15 November 2008
Francis Chan
The Straits Times

 

Notes Series 9 and 10 collapse, investors set to lose entire principal
About 700 people here who invested a total of $26 million in complex structured products look certain to lose all their money.

The products – called Pinnacle Notes Series 9 and 10 – have been battered by the financial crisis and are likely to be wound up for little more than small change. US investment bank Morgan Stanley, which arranged the notes through its Asian unit, broke the bad news on its website yesterday. Investors were also notified through the financial institutions they bought the product from.

The notes in question were sold solely in Singapore, through five distributors – brokers DMG & Partners, Kim Eng Securities, OCBC Securities and UOB Kay Hian and lender Hong Leong Finance

An investor called The Straits Times yesterday morning, after receiving an e-mail from OCBC Securities, saying: ‘Terrible things have finally happened. Please help us! Get the MAS (Monetary Authority of Singapore) to intervene like how they did for Minibonds. ‘The portfolio of underlying assets in the two notes includes a rogues’ gallery of failed or near bankrupt firms, including US mortgage giants Freddie Mac and Fannie Mae, Iceland’s deathbed banks Kaupthing and Landsbanki and the now-bankrupt Lehman Brothers.

 

According to notices put up on Morgan Stanley’s website, Standard & Poor’s had slashed the ratings of the underlying assets of Series 9 and 10 from AA to CCC-. The drastic downgrade was attributed to ‘unprecedented events in the financial markets’ and effectively signals that the investment products are now almost worthless.

 

The downgrade has also triggered a mandatory redemption event – industry-speak for a forced asset sell-off.

Investors will only get a ‘pro-rata share’ of the proceeds, but a notice on the Morgan Stanley website hints that noteholders are unlikely to get a cent. ‘Given the current market values of the underlying assets…we anticipate that investors will lose all of their original principal investment,’ it said.

 

Rumours of the plummeting value of Series 9 and 10 have been circulating among investors here for weeks, sparked in part by the failures of similar products like Minibonds and DBS High Notes 5. These were both linked to the failed bank Lehman Brothers. The two notes – part of a series of 16 – were not sold in Hong Kong, unlike Minibonds and DBS Constellation Notes.

 

The series was issued by Pinnacle Performance and arranged by Morgan Stanley Asia. Pinnacle Performance is a special purpose company incorporated in the Cayman Islands, but it is not a subsidiary of Morgan Stanley. MAS said last night that it is in ‘close contact’ with Morgan Stanley Asia to ensure it provides all the necessary information on the early redemption of the notes.

It added that Morgan Stanley Asia has given assurances that it is finalising the appointment of an international accounting firm to assess the redemption process.

 

Meanwhile, a group representing about 150 ‘disgruntled OCBC investors’ who bought Minibonds and Pinnacle Notes said OCBC Securities has twice rejected their requests this week to hold a DBS-style forum. DBS Bank has held sessions to answer queries from investors caught up in the High Notes collapse.

And like DBS High Notes investors, the OCBC group wanted Mr Hwang Soo Jin, the independent party appointed by MAS to oversee the complaints process, to be present.

 

A representative of the group told The Straits Times that they wanted OCBC Securities to give ‘an explanation on the performance of each series of the securities and to allow us to ask questions and seek clarifications’. Mr Hui Yew Ping, managing director of OCBC Securities, said: ‘We feel that it is more productive and appropriate to review each investor’s situation individually as we can discuss confidential information and details with each individual.

‘As such, we do not believe an open forum would be worthwhile.’

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I personally feel very sorry for those people who were conned into buying such bank products. Those people in the banks are really terrible in selling such complicated products to those ignorant people. That is why i discourage my client to purchase any thing from the bank because sometime they may be conned by their RM into buying something that doesn’t suit their needs. I have met with clients who had bought a high monthly saving plan from the bank without really knowing what they are buying. It’s only after they met me then they realised they have gotten something that they dont need.

Hence a word of advice, do consult your personal adviser before you decide to purchase any plans from the bank. But of course you have to make sure that you find a good adviser that gives you good advice.

 

 

 

 

 

 

 

 

MAS has advised investors who believe they were mis-sold investments to file complaints with the institutions that sold the products.