Minibonds/Notes

Without Prejudice
Recently there was much talk about minibonds/notes. In Hong Kong and Singapore, many people have been told that their "investment" into minibond/notes could be totally wiped out and many of these "investors" were old folks with their life saving poured into minibonds/notes.

Banks said that they are absolved from all responsibility because of contractual protection. Banks has long forgotten the meaning of business and social ethics. Business ethics was common among past businessman where it is not ethical to simply collect the monies from customers and deliver a faulty product. It is like in constructing a building, an architect or engineer must design and ensure that a building has primary safety features that would ensure that the occupier is safe. Anyone who spotted a worker carrying out a hazardous activity which could endanger his life would have a moral obligation to tell him that it is unsafe. That moral obligation goes beyond the contractual terms and conditions. By taking the life saving of a retiree and rob him of his/her years if not decades of hard work is simply unethical and not morally justify.

Risk is always proportional to reward. The higher the risk the higer reward. The reward from minibonds is a return of approx 5%. To say that the total investment can be wiped out is not proportional to the reward/return.

For minibonds/notes where Lehman Bros is a reference entity, only 1 reference entity has failed. It should not mean that the whole value of minibonds/notes would be worthless. According to the brochure, the market value of debt obligations of that reference entity will only be lowered than their face amount. It should not affect the rest of the reference entities values.

For minibonds/notes where Lehman Bros is not a reference entity. Then no credit event has occured and the "investor" should be paid the coupon at the end of each quarter and upon maturity will be paid the principal invested. Certainly, there is a breach of contractual obligations if this is not fulfilled.

The banks while acting as distributors must pursuit the matter on behalf of the "investors". Afterall, they are financially stronger and well equiped legally to handle the situations. Leaving the old folks to fend for themselves is non ethical and morally incorrect.