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

Monday, November 03, 2008

New swap counterparty to replace Lehman Brothers

Many investors asked for my view about the new swap counterparty that will be appointed to replace Lehman Brothers. Will they be able to get their money back on the maturity of the mini-bonds?

My reply: It depends on the series of mini-bonds.

The risk of the mini-bonds come from the following sources:

> failure of any one of the reference entities
> failure of the underlying assets (CDOs or other assets)
> failure of the swap counterparty

If you have invested in the earlier series of mini-bonds and many of the underlying assets have already failed, you may lose all of your money when more of the assets failed in the future. You will also lose your money when any one of the reference entities failed.

If none of these events happened, you may get back part or all of your investments (depending on the value of the underlying assets at that time). There is no guarantee that you can get back 100% of the invested sum, as the bonds are "capital protected" but not "capital guaranteed".

Read this:
http://tankinlian.blogspot.com/2008/10/capital-protected-product.html

For the newer series of the mini-bonds, the loss in value now is quite small. When the new swap counter-party is found, you can sell the mini-bonds at its current market value (hopefully, the loss is less than 20%). If you do not wish to take the risk, you can take the loss now.

If you have been mis-sold, you can ask the financial institution to buy back the mini-bonds at your original price

6 comments:

Anonymous said...: Mr Tan,
You said that even if no credit event occurs, there is no guarantee that we can get back 100% of the invested sum as the bonds are "capital protected" but not "capital guaranteed".

In that case, what does this statement in the Pricing Statement (pg 1,series 3)mean?:
"If no Credit Event occurs on or before the second Business Day prior to 2 Dec 2012, the Issuer will redeem the issued Notes at 100% of their principal amount on the Maturity Date". Doesn't 'principal amount' (which is not defined) refer to the principal amount which we have invested? That was what we were led to believe. I believe that this is what the RMs believe too. If that is not the case, then it appears there is a deliberate attempt to mislead the public and the person(s) responsible should be brought to justice.; November 03, 2008 9:14 AM
Anonymous said...: Are there underlying assets (CDOs etc) for Series 3? Still bewildered by all these jargon!
Cheong; November 03, 2008 9:54 AM
Anonymous said...: MiniBond is neither capital protected or capital guaranteed.
Mr Tan you never read carefully. its principal repayment at 100% if the plan is not default. I guess if the plan never default and we as a investor never default, we will get back 100% of our money. Else it will be misleading in the brochure, pricing statement and prospectus. So the party responsible is MAS? Cos its lodge and register with MAS.; November 03, 2008 10:18 AM
Tan Kin Lian said...: I remember that some investors told me that there is a statement, somewhere in the prospectus, that the payment of 100% of the principal is subject to the value of the underlying assets at that time. So, it is not guaranteed.

i advice investors to read the prospectus carefully and seek clarification.

Hi, to all

I have not invested in the structured product, so I will not be ready the prospectus. There are perhaps 50 different prospectus to read ... so I cannot be reading them.

You should read your own prospectus and seek your clarification.; November 03, 2008 10:26 AM
Concerned said...: The Minibond sage has been in the news since September 2008. During his while, none of the Financial Institution has published an indicative price of the various series of the notes. Anxious investors are waiting to see how much their investment is worth now. This show a gross derelict of responsibility by the distributors. Perhaps MAS should compelled the FIs and the Trustee to come out with some indicative price so that investors are not completedly keep in the dark.; November 03, 2008 2:57 PM
Anonymous said...: from extracts and parts of the prospectuses that i was shown, or managed to peek,

my immediate immediate read is they had been rather outright

it means to say, whoeever whomever they were prepared for reading, the reader should be adequately informed.

least, adequately alerted they were NOT adequately informed.

so if basing primarily on documentary proof, this is a gone avenue.; November 03, 2008 5:28 PM