DBS POISONOUS DEBT!!!
Finance chief assures minibond holders notes retain some value
FINANCIAL MELTDOWN
Joyce Man
Oct 30, 2008
The financial secretary yesterday rushed to reassure minibond holders that their notes retained some value, after DBS said most of its similar derivatives were worthless.
Most series of minibonds, unlike the DBS derivatives called Constellation notes, had retained their value, Financial Secretary John Tsang Chun-wah said.
"Our initial assessment is that a large majority of the minibonds still have value," he said. "A small portion that are directly linked to Lehman will have a very low value."
A Hong Kong Association of Banks taskforce has promised to calculate the value of minibonds and buy back the first batch in December. Minibond holders, who risk losing much if not all of their investment, have said that is too slow. Hongkongers' investments in Lehman-linked derivatives was HK$15.7 billion.
Securities and Futures Commission chief executive Martin Wheatley said that although the root cause of the difficulties was the same, namely the collapse of Lehman Brothers, investors should not use the valuation of the Constellation notes as a guide to minibond valuations.
"These products have failed for different reasons - in the case of the Constellation notes LB [Lehman] was a reference entity, but for minibonds LB was the counterparty for a swap arrangement to facilitate interest payments," he said. Investors should contact the distributors who sold them the product if they were unclear about any of these matters, he said.
Mr Tsang and Mr Wheatley were speaking a day after Singapore-based DBS Bank revealed that almost all derivatives notes issued by the special purpose vehicle Constellation were worth nothing, stoking fears minibonds were headed for the same fate.
Secretary for Financial Services and the Treasury Chan Ka-keung attempted to calm minibond investors on Tuesday, saying the products were different.
Minibonds are not corporate bonds, but consist of high-risk credit-linked derivatives marketed as a proxy investment in well-known companies. Many investors claim banks and brokers mis-sold them as low-risk products.
Dozens of DBS investors protested emotionally and at times violently yesterday. At the Legislative Council yesterday morning, they called for the government to investigate whether the bank used misleading tactics to market the products. Later, at DBS' Central offices, several protesters clashed with police who barred them from entering the building. They were eventually able to meet bank representatives. They also marched to the Singapore consulate.
Meanwhile, in Singapore, six banks that had sold minibonds said they would compensate investors who bought one series of Merrill Lynch-arranged notes linked to Lehman and some minibonds series.
One bank, CIMB-GK Securities, has promised a full refund, while DMG & Partners, Kim Eng, OCBC Securities, Phillip Securities and UOB Kay Hian could also pay up to the full original investment amount. They will pay back "vulnerable" investors over Singapore's retirement age of 62, with little investment experience and education. DBS Bank, Malayan Banking Berhad and Hong Leong Finance agreed to pay back some customers.
Hong Kong Securities and Futures Commission deputy chief executive Alexa Lam said Lehman's collapse showed "the extent of global reverberations and market dislocations that one global player can potentially cause" and called for a review.
Announcing unaudited financial data for the third quarter, Bank of China (Hong Kong) said yesterday that its exposure to senior unsecured debts - securities that would get payment ahead of other unsecured debt if the borrower defaulted - had a carrying value of HK$80 million.
EDITOR'S NOTE: We have subscribed to the online version of Hong Kong's South China Morning Post which costs USD$51 a year. We will be reprinting Hong Kong news on the minibond fiasco here on our blog on a daily basis. You can also check out its RSS feeds on the left menu bar under "Asian News Feeds".
Source: South China Morning Post
Finance chief assures minibond holders notes retain some value
FINANCIAL MELTDOWN
Joyce Man
Oct 30, 2008
The financial secretary yesterday rushed to reassure minibond holders that their notes retained some value, after DBS said most of its similar derivatives were worthless.
Most series of minibonds, unlike the DBS derivatives called Constellation notes, had retained their value, Financial Secretary John Tsang Chun-wah said.
"Our initial assessment is that a large majority of the minibonds still have value," he said. "A small portion that are directly linked to Lehman will have a very low value."
A Hong Kong Association of Banks taskforce has promised to calculate the value of minibonds and buy back the first batch in December. Minibond holders, who risk losing much if not all of their investment, have said that is too slow. Hongkongers' investments in Lehman-linked derivatives was HK$15.7 billion.
Securities and Futures Commission chief executive Martin Wheatley said that although the root cause of the difficulties was the same, namely the collapse of Lehman Brothers, investors should not use the valuation of the Constellation notes as a guide to minibond valuations.
"These products have failed for different reasons - in the case of the Constellation notes LB [Lehman] was a reference entity, but for minibonds LB was the counterparty for a swap arrangement to facilitate interest payments," he said. Investors should contact the distributors who sold them the product if they were unclear about any of these matters, he said.
Mr Tsang and Mr Wheatley were speaking a day after Singapore-based DBS Bank revealed that almost all derivatives notes issued by the special purpose vehicle Constellation were worth nothing, stoking fears minibonds were headed for the same fate.
Secretary for Financial Services and the Treasury Chan Ka-keung attempted to calm minibond investors on Tuesday, saying the products were different.
Minibonds are not corporate bonds, but consist of high-risk credit-linked derivatives marketed as a proxy investment in well-known companies. Many investors claim banks and brokers mis-sold them as low-risk products.
Dozens of DBS investors protested emotionally and at times violently yesterday. At the Legislative Council yesterday morning, they called for the government to investigate whether the bank used misleading tactics to market the products. Later, at DBS' Central offices, several protesters clashed with police who barred them from entering the building. They were eventually able to meet bank representatives. They also marched to the Singapore consulate.
Meanwhile, in Singapore, six banks that had sold minibonds said they would compensate investors who bought one series of Merrill Lynch-arranged notes linked to Lehman and some minibonds series.
One bank, CIMB-GK Securities, has promised a full refund, while DMG & Partners, Kim Eng, OCBC Securities, Phillip Securities and UOB Kay Hian could also pay up to the full original investment amount. They will pay back "vulnerable" investors over Singapore's retirement age of 62, with little investment experience and education. DBS Bank, Malayan Banking Berhad and Hong Leong Finance agreed to pay back some customers.
Hong Kong Securities and Futures Commission deputy chief executive Alexa Lam said Lehman's collapse showed "the extent of global reverberations and market dislocations that one global player can potentially cause" and called for a review.
Announcing unaudited financial data for the third quarter, Bank of China (Hong Kong) said yesterday that its exposure to senior unsecured debts - securities that would get payment ahead of other unsecured debt if the borrower defaulted - had a carrying value of HK$80 million.
EDITOR'S NOTE: We have subscribed to the online version of Hong Kong's South China Morning Post which costs USD$51 a year. We will be reprinting Hong Kong news on the minibond fiasco here on our blog on a daily basis. You can also check out its RSS feeds on the left menu bar under "Asian News Feeds".
Source: South China Morning Post
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