Tan Kin Lian's Blog: Mibibond has return of 3 (on scale) and risk of 9

Sunday, November 16, 2008

Mibibond has return of 3 (on scale) and risk of 9

This contribution has been edited by TKL

Dear Mr. Tan
If we using the rating scale of 1 to 10 for the return and risk, then if the fixed deposit is rated at return of 1 with the risk of 1 , then minibond should be rated at return of 3 but with the risk of 9. OCBC 5.1% preference share should be rated at return of 3 and with the risk of 3.

Risk analysis for OCBC PS and minibond :

> We can sell the OCBC 5.1% PS anytime if we need cash
> We are locked up for 5 full years for minibond.

> The risk for losing everything for OCBC 5.1% PS is when OCBC bank go bankrupt
> The risk for losing everything for minibond is any one of the followings:
1) any one of the six major banks or Lehman brothers go bankrupt
2) some others credit events(out of 150 CDOs) occurred (very complex)

Under (1), the risk of minibond is already 7 times of OCBC PS. If we include (2), the risk will multiply, say 20 to 30 times. (I have the impression that the 150 CDOs are much more risky than the six banks)

Clearly, no one in the right mind will buy minibond for a return of 3 but with the risk of 9, if they are aware of the full risk.

Pang

14 comments:

Anonymous said...: There is no doubt that people have been misled into Minibonds and Pinnacle Notes. That's why there is resentment when the loss is huge.

People also lost big money on shares and property. But they understand and accept the risk.

So for some Gahmen leaders like SM Goh and even DBS Chairman to tell us to see things in perspective in terms of stock market losses is to miss the whole point and sidestepped the whole issue which is mis-selling. It may be unintentional on the part of the RM but mis-selling is mis-selling. It goes beyond the RM and higher up and even a systemic issue.

That's why they are so reluctant to admit the problem because it backfire on themselves.

It is convenient to ignore but Heaven has eyes and there will be retribution (if not now but later) if they choose to ignore. Power and authority has its limits if they do not do things right.

I hope I register my point.; November 16, 2008 11:21 AM
Falcon said...: No, not true. I saw in another posting some guy called Rex who is very happy with a non-guaranteed return of 3.2% and has to be locked in for 5 years.
That will probably be a 2 vs 6 kind of investment but there are still people very happy with it. Ahh... Ignorance is bliss...fully happiness.; November 16, 2008 12:05 PM
Anonymous said...: I disagreed with that 'risk analysis' if thats what its called

Its based on very rough appropriation off so claimed brethren products that has NO similarities and as the seeming 'calculation' goes, became more and more like an intended-ly skewed formulation to justify why the egg is rotten AFTER you bought it

In short, it sounded like a sulk on a poor personal investment decision; November 16, 2008 12:26 PM
Anonymous said...: when people's lives are messed up by institutions they trusted, and you have postings making fun of the victims, you wonder whether what sort of lives these unkind bloggers live.

perhaps they are diligently working for the other side for material gain. perhaps they are forced to.

whatever the reason, if they look closely, they will have someone close, a relative or a friend, who are in dire straits.

what would they think if they knew ? retribution ?; November 16, 2008 12:57 PM
Anonymous said...: falcon, Rex has NO risk whatsoever. He will get his pincipals at the end of the 5 year term. He is guaranteed a minimum returns of perhaps 1.9% and a potential return of 3.2%.(As far as I know, OCBC aka GE has not defaulted on their predicted returns). So in reality, he is in a better situation than most of us now.

So pls don't belittle him or be sarcastic.; November 16, 2008 3:57 PM
Anonymous said...: YOU GUYS ARE ALWAYS WISE AFTER THE EVENT HAD OCCURRED......sigh; November 16, 2008 5:24 PM
Anonymous said...: Sanity,
Before this minibond happened, people can also say it is very safe. Lehman Brothers woh, capitalisation bigger than the capitalisation of all the companies in Singapore woh. What company is Rex investing in? Is it bigger than the capitalisation of Singapore?; November 16, 2008 6:49 PM
Anonymous said...: Sanity,
If you now still say that Rex investment is safe, that means you still have not learnt your lesson after all this.
No bank is safe. No investment is safe. Only CPF is safe,... or maybe not.; November 16, 2008 6:51 PM
Anonymous said...: friend S$9.2bil. from FD or Great Eastern Insurance funds?

My dad sold the shares at high 12..14 S$, and drawn out 700K at peak.

Now his risk is 0%, he is83 years old.
Must always learn from OLD people....
now every month he collects rental 40K from few shop lots...

No one trust AMERICAN Bankers for the NEXT 100 years...exporting TOxic CDOS from 2004...2008. and teach the local Bank's CEOs how to cheat and get 'Kopi'O duit in swiss bank.

WTF; November 16, 2008 7:16 PM
Anonymous said...: The big price that Singapore will have to pay for this sorry episode is the erosion of trust that the people have in our banks.

Can this be measured in GDP terms?

Best regards
AWOL; November 16, 2008 7:24 PM
Anonymous said...: Hello this is REX again.
To Sanity: i am glad you appreciated my viewpoint that a Single Premium Insurance paying an (almost) guaranteed interest of 3.2% pa over 5 years is a reasonable proposition (principal guaranteed). The risk is the collapse of the insurance company (i put my money in NTUC INCOME single insurance policy). But if one is even afraid of the insurance company collapse, then it's better to close all one's bank accounts and stash the money, and as well, one's monthly salary, below one's bed....

And, To Falcon,
i think you missed my basic assumption. I don't need the money for the next 5 years, so liquidity is not relevant to the discussion.

I am just proposing to all singaporeans, please, if you have money you don't need in the next 5 years, please put it in SPP because it is safe, easy to understand and you only choose the company which you trust will not collapse. Of course dont buy a SPP from an Ah Beng insurance company you havent heard of that is the only simple judgement one need to make to get a decent, almost guaranteed return higher than conventional bank deposits. Finally, i personally don't believe CPF is safe. How can gahment promise 4% interest, what do they invest in.. gahment could have put your CPF in minibonds too... if PAP get throwed out in future, we might get some rude shocks how the cpf money is managed...just kidding.

REX; November 16, 2008 10:19 PM
Anonymous said...: Believe it or not, but I think nobody is interested in throwing out the government in Singapore. But it cannot be allowed to get away without any consequence for its actions due to its bad judgement.

Not stopping the sales of CLN to retail customers before it is too late is one example.

Best regards
Boy Wonder; November 17, 2008 4:21 PM
Anonymous said...: Annoymous 6.51 PM This product is not investment but rather single premium insurance plan. So pls don't assume on my behalf.

Rex, glad that you wrote. I bought similar products from OCBC and I got the full principals + the predicted interests upon maturity.

I am not going to say that there is absolutely no risk. The risk will be if OCBC/GE goes bankrupt. But then ... even if we keep our money under our bed, there is also a risk of someone stealing it.; November 18, 2008 4:30 AM
Anonymous said...: Dear Sanity.
Strange as it may seem even though "single premium insurance" products sounds like insurance, in actual fact, they are more like fixed deposits. Because the insurance component is so miniscule... just the 3.2% more if you die.. your life is surely worth much more! So it is very miserable as an insurance policy. However, if you position yourself psychologically to think of it as a F.D. yielding 3.2% pa over 5 years, and will be happy with 3.2% with no risk and principal guaranteed, this is definitely the best thing to do with your extra money. I wonder why Kin Lian doesnt recommend this method in his blog?

I am waiting for someone to prove me wrong. I still have a bit more money to invest now and i am ready to open yet another SPP, unless someone can show me something with similar or lower risk, and higher payout.

Finally do note that i don't work for banks, insurance, or FI's. I am just an ordinary worker lucky enough to have a little bit of extra money not required for the next 5 years (since i am settled down, already have the basic C's in life), and i am a simple minded person.

regards
REX the happy fool.; November 18, 2008 4:16 PM