Investors of Merrill notes to get back nothing

Unwinding proceeds not enough to cover original collateral
By SIOW LI SEN
Source: Businesstimes.com

(SINGAPORE) Investors of the Merrill Lynch Jubilee Series 3 LinkEarner Notes are said to be walking around shell-shocked after receiving letters telling them that their investments are worth zero.

The current financial crisis meant that the proceeds from the unwinding process were not enough to cover the original collateral value of the notes which were complex products involving credit default swaps and derivatives.

The Jubilee Series 3 notes are the first structured products linked to the bankrupt Lehman Brothers to be unwound here.

A total of S$26.29 million and US$1.4 million had been sold by six broking houses at minimum amounts of S$20,000 or US$10,000.

Beside the Jubilee Series 3 notes, DBS High Notes 5 and Lehman Minibonds have gone belly up. Over half a billion dollars worth of these products were sold over the last two years to thousands of people.

According to the letter dated Oct 6 sent to noteholders from Merrill Lynch, it said that 'as the credit event redemption for both the SGD notes and the USD notes is zero, no amounts are due and payable to noteholders on the credit event redemption date.'

The credit redemption date is Oct 17, 2008.

Merrill said bids were asked from five dealers for the debt obligations of Lehman Brothers and securities which were notes whose performance is credit-linked to a pool of 120 underlying securities.

'Because Lehman Brothers Holdings Inc has filed for bankruptcy, these ...debt obligations are trading significantly below their face value... are currently valued below 20 per cent of their value value,' it said.

'The current US financial crisis has led to unfavourable market conditions in the broad credit markets which has led to significant decline in the value of the securities,' it said.

Although the proceeds came to several millions of dollars, they were less than the market value adjustment of S$20.9 million, so consequently the credit event redemption amount was determined to be zero.

Martin Lee, a financial adviser, said many investors have difficulty understanding that they will get nothing from the proceeds.

'It shows how complex the product is,' said Mr Lee.

Tomorrow, many investors of the failed structured products will gather at Hong Lim Park to listen to former NTUC Income chief executive Tan Kin Lian, who has handed a petition to the government on the matter.

The Monetary Authority of Singapore last night said it has received the petition from Mr Tan and said that it understands the anxiety of investors and is committed to ensuring a quick and fair resolution of their complaints.