Tan Kin Lian's Blog: New swap counter party to replace Lehman Brothers

Saturday, November 15, 2008

New swap counter party to replace Lehman Brothers

Many people asked me if a new swap counter party is found to replace Lehman Brothers, will they get their principal back on maturity (i.e. the full sum invested in the minibond)?

The answer is "I don't know". The investor still has to face the following risks during the remaining term:

> default of the 6 reference entity
> default of the underlying assets
> default of the new swap counter-party

For example, Morgan Stanley is the swap counter party for Pinnacle Notes 9 and 10. They are still intact. The reference entities under these notes have not defaulted. However, 5 of the underlying assets of these notes have defaulted. These notes now have zero value.

The fate of these pinnacle notes show that the minibond still have many risks down the road, even if a new swap counterparty is found.

8 comments:

Anonymous said...: This is clearly a misrepresentation. We only know if RE fall, then there is a credit event.
Very scary!!! Very unfair!!!!!; November 15, 2008 9:36 PM
Anonymous said...: Down to it, it really makes no difference whats the system or technicality

This is set up to fail one way or another.

Does it matter if someone sell you a car or a bus, if the road is going to be really hazardous for any form of transport, changing to a tank doesnt ensure your passage either. THATS Investment.

This is exactly whats happening; November 15, 2008 10:07 PM
Anonymous said...: Yes, you are very right. The underlying assets are toxic assets and not worth the risk. I will prefer to be out than to be sorry months down the road; November 15, 2008 11:42 PM
Anonymous said...: Be strong to face the worst. Forget about patience to see results.

This saga has also unveiled another face of the PAP gahmen and let you learn new realities about Singapore. Yes beautiful when things are right but it can be damned scary when things go very wrong.; November 16, 2008 7:37 AM
Anonymous said...: Rumors are circulating that the new swap counterparty deal is not working out. MAS/HSBC statement last week already start preparing the ground to hint that these are complex are "not viable". Expect MAS/HSBC to follow up with announcement in 2 weeks that these are "not viable" and the new appointed receivers will liquidate minibond, then game over. Sad, just toying and draining investors all these past months.; November 16, 2008 8:27 AM
Anonymous said...: "Rumors are circulating that the new swap counterparty deal is not working out."

Of cos its not working out.

Who wants toilet paper??; November 16, 2008 12:49 PM
Anonymous said...: I also heard another rumour in the market that the proposals from the 3 new swap counterparties were already on the table but because MAS insisted on the "opt-out" clause, the public announcement was delayed since the value of all the underlying assets of each series has to be calculated and added up for those who want to opt out so that they can redeem them at those values. Remember there are 10 series which mean 10 times about 150 assets = about 1,500 assets to evaluate. This will take times.

The restructuring of the Minibonds will definitely carry new terms and conditions in favour of the new successful swap counterparty. In this respect, why would any party not interested in restructuring the Minibonds? They got to earn a fat fee, with no risk to themselves, and the investors still get a raw deal i.e. long maturity period with a meagre 5% coupon per annum and constantly at risk. Of course, if more than 30% of the investors decided to opt out, then the proposel become "not viable" because the critcal mass is not there anymore.

Having said that, if you still can get back your principal and you still have the interests coming in, what better choice do you have?

So, whose rumour to believe I don't really know, We are back to square one......... still blur as sotong.

Cyril SYF; November 16, 2008 6:13 PM
Anonymous said...: "Never trust anything that can think for itself if you can't see where it keeps its brain."
J. K. Rowling, Harry Potter and The Chamber of Secrets, 1999

This is the crux of our problem - the trusting victims can't see the brains of the minibomb designers and distributos etc. Sigh!!!; November 16, 2008 8:29 PM