Tuesday, October 28, 2008

Minibonds a HORRIBLE PRODUCT.

Goh Meng Seng has posted a "complete" explanation of what these minibonds are : [Link].
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I read some of the comments on the Internet that asked "who would know that Lehman will collapse & cause these minibonds to become nearly worthless"..."it is something unforeseeable by the banks who sold these minibonds". Not true!

These "minibonds" were basically bad products to begin with. Many think the risk is limited to credit events involving 6 reference entities + Lehman - this is an underestimation of the risk. The minibonds credit events in addition to the 6 reference entities + Lehman includes the following:


  • If more than 11 companies of the 150 companies listed in the Collateral Assets failed.
  • Credit-linked derivatives held as Collateral Assets go into default, the whole Minibonds will be liquidated and any loss from these defaults will be born by investors (not Lehman Brothers).

What Lehman Brothers did was to park a basket of CDOs (now better known as financial junk) and insured it with money from minibond investors. They then added more risk by adding the 6 reference entities. Even if Lehman did not collapse, the basket of CDOs were already rotting - losing more than 70% of its value. I've said getting a new swap counterparty to replace Lehman may not help investors much given the collateral assets consist of a lot of "junk".

There is little doubt looking at the structure that this is a horrible toxic product. It is simply not fit for investment. Investors deserve their money back - this product is simply defective from the start. You buy a TV that does not work, you return it and get your money back or a TV that works.

Banks have mis-sold this product by the act of selling this unfit defective products to retail investors.

9 comments:

Koh said...

Thank you for taking time to write, I make it a point to check up your update each time logging in.

I agree with you, these products are a batch of junk to start off with. I can understand the bank is driven by profit (esp. the so-called RM or sales) in their eagerness to close the deal (Though still can't elude the banks from being accountable), but when the government is saying things like "...that's life", the officier is totally out of touch with the ground NOW.

The government can still do something NOW, if even in this abnormal period the official don't do anything to right what is wrong, I don't see how the government will do more to protect the people in the future when times is good again.

"In their big picture, the small people on the ground is simply not there."

Like a chinese quote: "一将功成,万骨枯", just hope not the main street people the government is scarificing.

Anonymous said...

'Wu ming siao chu, he pi gua zhi' meaning those insignificant lesser beings(small investors) do not deserved much attention if there is need to at all.

The 'small people' do not fit into the 'big picture', they are incapable of influencing the market, economy much. The Aggregators(banks) of their(small investors) monies(investments) are the ones that need attentions.

Not only are some banks state-owned, all are approved, registered and their operations state sanctioned.

Pragmatic Rulers will solve problems pragmatically, this is to be expected.

patriot

Anonymous said...

Lucky - would you buy DBS shares?
ie would govt or related agencies come in and prop up the prices no matter what happens? eg High notes, bad Sands loans etc etc

Anonymous said...

I am angry with people who insist that the affected investors should not be compensated or refunded their money. They insist that investors deserve what they got for being greedy.

The truth is, every human being here is greedy one way or another.

I suppose cheating should be made legal. After all, if people complain, they should blame themselves for being 'greedy'.

AlphavilleSG said...

Hello Lucky, I think you might not have seen this, it is a much clearer explanation. Plus the prospectus is available for download.

http://www.lioninvestor.com/minibonds-update/

Anyway, here's my bias, I'm incline to discount Goh Meng Seng having encountered him in forums.

Great Banker Goh Chok Tong said...

hi folks, it's me again.

Essentially our dear Leader PM Lee and myself let these junkie stuffs in, because Lehman was courting us and promising to set its HQ here in Singapore. We were just swept off the feet, because our MM Lee already said we must benchmarked our salaries to Lehman's CEO, Dick Fuld.

Now, we basically just need to sweep this thing under the already lumpy rug.....and let's MOVE ON, THAT's LIFE!!!

Great Banker Goh Chok Tong

Anonymous said...

Now MM get the shorter end of the Dick?!

Xtrocious said...

Hey Lucky

You sure that it was a toxic product to start with?

Not according to a certain ST senior write woah - she claims there was nothing financial wrong with the Lehman (Lehmon) product...hahah

Anyway, I almost fell off my chair when I read her "editorial" piece last week calling for more watchdogs...

But what is the use of more watchdogs when the gatekeeper is sleeping?

Anonymous said...

I am surprised that the dividend yield of SBS Transit is 4.00%, only slightly lesser than 5.1% from Lehman Brothers Minibonds, and that is dividend yield only, not considering capital appreciation for a holding period of 5 years which is what people who invest in Minibonds need to hold for.

I think that even Goh Chok Tong himself invests in shares of SBS Transit rather than Lehman Brothers Minibonds which is very confusing to begin with.

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ric=SBVV.SI