Martin Lee @ Sg
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Minibond Track B: Catching Up With Hong Kong

I’m posting this on behalf of HK5D, who would like to find volunteers to work with him in maximizing the value of the Minibonds. More updates to follow later in the week.

By HK5D

Hi,

I attended the gathering at the Speakers’ Corner yesterday. It was great to have someone like Mr. TAN Kin Lian to organize it. Even better, there were sign posts to group victims by products so that they can meet each other. In fact, I did an impromptu leading of a discussion group focusing on how we can get the most value out of the MiniBonds back to the investors (what I now call Track B below). I am putting my comments here because by reading through the discussion stream, I can see a lot of brains here.

And, I am hoping we can get a handful of volunteers who have deep understanding of this MiniBond stuffs who can represent the investors to work with MAS, the Financial Institutions and HSBC (MiniBond Trustee) to find a buyer – just as important is at the right timing (last week could be the darkest day in the stock market worldwide in this century).

Let me volunteer myself first: I spent half my life in the U.S. and as a CPA there, I have a pretty good understanding of how the subprime mortgage market (besides the financial market) works in the U.S. Another area which I can contribute is I am a transplant from Hong Kong and I can monitor the developments over there. So, if you can help, please don’t be shy – I felt really sorry for many of those old folks there at the Speakers’ Corner with their life savings gone. They need your help!

Up to now, I think there are pretty good traction along what I call “Track A: Mis-Sold” meaning investors were sold a high risk product thinking they were investing in a low risk product. Blogs and newspapers are full of stories of how people were misled and how they lost their life savings. There are also plenty of advices on how to complain. Yet, it is also the consensus that very few people can outwit the FI lawyers to get money back this way.

So, in addition of Track A, I would like to start a “Track B: Maximize Value” track. And, this is not a competition of Track A but rather, a safety net. And, to be laser focused, I will concentrate on Track B only. Specifically for some of the MiniBond owners, they are lucky because Lehman is not one of the credit reference entities. Please read my earlier comment in http://www.martinlee.sg/minibond-investors-meet-with-mas/#comment-2925 on why the underlying securities even like subprime mortgages are worth money. Why am I focusing on MiniBond? Because over 80% of the investors are MiniBond investors. And, Jubilee 3 is said to be worth next to none.

Coming from Hong Kong, I have an advantage. I follow the development there. And, they seem to be ahead of Singapore. So, let’s copy, don’t innovate:-) Specifically, HKFA (their MAS), the FI’s and the MiniBond investors representatives (do we have representatives in Singapore? We do have representatives for Track A. But, I am not aware of for Track B – and if so, I have not been informed of what their plans) are in discussions with buyers and they are working towards a target of 60+ cents on a dollar back. What about Singapore? If we don’t band together and work proactively, I am afraid we may get less month back than similar investors in Hong Kong.

By the way, using the same mechanism, we can try to get the FI’s to pay us back the commission they earn (3% or so) on a moral voluntary basis. These MiniBond type stuffs generate so much bad publicities for them that if I were an FI owner, I would certain do that to salvage my reputation.

Last but not least, my hotmail alias is HK5D which could be inspirational for Singaporeans. In Chinese, HK5D means “Hong Kong is a bit faster”. Judging from the Track B development, I would say it is quite true that Hong Kong is ahead. And, I am including a link to relevant newspaper reporting in Hong Kong. I said inspirational because even though we are behind in Singapore, we can play catch up (borrow an F1 might help also:-) and still achieve the same payback if we get our acts together.

The link below (in Chinese since many people at the Speakers Corner do not speak English) basically says some MiniBond series may be able to get 60% back. Exceptions are Series 5-9 (some say 7-9) which swaps with Lehman and worth about zero. And, series 15-18 uses subprime mortgages as collateral and may get let than half back. Now, the series might be different than Singapore’s – another reason we should band together and demand more info on the underlining assets in Singapore.
http://hk.news.yahoo.com/article/081006/4/8krk.html

Here is another link which as excellent FAQ:
http://www.chinareviewnews.com/doc/1007/6/3/9/100763948.html

Hong Kong investors are quite demanding. If I were an investor in Hong Kong and can get 60 cents (some are saying 70 now if you have the right series) back on a dollar, I would be very happy. Yet, people were calling for head of HKFA to resign. God forbid if, when all the dust settle, Hong Kong investors get 60 cents back and Singaporean’s only get 10 cents, e.g. What would Singaporeans do?

Please let me know if you can contribute and are interested in volunteering.

P.S. I am piggy backing on this blog instead of starting my new blog because I don’t think we should be fragmented. We should united all investors and put all the brains together across all blogs. I particularly like this blog having the ability to publish what you write right way. Of course, this also means we have to write responsibly. To get better traction, it would be great if the blog master can move this out of the reply and state a new stream.

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23 comments
HK5D says 10 years ago

Hi Kwan,

Thanks and we’ll take it off line.

Good news is with 3 white knights, I hope one will come thru.

Thanks,

HK5D

Reply
Kwan says 10 years ago

Hello HK5D,
I am prepared to join you in a working group and have meetings to discuss on how to maximise recovery. I know of another person who is prepared to join in. Discussion as a team with the Trustee and other relevant parties such as the FI, the Independent Party and FIDeC will be more effective. I have some knowledge in this field. Inability to find a replacement swap party should not automatically lead to liquidation of the underlying securities. Please reply to me directly on how we can meet up.

Reply
Kenneth says 10 years ago

Hi Lye,

“For things you cannot control, don’t bother.” This I feel is one of them. As long as a good bank takes over, we will be given a temporary life line.

Mr. Tan preferred local institution but it may turn out otherwise.

Let’s wait and see. We have already waited for a month. My future plan is still going to FIDReC as this product is still too dangerous to continue.

Regards,

Reply
Dan says 10 years ago

Hello HK5D,

HSBC seems to be keeping the valuation thing a secret. Each conversation I had with them, they always say that they are still in the process of valueing the underlying securities. Seems to be taking ages on this!

When I asked them on the news of the swap counterparty, they say still waiting for confirmation. Mr. Tan KL said that a big HK bank is interested in the take-over, you have any news on that ??

Pls share your class suit with all of us when you have summarised it.

It is time that we act, before everything is liquidated and we gets peanuts !!

Reply
    Kenneth says 10 years ago

    With the on-going and usually muted govt comments, I kinda want to believe the search for a new swap guarrantor may be successful. This solution will helps to cool off the situation and for MAS to score a point over HK MAS that Sgp approach is more successful.

    But having said that, it means the contract will continue to run. The credit events can still happen if:

    i) any 6 of the RE declared bankrupt -> most unlikely
    ii) >10 underlying securities defaulted -> likely
    iii) Swap guarrantor or Issuer defaulted.

    From CNBC, they are looking for the outcome of CDS situation on tuesday. Something to do with calling in the CDS after Lehman collapse. My interpretation is basically insurance payout due to Lehman collapse. Maybe this is the reason why we can only get our answer by end of the week i.e. new swap guarrantors wants to know whether there are money to be made.

    Reply
      Dan says 10 years ago

      Hi Kenneth,

      Let’s hope for a positive outcome on the new swap counterparty. While this may be look good at the moment compared to liquidation, there are still potential risks ahead as you’ve stated.

      And of course the new party will want to make $$ too, no one is so dump to do charity work on such a widescale. We keep our fingers crossed.

      Reply
        lye says 10 years ago

        Could the bank interested to take over as swap counterparty be HSBC itself? Mr Tan said this HK bank is bigger than local ones, and HSBC is the only one I can think of which is based in HK.

        Reply
Ho says 10 years ago

My friend who bought the dbs product told me that dbs has advised him the payout is 8%. Not sure this is indicative or confirmed?

HK5D any info?

Reply
    HK5D says 10 years ago

    Not sure but I would image that it is probably. It is so close to zero that chance for error is not that high.

    Hong Kong is getting one of the big-4 CPA firm to value before coming out with pricing.

    Reply
      Ho says 10 years ago

      HK5D,
      In Tan Kin Lian’s blog, one writer posted that he or she met up with HSBC and HSBC conveyed that if there is no one to take over as counter party, they will go ahead to liquidate.

      Do you have any info on the Minibond 5 and 6 valuation? Also are you working with Mr. Tan Strategy committee to come up with some starategy really fast as that decision will be end of next week!

      Reply
        HK5D says 10 years ago

        Hello Ho,

        I recall in one of the MAS announcement it does say they had some discussion with HSBC Trustee on not doing immediate liquidation by the book. How much time this is going to buy us is not clear.

        Valuation info is just not available in Singapore.

        There is some discussion string about organizing a central planning committee but nothing is concrete as far as I know.

        Right or wrong, I think how things are evolving is like Wikipedia. Everyone try to contribute based on what they know creating a piece of the puzzle at a time.

        P.S. I just finished attending a group meeting with a lawyer on the feasibility of class lawsuit. With the amount involved and the number of people involved, the legal fee may not be that much and it beats us playing DIY lawyer, financial analysts, etc. etc. I will write a summary tomorrow to share.

        Reply
HK5D says 10 years ago

CNBC just reported the headline of banks in Hong Kong will be buying back MiniBonds (deadline called for by the Hong Kong governor couple of days ago). Details are not yet included. The reporter asked HKFA if a Press Conference will be held today and answer is no. I think details will be coming out today. If anyone has new info, please update us. If there is information available, I will try to print them out for the SAT meeting tomorrow at the Speakers’ Corner.

Newspaper link I found so far (any subscriber has details?):
http://www.hkej.com/template/dnews/jsp/toc_main.jsp

Reply
HK5D says 10 years ago

For those of you who are interested in meeting other investors grouped by product/institutions, please come to the Speakers’ Corner this SAT 6-7 p.m.

One of the proposed theme is to ask the head of MAS to go down for the lack of actions up to now and especially if Singaporeans got less money back than their Hong Kong counter parts.

金融局长下台!!

It is not such a crazy idea. The Hong Kong HKFA might go first!

http://www.stnn.cc/hongkong/200810/t20081015_879547.html

Reply
Del Boy says 10 years ago

I think I said it in the blog before – valuation is an extremely hazardous exercise. Beryl and Zircon are synthetic CDOs, where Lehman basically sold protection against the default of 100-130 entities (both corporate and financial companies). The portfolio weighted average spread was probably 120bps then. The same portfolio now would have a weighted averaged spread of say 300bps-500bps .Someone who would come in & replace Lehman as protection seller would ask oneself “why would I want to sell protection at 2006/7 levels in today’s catastrophic environment ?” No rational commercial institution would do that other than Barclays and Nomura whom I suspected have bought over some Lehman liabilities as well as assets. If you do not have a counterparty to step in, you would have a void in the CDS contract. When that happens, the protection buyer would simply stop paying (as it already had since Lehman’s filing). In effect, the underlying securities such as Beryl and Zircon are not generating any income or, more importantly, severing its original intended purpose. If a full unwind is intended, what’s next ? You need to ask yourself how much Beryl and Zircon are worth. You would then repeat the same exercise you done on minibond, which is to look at what are the underlying securities backing these Beryl & Zircon deals. Like you said it is Russian doll ! But I think some of these deals are back by bonds issued by GE, which is hopefully where the buck stop.

Another problem which adds to the complexity is that when Lehman sold protection in the credit derivatives market, in practice, you wouldn’t necessary know which trade position belongs to minibond/beryl/zircon as Lehman probably commingled everything into one trading book. Within this trading book, some positions are hedged, some are square off against others, some are not hedged at all (e.g. It was not worth while to hedge 5yr protection on AIG which was traded at10bps not too long ago !)

Mind boggling stuffs for those of you who mistakenly got into these products for mere 125bps-200bps incremental fixed returns. Whereas, the downside is unlimited.

I still think satisfactory resolution would require some divine interventions from the government .

Reply
    richard says 10 years ago

    Hi Del Boy,

    Thank for giving us a good grasp and insight of the picture.

    I was also informed by Maybank that is one of the underlying securities
    for Beryl is General Electric (GE). If this form a large portion of the
    bloc of securities, then maybe the valuation could be higher, because Warren Buffet has just injection billions into this company.

    Reply
steve says 10 years ago

HK5D

Can you explain the notice issue by HSBC Trustees here regarding the underlying securities. I posted it here at http://drop.io/minibond

Reply
    HK5D says 10 years ago

    Hi Steve,

    Yes, I did go thru the documents before I compiled the table. The HSBC document is just what they are requried to notify the distributors and the note holders that interest payments are in default and also what the potential action going forward.

    So, there were no estimated recovery in the two documents you posted. And, I will update the tables next time I make a pass at it.

    Regards,

    HK5D

    P.S. Please drop me an email to [email protected] on how to contact you as I am trying to get some MAS meeting updates for the upcoming meeting at the Speakers Corner this SAT.

    Reply
HK5D says 10 years ago

At the risk of errors and outdated, I am gathering information in the webs on estimates on how much people can recover from MiniBond type stuffs for both Hong Kong (as reference as they have more numbers) and Singapore. Corrections and updates are welcome and we can make this into a living document.

HONG KONG (Total 36 Series of MiniBond) and Sources:
http://hk.news.yahoo.com/article/081006/4/8krk.html
http://gb.chinareviewnews.com/doc/1007/6/3/9/100763948.html
#1-#4: 60-70% as “others” per Source1 and Source2 (applies to all others below)
#5-#6: 60-70% per Source2. About 0% per Source1 which maybe wrong.
#7-#9: about 0% as Lehman is reference entity per Source1 and Source2.
#10-14: 60-70% in Source1.
#15-#18: <50% as SubPrime Mortgage based per Source1. =50% per Source2.
#19-36: 60-70% as others. #21; #27 Interest past due.
The Hong Kong approach is pressuring the banks to buy back based on market value.

SINGAPORE (Total how many series?)
http://www.hsbc.com.sg/1/2/miscellaneous/minibond-notes-frequently-asked-questions
http://drop.io/minibond
#1-#3: synthetic portfolio notes issued by Beryl Finance Limited.
#5-#6: Interest past due! Synthetic portfolio notes issued by Zircon Finance Limited.
#7-#8: 9% (i.e. 9 cents) and 2% respectively. Interest past due! Synthetic portfolio notes issued by Beryl Finance Limited.
#9-#10: floating rate notes issued by Wachovia Corporation.
The Singapore approach as per MAS article, is to find swap counterparties replacement. No estimates on how much can be recovered are given.

The Trustee in Hong Kong is actually HSBC USA so they are taking their sweet time in releasing collateral information. The Trustee in Singapore is HSBC Singapore and information has been release so Singapore definite won this part of the race.

And, we are not saying that the MiniBond series are the same across Hong Kong and Singapore. Someone suggested a way of identifying them by some serial numbers like stuffs but I have not be able to do that comparison. Can anyone help?

Again, your update and correction to payback estimates are welcome.

Reply
    lioninvestor says 10 years ago

    The numbers for #7 and #8 and not correct. No estimation is available.

    Reply
    HK5D says 10 years ago

    Thanks for the correction, lioninvestor! I will update that next time I revise the table.

    So, if not 9 cents and 2 cents, what would be our guestimate? Well if Hong Kong has the same stuffs in each of the series, then, according to the Hong Kong table above, this means it is more like zero.

    Oh, I did get Richard giving me the golden key on how to find out if Hong Kong series and Singapore series are the same. Here is what he wrote:
    “To check whether the series is the same , I think we can check whether the Hong Kong series has the same portfolio and ISIN:
    “For example, Mini Series 2 is Beryl Finance Ltd Synethetic Portfolio due
    2012 ISIN:XS0382664620, Series 3 Beryl Finance Ltd Synethetic Portfolio
    ISIN XS0382664976”

    Now that I got the golden key, I don’t know how to find the key holes:-( May be some Hong Kong investors can check what they bought and get back to us in the blog. We can help the Hong Kong investors too because Singapore HSBC Trustee has released information about the collaterals. Example is that Beryl Finance above which is in Cayman island. I think it is probably like a Russian doll – meaning when you open one layer, only to find another layer underneath.

    Of course, there is an easier way. Do any of you have any friends (still friends?) or relatives who used to work at Lehman? Find out the answer and post in the web please. Thank you so much!

    Reply
Bad Dream says 10 years ago

Hi

Is there any update on the possibility of a “white knight”?

Time is running out. It’s scary!

Thanks

Reply
linda says 10 years ago

I have invested $100k of minibond series5 from UOB Kay Hian and I got
very worried that I might not get back a cent.

Reply
    richard says 10 years ago

    Hi Linda,

    Series 5 and 6 is in the frontline.

    It would be better for those holding onto these two series to get together and approach HSBC Trustee to hold in abeyance the sale of any underlying securities, because Wall Street is starting to pick up and besides the bailout plan by the US Treasury is still not implementated.

    Reply
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