Tuesday, July 21, 2009

SCMP:Treat us the same as minibondvictims, say Octave Note buyers

21 July 2009

Investors who bought complex investment products - called Octave Notes - linked to Lehman Brothers have accused the government of offering them no help since the collapse of the US investment bank on September 15.

At a meeting last night at which they agreed to negotiate jointly for compensation, one tearful woman said: "As early as September 16, I already knew that my Octave Notes were worth nothing. But how come the government is only helping Lehman minibond victims?"

She was one of 80 investors at the meeting, which the Democratic Party organised.

A total of 48,000 Hongkongers put HK$20 billion into Lehman Brothers-linked minibonds - which, despite their name, are complex, credit-linked derivatives - and lost most of their money with the bank's collapse. The affair has spawned a Legislative Council inquiry and investigation by the city's two watchdogs of thousands of investor complaints that local banks mis-sold the products.

"We hope to press the government to handle the Octave Notes matter together with the minibond debacle," said Ran Leung So-chun, who bought notes worth US$130,000.

Those at last night's meeting had the same complaint as minibond buyers: bank staff neither properly explained to them the risks in buying the complex products nor performed risk assessments before they agreed to put their money into them.

Octave Notes were issued by US investment bank Morgan Stanley; 16 local banks sold HK$2.1 billion of them to about 8,300 customers between 2004 and 2007.

Like most minibonds, the notes contain synthetic collateralised debt obligations (CDOs) - conceptual products that mimic the financial health of a pool of companies. When these businesses collapse, the CDOs lose value. Many of the Octave Notes were connected to the performance of firms that went bust - among them Lehman Brothers.

1 comment:

Concerned said...

So, it is called Octave Notes in Hong Kong and Pinnacles Notes in Singapore. See this is what those greedy no conscience investment bankers are doing. Luckily other countries (besides HK and Singapore) did not take the bite, otherwise what sort of other names will be thrown out to disguise the widespread sales of such products. This type of structured notes are new in the market, with all the risks hidden from the investors and the rewards prominently displayed in the advertisement materials. Furthermore, the product name is a misnomer, called "notes" when they are actually synthetic CDOs, credit default swaps, derivatives, etc, Furthermore, these products are then distributed through local FLs whom the public recognised and trusted. Surprised that the Govt did not take any action against such banks after by now should have discovered what these banks are doing with those products sales here. Govt should banned them for two years from doing any business here, etc

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