool of funds,there was a chance not to lose 90% of my money.It's not blind faith. I went to find out more about this fund mgt team before deciding to keep my investment through the Asian Financial crisis,IT firm bubble and SARs.Only in the bear market does it become easier to distinguish wise money mgrs and opportunists. I hope minibond investors make calculated moves, not ones that are motivated by fear,majority opinion,or the media.; October 23, 2008 11:16 PM
ym said...: i think the best for investors at this point in time is to continue to pursue a compensation for mis-selling/mis-rep instead agreeing to a counter-party...

because, if you agree to the counter-party and then a reference entity collapses, investors will not be able to rely on mis-selling/mis-rep to get back their money...

investors must bear in mind that the risk of default of corps now is extremely high due to an implosion of the credit (fake imaginary money) bubble...; October 23, 2008 11:38 PM
Anonymous said...: Agree with Mr Tan. If everyone think like you those outside the "vulnerable" group and rec'd no compensation from FIs will get close to nothing. It will be very unfair to this group of people!; October 23, 2008 11:48 PM
Anonymous said...: American had betray the world. Those who were creative, in power and well educated had done it for personal greed and self enrichment to cheat the world, using reputation of 158 years old BankName. Moreover, those who intorduced and implement the scheme were offered fat commission in their swissbank Account. These are sad. The corrupted that were not easy to trace and track down.

May dad were also involved in this and were rounded by clerks in Premier club everytime he visited to renew his FD. During the peak, he got ten series and every month he received thousand of dividend cash Until One day, i told him to wirhdraw. An old and reputable bank can also be dragged into it. Yeah Young CEO, lead the bank to higher turnover, new direction..but every toxic products were hidden personal agenda and greed.
American had lost fate in the world. ANd Yet media are avoiding their mistake, they only bring out negative event and covering their doings. CHeated thousands by using local bankers and now they hold enquiry after enquiry but no prosecution and legal penalty for any Top executives and regulators who introduce and approve for exorting TOXIC financial products. In the name that they are the biggest trading nation, Aren't we all sitting on a trap that could finished off by trusted friends?
Land banking is another toxic products from Canada, UK and now USA. Never invest in something far away, you cannot see, you cannot touch and you are not in control. paper, promises and carrots are risky things...; October 24, 2008 5:14 AM
Anonymous said...: Buyers bought toxic sweets wrapped in nice/beautiful wrapper, the wrapper spoiled and buyers complained. Some body offer to change the wrapper, the sweet, in the meantime, still toxic. Such is the case of new counter party who is now free himself from any claim incase 1. Any reference entity goes bust and the investors got nothing back. 2. at maturity, due to the calculation, you only got half of your investment back, probably. The investors will have no more say as the fact of the product are known now. So who not keep on fighting for the bank/distributor to buy their product back with full capital return (eg. mb5 and 6 since there is no reference entities collapse) citing mis-selling as we were told during the sale process that only the reference entities will affect the reduction in the capital.; October 24, 2008 6:53 AM
Anonymous said...: A better solution would be like what is happenning now in HK.
The victims can exit it now and received say 50%. Those mis-sold could get 100%.
The distributors would keep the CLS with the new SWAP CP until maturity. If the price imrpoves, victims should be cmpensated more on maturity.
In this case, it is fairer to all.
I think HK has considered the solution carefully before offered it to the victims.; October 24, 2008 7:12 AM
Anonymous said...: Confuse me !!

I am not defined as” vulnerable” group . , Shall I go to FI for interview now? If FI offers me 10 to 20% compensation and is there time frame to decide? I will be in dilemma because I prefer to wait & see the two financial institution‘s offer & choice of opt out- scheme.

Hope MAS requests the proposal be out sooner because at this point of time, more investors are impatient to wait & arranging to see FI hoping to negotiate.

If I don’t go to FI now, will I loose out my right to see FI later if the offer from new arranger is even lesser than 10 to 20%.; October 24, 2008 8:52 AM
Anonymous said...: For those non- investors, please do not stir up the matter by encouraging to ask for 100% compensation. Mr. Tan’s assumption is very reasonable 50- 80%.

Those investors who are not satisfied with the % and wish to ask for more can go by legal action on their own accord. Do not try to instigate the rest. Legal procedure is costly and time consuming to retail and working investors.

I am a working investor, rather take back 50-80% and have a peaceful mind to work. Do you know I cry every now and then at workplace. Waking up in the middle of night, I can’t continue to sleep, all sort of questions concerning this issue appear in my mind, see FI or not? How to talk, will they interrogate me like CPIV case? What will be the new swap?

From day one, I felt helpless and think of worst scenario to get nothing back. Now there is some hope. Those who are not in the boat, please do not break our hope.; October 24, 2008 9:32 AM
Anonymous said...: To 7.12 ,

I fully agreed, follow HK 's ways to be fair to all investors
(1) 50% to general
(2) 100% to truly mis-led group or so-called vulnerable group

50% group not happy , go ahead to take legal action

Which party can stand up to propose, MAS or Bank Association (but some broker firm may not governed by bank association)

Better than current situation, all in a mess and no fairness.; October 24, 2008 12:11 PM
freeier said...: i am not sure who got that information that HK is giving back 50% to all general investors. Quotes and reference please. Don't just any-o-how throw a case and blow it up like a real solution.; October 24, 2008 1:24 PM
Anonymous said...: Mr. Tan ,

If we change the new swap couter-party and hold the notes till maturity, a long the way if there is no credit event , and yet there is no chance to get back 100% pricipal.the value is depending on the worth of the note investment, right?; October 24, 2008 3:01 PM
Anonymous said...: Mr. Tan ,

How the issuer package the referenc entity? example,some entity is 'XXX country", Is there any benefit giving to that country?
Because if commercial firm posts advetisement on the public transport bus , it has to pay advertisment fee.

Appreciate if you can give us some knowledge on this; October 24, 2008 3:06 PM
Anonymous said...: HK Govt asked the banks to buy back based on the assumption that victims can get 60-70%. The actual amt still not known. The victims are still entitled to claims from the FIs if mis-sold. That is a much more ideal situation.

In our case, If we can get 50% now, and left it to the distibutors to hold to maturity would be ideal.
We may get more if the value at maturity is more (to be fair to us).
For those of us the amt is many times our annual earnings, and hv to rely on the int to survive, holding the amt to maturity w/o int would be too painful and not practical.
In worse case scenario, we may get nothing on maturity, and could not claim anythings from FIs upon maturity. In that case, we are like jumping from firing pan into the fire.; October 24, 2008 10:09 PM