Jun 23 2008
Merrill Lynch Jubilee Series 8 Notes
You might probably have seen advertisements for the Merrill Lynch Jubilee Series 8 Notes recently.
(If you haven’t, you can download the product fact sheet at the link below:)
Merrill Lynch Jubilee Series 8 Notes Fact Sheet
The Jubilee Series 8 Notes promises 3.15% p.a. for a period of 2.5 years. It also offers “100% principal protection at maturity*“.
A 3 year government bond is currently giving only a yield of 1.86%, so this looks like a good deal.
But wait, we need to read the fine print first (Did you?).
It says:
The Notes are principal protected if held until the Maturity Date. However, redemption of the Notes at 100 percnt of the principal amount of the Notes is not guaranteed if the Note is disposed of prior to maturity, or the Note is redeemed early due to taxation or other reasons.
A lot of people will probably be thinking: “As long as I don’t sell it before maturity, I will get 100% of my principal back.”
Let’s read the finer print and disclaimer on the fact sheet.
The security for the Notes will comprise certain securities issued by Merrill Lynch and the swap arrangements relating to the Notes including the guarantee by Merill Lynch as the swap guarantor. In the event that Merrill Lynch is unable to make or procure payment of amounts due under the securities or the swap arrangements, Jubilee Global Finance Limited will be unable to make the corresponding payments due under the Notes and the recourse of investors is limited to the realisation of the securities and to the termination payment (if any) due to Jubilee Global Finance Limited under the swap arrangements.
Yes, the Notes are 100% principal protected if held to maturity.
But no, the decision as to whether to sell the Notes or not does not lie totally with you.
There are certain conditions whereby the notes can be redeemed by the issuer prior to maturity date. They are:
- There is an event of default under the Notes
- The securities backing up the notes are repaid early for any reason, for example because there is an event of default under the securities or for tax reasons
- The swap agreement is terminated early
- The Cayman Islands imposes taxes on the issuer or on payments under the Notes which the issuer is unable to avoid
When any of these events happens, there is a risk of significant loss of capital.
A look at the Jubilee Notes Pricing Statement shows the securities backing up the notes to be SGD-denominated notes issued by Merrill Lynch & Co., Inc under its US$110,000,000,000 Euro Medium Term Note Programme. As the Securities are unsecured, they represent long-term unsecured debt obligations of Merrill Lynch & Co., Inc.
Therefore, you are paid the extra yield by taking on the credit risk of Merrill Lynch. And the few other reasons listed above which might not be too exactly transparent. For example, what are the factors that will determine when the swap agreement be terminated? We don’t really know unless we take the trouble to read thoroughly the base prospectus and pricing statement.
The question is, are we being compensated sufficiently to take on all these risks?
You might want to read page 6-12 of the Jubilee Notes Pricing Statement to understand fully the risk factors involved in puchasing this product before deciding whether it is suitable for you. While it has been marketed aggressively as a “100% principal protected product upon maturity“, it certainly isn’t a principal protected product.
Click here to leave your comments.
[...] Update 26 June 2008 A fellow blogger has done a more in-depth analysis on this product. Read about it here. [...]
Hi Mudnik
Good analysis.
I hate the way financial institutions and agents push their products using unclear terms and promising orally of the great returns and safety when in fact these can potentially be as toxic as the collateralised debt obligations that were bandied around by the US banks prior the sub-prime fiasco.
Be well and prosper.
[Reply]
Hi Panzer,
Yes, one does need to be very careful when buying any structured product.
For that, a reading of the base prospectus/pricing guide is a bare minimum.
How many people actually do that?
[Reply]
Dear sir,
I recently bought the Merill Lynch series 8 notes and are very concerned to read about the just announced BoA acquisition of Merill Lynch.
The obvious question that comes to mind is what will happen to my purchased. Can anyone care to explain.
regards,
Stanley Leow
[Reply]
Hi Stanley,
If BOA assumes the obligation, the notes will carry on as normal after the takeover. This is probably the case.
Of course, the original risk associated with the original product still remains intact.
You might want to confirm with your distributor.
[Reply]
i bought the jubilee series 3 which Merrill Lynch is the arranger. unfortunately LB is one of the reference entities. plse advise me what will happen to my money?
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Henry,
Unfortunately, you could be looking at a significant loss on your capital.
[Reply]
Hi Lion Investor
The financial turmoil has been harrowing for me & the Sunday Times article on High Notes 5 has added more to my anxiety.
I have bought the Jubilee Series 8 notes from a Bank. With BOA acquiring Merrill Lynch, what will the implications be?
The only assurance I can get from the Bank is … “the Notes will still continue, if any early termination, we will keep you informed”
What are my losses if I request for premature termination? I’m totally not an expert on investment.
Pls advise.
Mui
[Reply]
lioninvestor Reply:
September 22nd, 2008 at 12:20 am
Hi Mui,
You can try requesting for the latest buyback price from the bank. For the Lehman minibond product, Lehman provided a pricing every Friday. Your Jubilee notes might have a similar arrangement but I’m not certain.
I believe the product should still continue to run.
[Reply]
What shoild do now with Merrill Lynch Jubilee Series 8 Notes bought recently ?
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dear Lioninvestor,
For you information, I have been told by my bank that the buyback price is only available after the 1st 3 months i.e. first week of Oct 08.
[Reply]
lioninvestor Reply:
September 23rd, 2008 at 1:30 am
I see. Then I suppose you will have to wait until then to know…
[Reply]
Dear Lion Investor
From what little I have seen of your blogs and intro page, I think yours is a pretty cool website. I ‘googled’ “jubilee series 8 notes prospectus” and hit your article.
I consider myself a fairly savvy investor who focuses on value and wealth accumulation for the long term. When someone I know was approached by a Citibanker to invest in this product, I was consulted on whether it was a good idea to invest in the MLJS8 Notes. The Citibanker had given the impression that the product was guaranteed (she might have even used the word “guaranteed” - I am not certain).
So I had a quick read of the factsheet and prospectus, and thought it was a pretty safe product because it said “capital protected” and was backed by Merrill Lynch, a pretty respectable and solid global financial institution. So the person in question invested in it. Little did I realise (until now) the vast difference between a cast-iron guarantee and what was termed “capital protection”. Had BOA not bought over ML, I am quite certain a vast portion of the person investment would have been lost by now. And of course, there has been no sight nor sound of the Citibanker since the sub-prime contagion started.
This is just a little cautionary tale of all things which appear too good to be true in the investment markets. As always, caveat emptor. There’s no free lunch out there.
As for your website, Lion Investor, I like what you are doing. Keep it up. And thanks.
Warm regards.
[Reply]
lioninvestor Reply:
October 3rd, 2008 at 12:25 am
Hi John,
Thanks for the encouragement.
Glad you liked reading what I wrote.
With regards to the buyback price, your friend should be able to get it via Citibank.
[Reply]
Oh, and if anyone finds out what the buy-back price is, please let me know. Thanks.
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I’ve was advised by my “Relationship Manager” in Standard Chartered Bank that they have received calls from anxious investors asking for outcome of this MLJS8 notes too and that SCB is looking into it.
She also promised that she will check & revert on the buy-back price early week of Oct 08.
To date, I am still waiting for their advice … hope SCB live up to their word! Let see …
Any idea who & how I can escalate & pursue this matter further? At what extend can MAS help?
Anyone care to share? Tks
[Reply]
stephensim Reply:
October 19th, 2008 at 11:15 pm
I am sure the RM told you that the “principal is protected” when you sign the contract. He did not tell you those 4 conditions mentioned and when any of these eventshappens, there is a risk of big loss of capital.
This is very unprofessional of a reputable bank. How can they subject your investment to such high risk when the return is only 3%. Many retalier would think that since it is only 3% return, it should be similar to a fxed deposit.
The bank is using this kind of unfair tactics to lure customer.
You should lodge a complaint with all the authorities and get the bank to cancell the contract and get back your principle before it is too late.
[Reply]
amnon Reply:
November 2nd, 2008 at 1:22 am
In March 2008 I purchase Capital Protected Note base on a Standard chartered brochure which my he presented me during the meeting which gave the illusion that the CPN is actually a product of Standard Chartered.
On Mid September My private advisor called me at 20:00 and informed me that my funds in the CPN are suspended due to Lehman collapse. As I did not fully understand the connection, he further explains that somewhere down in the brochure it stated that the issuer of the note is Lehman Brother.
This scam should not go quietly! I’m thinking to start legal procedures against standard charter for fraud and deception.
[Reply]
Alex Reply:
November 26th, 2008 at 1:34 pm
Hi Mui,
i am in the same situation as u … how did SCB handled yr case??
for me. my mum bought the JS8Notes. but the R/S manager did not highlight the risk involved and played ard wiht the words “Gurantee” and “Protected”
we hv logdged a case with SCB but our case was withdrawn.. cause they have found “evidence” tat the R/S manager DID NOT mislead my mum. a chinese educated lady in her 50s. I wonder how they find the “evidence”
on my hand we hv called the R/S manager prior to this. Does major banks have recording functions on their R/S managers desk??
how shld we purse the case???
anyone advise??
[Reply]
Dear Lion Investor
ST’s headline on Structured Investments has indicated that investors may lose all their money invested in Merrill Lynch Jubilee Series 3 LinkEarner Notes.
What’s the difference between this and MLJS8?
Also when MLJS8 was launched, Temasek Holdings has had stake and recently has upped their stake in ML. Does this enhance our position financially?
Your financial advice pls ….. Thanks heap!
[Reply]
lioninvestor Reply:
October 4th, 2008 at 12:02 am
Mui,
The Jubilee Series 3 had Lehman Brothers as one of the reference entities.
Since Lehman Brothers has gone bust, it triggered a default event. Investors of Series 3 are likely to get back zero or close to zero.
The Series 8 is a different thing altogether and has little to do with Lehman Brothers.
[Reply]
Hi,
I just went down to citibank to enquire about the buyback rate for the Jubilee Series 8 notes. It’s about 80% and this rate differs each day. Any advice if I should hold on to the notes or should i just sell it off asap?
Thanks.
[Reply]
I am one of those worried investors of MLJS8. I have also been advised by RM in Standard Chartered to wait till the 9th of Oct.
Please keep me updated on news concerning MLJS8. Thanks Lion Investor
[Reply]
Odyssey Reply:
October 24th, 2008 at 8:02 pm
Today, 24/10/08, the RM of SCB informed me the quote for Series 8 note is at 85.
I had instructed my RM of SCB to liquidate the Merrill Lynch
Series 8 note at 15% loss of my capital. At least I now have peace
of mind.
[Reply]
Dear Lion Investor
“Mui,
The Jubilee Series 3 had Lehman Brothers as one of the reference entities.
Since Lehman Brothers has gone bust, it triggered a default event. Investors of Series 3 are likely to get back zero or close to zero.
The Series 8 is a different thing altogether and has little to do with Lehman Brothers.”
A quote from your earlier response.
I also bought Jubilee Series 8 notes, according to your earlier reply, Series 8 is different from Series 3 which has a reference to Lehman Brothers as one of the entities.
May I know, how series 8 notes work and what conditions/entities it depends on? As you have mentioned that it is a different thing altogether compared to series 3.
Thanks for your advises, I and as well as many investors here would like to know whether are we crossing a land mine field now.
If yes, we need to know whether we should retreat with some losses now or forge forward bravely as we might be able to clear the land mine field cautiously.
Thanks again for this great website!
[Reply]
lioninvestor Reply:
October 6th, 2008 at 1:08 am
Lowbang,
to quote what I wrote earlier:
“The security for the Notes will comprise certain securities issued by Merrill Lynch and the swap arrangements relating to the Notes including the guarantee by Merill Lynch as the swap guarantor.
A look at the Jubilee Notes Pricing Statement shows the securities backing up the notes to be SGD-denominated notes issued by Merrill Lynch & Co., Inc under its US$110,000,000,000 Euro Medium Term Note Programme.”
Only ML knows what they are! Given current conditions, it is likely you can get them to reveal what they are.
[Reply]
stanley leow Reply:
October 6th, 2008 at 8:42 am
Dear Lioninvestor,
thank you for the advice. I believe we should in a concerted manner request the ML reveal what this US$110 billion Euro medium term note programme is all about.
anyone care to comment.
[Reply]
Dear Lion Investor
Thanks for the great advises.
Appreciate it!
If any of the members know what securities it is backing do let us know here. Cheers!
[Reply]
Hi Lioninvestor,
I have been advised by my RM to hold on to the Series 8 notes. Any advise? Is it better to redempt the notes now, suffering a smaller loss than suffering a greater loss if the situation gets worse?
Thanks.
[Reply]
lioninvestor Reply:
October 9th, 2008 at 12:29 am
Alexis,
I think the question to ask is, what exactly is “the securities issued by Merrill Lynch & Co backing up the notes”?
You might want to get your RM to elaborate on what are the possible risk factors or events that would affect the principle of your notes should you continue to keep it.
He might not have the answer offhand, but you should make him work to find out for you.
And whatever he tells you, have it documented.
[Reply]
Note the few interesting response to individuals on MLJS8
1) Response from a SCB RM to my query >>
“I have attached the letter on BoA – ML which states that Merrill Lynch’s capital and liquidity positions remain sound.
As for the redemption price of the Jubilee Notes Series 8, we do not have the pricing yet. I will keep you update once I have the pricing.”
2) SCB RM reply to Ksusi >>
“I have also been advised by RM in Standard Chartered to wait till the 9th of Oct.”
3) Citibank’s reply to Alexis’s >>
“I just went down to citibank to enquire about the buyback rate for the Jubilee Series 8 notes. It’s about 80% and this rate differs each day.”
Anyone got the gospel truth? Plssss share & update …
[Reply]
lioninvestor Reply:
October 9th, 2008 at 12:31 am
I think it could be due to the time difference when the responses were received.
They seem pretty consistent to me.
That pricing will only be available in the first week of Oct.
[Reply]
Just got a indicative from SC on ML 8 notes. Today’s indicative is 85%. Thats bad! but of cos better than those that have bursted. they also say that coupon pyment are expected on 16th Oct.
Lion, this notes is entirely on the “existence” of ML, which seems ok for the time being becos there is a “white knight”(BOA). U think we do go unwind it? what will be the implication if everyone unwind? will it affect the note and eventually make it go burst?
Blur blur
[Reply]
yes, what is the impact on the pricing of the notes when everyone redeems it.
[Reply]
Dear lion invester,
I’m a layman on the street with little knowledge about investment. Unfortunately, i bought the Jubilee series 8 when i went to a bank to put in fixed deposit.
After what happened to Merrill Lynch, I search the web for more infor and found your article on the subject. The truth is i’m being told by the bank that this is a high yield and low risk instrument.
Anyway, i’ve checked with the bank today, they says the unwind percentage is 15%. I’ve put in quite an amount of money. If i choose to withdraw, i’ll lose quite a fair bit.
Base on the current situation, can you please advice what is the wise move?
Thank you very much.
[Reply]
lioninvestor Reply:
October 13th, 2008 at 12:55 am
Lilian,
as I mentioned in a few other comments, the main risk you face is that of Merrill Lynch going bust before your notes mature.
Can you live with that risk?
It might also be possible to do a partial sale. Check with your distributor.
[Reply]
LiLian Reply:
October 13th, 2008 at 10:09 pm
Hi Lioninvestor,
Am i right to say that base on the current scenario, looks like ML is in a better position than before acquisition by BoA. Does the fact that Temasak putting in more $$ and BoA merger warrant the stability of ML? or rather, after what happened to Leman, the govn wouldnt risk to let any big financial institution to collapse again..? That is the BIG question, what’s your comments?
I spoke with my RM this morning, he says the unwind % will only be known on every friday. Prior to that (last week) he says he will be able to let me know the update everyday. Also should i decide to sell the notes any time of the week, i should base on that friday’s unwind percentage. So meaning if anything happen to ML on monday, i should wait 5 more days till friday to find out the bid price and sell. By then, isnt it too late for anything? Anyone bought this notes knows if this is the fact? would appreciate and some one bought JB note 8 help check with your RM, i’m in some doubt of what my RM says….
[Reply]
lioninvestor Reply:
October 13th, 2008 at 10:28 pm
The Friday pricing is quite a norm. At least that was how it worked with Minibond.
Note that the buyer of the Notes from you is ML itself, so if they do go bust, there isn’t any way for you to sell it back already.
With the US government pledging to buy stakes in the banks, things does look more positive than before.
actually my question is how do we decide whether we should redeem it. ML is already bought over by BoA but are the chances now still high that BoA will default on this Note? Sigh, this is so complicated.
[Reply]
ALI < AMENAH Reply:
October 14th, 2008 at 11:00 am
Hi dilemma,
I received news from my RM at Citibank that the value of the Notes has risen to 86.5% and the redemption price is the same. She also told me the risk of Merril Lynch going bankrupt and that means , these Notes have no value. I am waiting for things to get better and then I will redeem these Notes. I hope this helps.
At my end , I live in constant worry because I invested a great deal.
Amenah
[Reply]
Dear Lioninvestor,
I invested my lifesavings in ML Jubilee Series 8. Could you tell me if BoA ’s purchase of MR means I can hold on to these Notes because my RM told me that the Shareholders may or may not agree to this. And, this buyback price I read about, how often can I email my RM to find out the Indicative Value? Right now , it is out 80.5% or is it more now? I am not very good at investment . I bought the Notes at the recommendation of my RM.
Could anyone help?
[Reply]
lioninvestor Reply:
October 11th, 2008 at 10:34 am
Hi Ali Amenah,
The main risk in this product that will affect your return of principal is that of Merrill Lynch going under. It is certainly hard to say whether this or not will happen. The US government has come up with a few measures to support the banks.
There should be an indicative price at least weekly.
[Reply]
I was just told that the redemption price for this note is 0.87. Just in case anyone out there wants to know…now the question is, will BOA still continue with their decision to take over ML when the official announcement is made Jan 09, esp given the current turbulent mkt?
[Reply]
Kenneth Reply:
October 9th, 2008 at 8:45 pm
I believe BOA will take over ML as Temasak is a major share holder of both.
[Reply]
My mum and I were already burnt by Minibond Series 2. We thought we could redeem our Jubilee 8 today but was told we would lose about 13 %.
That is quite a big amount and my mum is so distraught again because if she loses this money she has nothing left as most of her savings was in Minibond 2.
I am not sure how to advise her. To redeem or just wait a bit longer and see how.
Am so distraught myself. Meant to send my letter of complaint to bank after redemption for fear of bad service. Now I don’t know what to do because I cannot leave the letter of complaint too late as well for minibonds.
Any advice would be greatly appreciated.
[Reply]
Kenneth Reply:
October 9th, 2008 at 8:38 pm
So it means it is not principal protected but depending on the value of the notes upon maturity, right?
Really bad dreams. On the bright side, losing 13% is better than losing 100% like me. My Series 3 still have to wait till 02 Dec and plus another 15 days before HSBC goes through the WaYoung.
Today’s Business times report HK govt investigating 9 banks for mis-selling.
See you at Hong Lim Square on Saturday. My heart is numb now. Better continue to find ways to recoup my lost then comparing the two govt actions…..
[Reply]
my RM told me lots of his clients are holding on to the Jubilee Notes series 8. Most of them still believe in the fundamentals of ML, and do not think it’ll go down under. Let’s see if there are any more surprises tonight…
[Reply]
braindead Reply:
October 10th, 2008 at 9:37 am
What do you mean by “fundamentals of ML”? I thought ML has been sold to BoA? So now its a question of what will BoA do, or am I wrong?
[Reply]
I am one of the MLJB 8 investor via RBS_ABN AMRO, my RM advise me that the indicative bid price for 87% ro be redeem before 3pm on 10th Oct.
[Reply]
is there anyone out there who can shed some light on how was the daily prices determined? is it similar to share prices on supply and demand? what factors drive the prices up and what drive the prices down?
anyone?
[Reply]
lioninvestor Reply:
October 10th, 2008 at 11:26 am
HI Lynda,
The price is given by ML. There’s no secondary market for it and it’s the price they are willing to pay to buy it back from you.
[Reply]
I was told by standard chartered bank that the price will be out today.
Let’s keep each other updated about the redeem price.
[Reply]
do bear in mind that this is altogether different product from minibonds and other 1st to default credit linked notes. This is a much more sensible product in the sense that you are making a small bet (the 20bps bonus coupon) on whether S$ interest rate will not fall out of a given range.
Whether to redeem now or later is a difficult one. The big question here is whether ML will indeed be taken over by BoA. I would say both of these institutions are considered by the Fed as “too big to failed”. The guy running ML now is an extremely clever and ambitious man. He is after the top job as CEO of the combined entity. My view is that he will pull all the strings to make it happen. There are 2 more encouraging signs 1) BoA owns a stake in China Construction Bank. They could make a profit of 7bn if they sell; 2) The Fed 700bn rescue package will come into effect pretty soon.
The Euro medium term note – in layman terms, a piece of paper says “I owe you” issued by ML. I don’t believe you are directly exposed to CDOs here.
I would however still urge you to join your brothers and sisters in Hong Lim tomorrow.
[Reply]
lioninvestor Reply:
October 10th, 2008 at 11:38 am
Hi Del Boy,
Are you able to check what the underlying securities are? Or is it like what you said just an IOU from ML?
[Reply]
Del Boy Reply:
October 10th, 2008 at 12:32 pm
no isin number. cannot do a check on bloomberg. I would say this is a “IOU”. p20-p21 explains very well.
[Reply]
lioninvestor Reply:
October 10th, 2008 at 1:01 pm
Thanks.
Del Boy,
I sent you an email yesterday. Did you receive it?
Phew! My mum and I have just redeemed our ML Jubilee 8! It’s a loss of 13% which is quite substantial for an elderly with no further income.
However, it’s the price to pay to sleep in peace. With all the bad news from everywhere and especially from the US - see the state of DOW Jones - there is no peace of mind.
Even if BoA and ML are safe, the redemption price may drop further later.
It’s a gamble and there is no right or wrong answer.
Just sharing my rationale for redemption with all my fellow Jubilee 8 “sufferers”
Now I can concentrate on Minibonds Series 2 process.
[Reply]
Jasmin Reply:
October 10th, 2008 at 1:18 pm
Bad Dream,
At least you have confirmed your loss was 13%. My loss in minibond series 2 is unknown!
[Reply]
Bad Dream Reply:
October 10th, 2008 at 3:13 pm
Hi Jasmin
I also have Minibond Series 2 and my mum has a hugh life saving in it.
Let’s work together to seek justice and get our money back. C u at Hong Lim.
[Reply]
Jasmin Reply:
October 10th, 2008 at 3:23 pm
Bad Dream,
Have you send your letter to Maybank? I managed to get it out and faxed to Maybank Tower.
Bad Dream Reply:
October 10th, 2008 at 5:49 pm
My mum and I bought from ABN. After the Jubilee redemption, today, I sent out 6 registered letters from myself and my mum regarding being misled into buying minibond 2.
I followed Lioninvestor and Mr Tan’s procedure.
Letter to CEO of ABN
Copy of letter to MAS (Mr Goh Chok Tong)
Copy of letter to Fidrec
We will also be bringing our copies of our letters our MPs
InvLoss Reply:
October 10th, 2008 at 1:41 pm
I too redeem today. Might also lose interest that was declared on 9 Oct, payable on 16 Oct. Not fair as redemption may take 2-3 wks.
[Reply]
Hi,
Something interesting on product risk mismatch with investor.
“ANZ bank has paid out more than $200,000 to an elderly woman whose life savings are tied up in a credit crunch-affected ING fund.”
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10535307
[Reply]
Hi,
Regarding the redemption of Jubilee 8 , how do I find out the bid offer? Do I email my RM ? If I want to redeem my notes, must it be done at a specific time? like before 3.00 p.m.?
Please help?
[Reply]
lioninvestor Reply:
October 11th, 2008 at 11:06 am
Hi Desperate,
For redemption, you can get the prices through your RM (who will get it from Merrill Lynch).
[Reply]
Here an official note from President of Pacific Rim - Merrill Lynch. (Sorry I couldnt attach the doc from here) Enjoy the sunshine …
Dear Sir/Madam
By now you have heard that on September 15, 2008, Merrill Lynch and Bank of America
announced the acquisition of Merrill Lynch by Bank of America. Upon closing, this deal will create
one of the world’s largest and most diversified financial services firms.
We believe the combination of our firm with Bank of America will significantly benefit you as a
client.
The deal is scheduled to close in the first quarter of 2009 or earlier subject to shareholder
approval, customary closing conditions and regulatory approvals.
For our clients:
[Reply]
Dear LionInvestor
Thanks for the great advises from your websites!
Is has been great to hear lots of views from fellow investors.
I am still staying put here with my MLJ8 notes, nobody really know what will happens in the future.
I fully agreed that there is no right or wrong here. Whether to redeem or not it’s all a personal risk preferences.
I think for those who have redeemed, you are definitely blessed with many good night sleeps and peace of mind.
For those who still have the stakes in the MLJ8 notes please do keep constant updates and contacts within this great website!
Hope that we will see the light at the end of the tunnel!
All the best to everyone!
[Reply]
Alexis Reply:
October 12th, 2008 at 10:26 pm
Hi,
Yes, I agree with lowbang. Let’s keep contant updates within this great website! I guess I will be still be keeping my Jubilee Series 8 notes for the time being and play by ear. I guess the upcoming months will be very crucial. We have to really monitor closely.
Cheers
[Reply]
Hi,
I just checked with my RM. She told me that it’s not adviseable to redeem the ML Jubilee Series 8 notes now. She mentioned that it’s indeed a good news that BOA bought over ML as ML’s credit rating has increased. She mentioned that with the current situation, there is not a need to sell the notes. She also mentioned that the longer we hold on to the notes, the higher the value it will be even we were to redempt it even before the maturity. Anyone can advise and share your views on this.
Thanks.
[Reply]
HI Guys,
I also invested a substantial amount of my parent’s savings into ML’s Jubilee Series 8 bonds, my RM in Citibank also said the same thing, that BOA buying over ML is a good thing. So the most impt thing is, should i redeem it now? Or ? I am abit confused. As long as ML do not file for Chapter 11 or bankrupt, we should be safe am i right to say that?
Thank You
[Reply]
As a retiree, wonder how my 100k in minibond 9series is worth now?
Aiyah I’m gabbarah
[Reply]
hi, i have bought the jubilee series note 8 and i m anxiously required to know the fate of the products. can someone updates me.
thanks
[Reply]
We are already in a technical recession.
Can anyone share some light if I should redeem my Jubilee Series 8 given the current situation?
Im really lost now having invested quite a big sum and fearing it becoming like another Jubilee series 3.
PLs kindly advise Thanks
[Reply]
lioninvestor Reply:
October 12th, 2008 at 5:51 pm
The main risk to holders of Jubilee 8 is that of Merrill Lynch going bankrupt.
If you think they will fail before the notes mature, then you should get out of the notes.
[Reply]
To all Jubilee 8 investors
If this can temporarily ease your mind & gives you few hours of blissful sleep, you may ask from your RM an official letter from the President of Pacific Rim - Merrill Lynch which is issued to the Banks.
The acquisition deal of ML by BOA is expected to complete by 1st Quarter 2009 or earlier.
For now … let’s keep our fingers, toes & legs crossed. Pray that all will go well!
I have invested quite a substantial sum & all I’m hoping is 100% capital sum plus early notes termination … instead of playing Russian Roulette with us.
[Reply]
Hi,
Yes, I guess we are taking a gamble now and we have to play by ear. Situation seems to look alright now. I guess we just have to wait. I have been advised by my RM that they will advise us to sell away the notes if they think there should be a need.
She mentioned that BOA will defiinitely save Merrill Lynch now that they have bought over them if anything happens.
Anyone can advise and share your views…
Thanks.
[Reply]
I applaud this website for its very informative content!
Since the start of financial turmoil … there have been lots of noise. Those impacted didn’t know who to talk to, what to do, where to get info … many were like lost in sahara desert, left high & dry!!!
Yes, let’s do whatever possible, hold each other hands while riding thru this roller coaster … hopefully it will be all smiles at end of the journey.
Do keep everyone posted on hearing even the slightest pin-drop. Am sure, somehow it may makes ones day or save a life?!
LionInvestor … KEEP IT UP!
[Reply]
How do we find out what Jubilee Series 8 Notes are invested in? Does protection means unless Merrill Lynch goes burst we will get the money back? Doesn’t Merrill Lynch website gives info of the Notes detail?
[Reply]
lioninvestor Reply:
October 13th, 2008 at 8:58 am
They are invested in securities issued by ML.
As long as ML doesn’t go bust or the notes are not redeemed early (whether by you or by the issuer), you should be fine.
[Reply]
compass Reply:
October 13th, 2008 at 9:36 am
when its redeemed early by the issuer, what will determine the price?
[Reply]
Hi Lion Investor,
Is it advisable to redeem the Jubilee 8 notes now?
based on the current situation,what is the chances of getting the capital back at the maturity?
Thanks
[Reply]
lioninvestor Reply:
October 13th, 2008 at 10:39 pm
Things appear to be brighter with the efforts of the gov.
But things are moving very fast, so you will have to keep up with the proceedings.
[Reply]
Those holding on to Jubilee Series 8….
PLEASE DO NOT PANIC.
Jubilee Series 8 is TOTALLY different from Jubilee Series 3, Lehman Minibonds, or DBS High Notes 5.
Jubilee Series 8 is akin to you placing a fixed deposit (except technically you are considered as a senior unsecured creditor rather than depositor) with Merrill Lynch. It is totally not linked to the share price of Merrill Lynch.
You will only suffer a loss in principal for Jubilee Series 8 if Merrill Lynch goes bust.
Since Merrill Lynch is going to be taken over by Bank of America which will take over all assets and liabilities of Merrill Lynch, Jubilee Series 8 is actually SAFER now than before.
PLEASE DO NOT PANIC AND EARLY REDEEM YOUR JUBILEE SERIES 8 AT A LOSS.
TOTALLY NOT A WISE MOVE.
[Reply]
ALI < AMENAH Reply:
October 14th, 2008 at 2:56 pm
Hi InThe Know,
Thank you for your infor. It helps and I will wait and not redeem my Notes until the value increases.
[Reply]
Dear Lion Investor
On hindsight, this is as good as a financial scam. Investors like us end up like suckers. As you highlighted in you publication above:
“The Notes are principal protected if held until the Maturity Date. However, redemption of the Notes at 100 percnt of the principal amount of the Notes is not guaranteed if the Note is disposed of prior to maturity, or the Note is redeemed early due to taxation or other reasons.”
We have no control on early Note redemption by issuer for whatsoever ‘other reasons’ and thus likely face significant loss of capital in such event.
After viewing Mr Tan at YouTube at Hong Lim roundup speech, it sets me thinking hard. Can’t we then unite & proactively write to MAS to seek protection or assurance to ensure such actions are justified, instead of waiting for the worse to happen?
Most of us I believe are snooped by the Bank on misrepresenting this structured product as no-risk. I certainly do not want to end like those High Notes or Mini-bond ‘victims”!
[Reply]
Dear Intheknow
Tks for the advice.
It certainly will console us further or calm our souls if you can reveal your profile. Are you from one those distributor Banks, Merrill Lynch, BOA or MAS?
Even if BOA takes over ML, there are still other underlying conditions for early redemption of which payout will be at lower value. Correct me if I’m wrong.
[Reply]
I have by the assigned RM’s words, recently invested quite a
substantial sum & all I’m hoping is 100% capital sum plus early
notes termination too … instead of playing Russian Roulette.
[Reply]
Hi All,
I am in the banking and finance sector. I have much experience in the structured products business.
Contrary to what most people think, structured products are not ALL evil. As long as you know what you are going into and you FULLY UNDERSTAND the risk, there is no issue.
In a bull market, structured products have enabled both investors and investment banks to make big money, and no one complains. However, in current turbulent times, it is just unfortunate that the unlikely tail event has occurred and caused holders of structured products such as Jubilee Series 3 to lose their principal.
Anyway, back to the point.
BEFORE BOA TAKES OVER ML, the note can be early redeemed at a potential loss to the investor if:
1. ML defaults
2. Cayman Islands starts taxing the currently tax-exempt issuing entity.
AFTER BOA TAKES OVER ML, the note can be early redeemed at a potential loss to the investor if:
1. ML defaults (but BOA will take over all assets and liabilities of ML, hence BOA is like a second guarantor)
2. Cayman Islands starts taxing the currently tax-exempt issuing entity.
Thus, my conclusion is the note is now SAFER after the takeover of ML by BOA. The takeover, if it completes successfully, is BETTER for holders of Jubilee Series 8.
Do note that ML did not fail. It was sold at ‘full price’ to BOA.
Of course, I must also add a disclaimer that I cannot predict how the market crisis will evolve and if the worst is over. I am only trying to make a point that Jubilee Series 8 is totally different from the Lehman-linked notes.
There is of course still the possibility of both BOA and ML going bust anytime, as with all companies. So, if you are not prepared for this possibility, you should cash out your notes at a loss now.
Just remember, there is never a product with no risk. Even pure fixed deposits held with banks in Singapore are only guaranteed for up to SGD20k. Anything above that may be lost should the bank go bust as well.
[Reply]
CKH Reply:
October 14th, 2008 at 11:21 am
Thanks for the advise .
[Reply]
Hi Intheknow,
Thank you for your valuable information.
I have also bought Jubilee 8 and the amount is quite substantial to me. Over the last 2 weeks, it was indeed hellish for myself and jubilee 8 investors. However, there is definitely some comfort…
Below are my personal opinions and findings…
1. BOA seems determined to acquire ML. BOA and ML directors all approved the deal. I believe BOA directors are major shareholders of the company. As such, when they approved the deal, it can be quite certain that the deal will go through.
2. Barclays Global Investors is BOA largest shareholder (3.97%)
Temasek is ML largest shareholder (14 %). Temasek is also a substantial shareholder in Barclays. If ML fails, Temasek will stand to loss US$5-6 B. I am sure Temasek will do whatever it can to ensure ML stay afloat or complete the deal. That will mean to influence Barclays (as shareholder of BOA) to accept the deal.
3. CEO of BOA seems to be so certain about the deal that he has already assigned a post for CEO ML. BOA also raised U$10 B successfully last week in preparation for the acquisition. One may note that it is not Temasek that invest the US$10 B. Another Investor did…It demonstrated confident in BOA and its upcoming acquistion despite the turmoil.
4. If there is any sign that the deal may fall, US government will definitely intervene (look at Morgan stanley and Japan bank). Also, Will Temasek do nothing at all?? When BOA is selling shares to raise 10 B last week, it is particularly noted that Temasek is aware of the shares sale.
5. As of today (14 Sept), US$25 B is pumped into BOA and ML combined! This is another endorsement by the US government that the deal will be done. BOA got more money and the US government becomes a major shareholder in BOA. That means more say!!! US government will definitely want the deal to be done!
Lastly, once the deal is completed, I believe that BOA will assume all responsibilities (debt / asset) of ML (including Jubilee 8). That means that unless BOA goes bankrupt, Jubilee 8 should be safe. Will BOA goes bankrupt in the next 3 years??? My personal opinion is if BOA can go bankrupt then the whole world will probably have only less than 10 banks left. Most people on Earth will probably lose lot of personal wealth irregardless where you put your money.
Another thing…
This is the third time I bought into Jubilee notes. (Sadly, only until recently I know what I am buying). The last two jubilee notes were redempt early. The first notes was redempt after 2 quarters. The second notes was redempt after 1 quarter (Feb 2008). As such, there maybe early redempted on Jubilee 8. Why?
1. ML needs money. US FED offers lending (almost unlimited) at much lower rate than 3.15%. AIG just borrowed another US$38 B form FED last week. So why would ML want to pay 3.15% interest when it can borrow from FED at 1.5%? If recession sets in, the rates will goes lower…
2. There is also complication with the contract (jubilee 8). The issuer is ML. If it is changed to BOA, then creditworthiness of BOA becomes an issue for the notes. As an investor of jubilee 8, I did not sign to the creditworthiness of BOA. So that will make the entire contract void.
Having said all these points, I want to stress again these are all my personal opinions and findings. As much as I hope that I am correct, I can be entirely wrong . I just hope whatever decision that we all have to make, it must be made after knowing most if not all available information.
I am hanging on to the notes.
Please comment or advice on any points I have made.
Hopeful
[Reply]
Alexis Reply:
October 15th, 2008 at 8:03 am
Hi Hopeful,
When you mentioned that your notes were redempt early, did you manage to get back your principal?
Thanks.
[Reply]
Alexis Reply:
October 15th, 2008 at 8:09 am
Hi Hopeful,
You mentioned that the past 2 series notes were redempt early…May I know what happens when it’s being redempt early?Would you be able to get back the principal?
Thanks.
[Reply]
Hopeful Reply:
October 15th, 2008 at 10:24 am
Hi Alexis,
When the notes is being redempted early, you get back Full principal plus the interest.
Thanks.
[Reply]
Intheknow Reply:
October 15th, 2008 at 10:28 am
Hi Hopeful,
Your comments and findings reflect the conclusions of a person who is willing to put in the effort to research more on BOA and ML. Good effort!
Could you elaborate more on the early redemptions on the past 2 series of Jubilee notes?
Were they situations whereby ML was contractually bound to early redeem the Jubilee notes at 100% based on market movement?
I know of structured products whereby they promise early redemption at 100% should Underlying A, B, and C move about X% on any valuation date.
If so, the early redemption of the 2 previous Jubilee Series is not a good indicator for Jubilee Series 8.
Jubilee Series 8 does not allow for the early redemption by ML UNLESS a ‘BAD’ event such as default has happened. From my understanding, ML has no right to early redeem the 3.15% notes just because it is able to have access to cheaper funding. This would be known as an Issuer Call Option and there isn’t one built into Jubilee Series 8.
So in summary, what I am trying to say for Jubilee Series 8:
1. Early redemption can only take place should a ‘bad’ event occur. If it does happen, it is likely that you will not get back 100% of your principal. ‘Bad’ events would be mainly ML or BOA defaulting or Cayman Islands starts imposing taxes.
2. ML or BOA cannot early redeem the notes at their discretion if no ‘bad’ event has occurred. Reasons such as a cheaper funding cost from Fed or other sources will NOT allow ML or BOA to early redeem their notes even if they are willing to pay 100%.
[Reply]
Hopeful Reply:
October 15th, 2008 at 12:32 pm
Hi Intheknow,
As for the early redemption of the notes, I believe ML has the right to do so for whatever reason. This is specified in the prospectus.
In the prospectus on page 4,
Redemption due to taxation and other reasons:
In the event of:
(a) an Event of default under the notes
(b) the securities being repaid early for any reason for example because there is a an event of default under the securities or for tax reasons.
(c) the Swap Agreement being terminated early or
(d)the Caymens island imposing tax on the issuer or on payment under the notes which the issuer is unable to avoid.
Look at event (b). That means ML can redempt the notes earlier for whatever reason.
I have looked through Jubilee 8 prospectus again and I do not see
” Underlying A, B, and C move about X% on any valuation date.”
It is the same for Jubilee 8 and the two previous jubilee notes. I can testified that the two previous jubilee notes were redempted earlier. I have the Redemption letter from Standard Chartered Bank and I received the full principal plus interest on the last 2 jubilee notes. No doubt about that as it is a fact.
You may also note that there is No investors with Jubilee 6 or Jubilee 7 in the market now. It has been redempt earlier.
Back to Jubilee 8, will it be redempted earlier? This is my hope as well as everyone else. I am not trying to convince everyone here to hold on to Jubilee 8. You must make your own decision.
Another thing…
I realize that in the second week of Sept (between 8/9/2008 -12/9/2008), Strait times had advertisements on Jubilee 9. Then when Lehman collapsed on 15/9/2008, there is no more advertisement on Jubilee 9. I suspect that Jubilee 9 is terminated because of the saga that follows. If anyone has a prospectus on Jubilee 9, please share. It will be good to know any difference between Jubilee 8 and Jubilee 9.
Thanks
Amy Reply:
October 15th, 2008 at 10:21 am
Hi Hopeful,
Thank you for sharing some facts and opinions. I am hopeful that things will get better.
About the early redemption of the 2 series Notes you mentioned, did you manage to recoup some of your principal? Is the loss very substantial?
Despite the 2 redemptions, you still purchased Jubilee 8 Series. Very courageous of you.
I myself bought these Notes at the recommendation of my RM. She assures that as long as I hold on to them for 2.5 years , I should be alright.
[Reply]
Intheknow Reply:
October 15th, 2008 at 4:39 pm
I took a look at Jubilee Series 5 and this product has an Issuer Call Option built in. Page 4 of the prospectus states that ML at its discretion can early redeem the notes at 100% + interest accrued.
I still maintain my view that Jubilee Series 8 does not have an Issuer Call Option built in. ML can only early redeem the note when a ‘bad’ event has occurred.
Referring to the cut and paste done by Hopeful, the securities (unsecured bonds issued by ML) will only be repaid early when there is an event of default.
For example, you buy a government bond. The government cannot choose to early repay you your money UNLESS they are in default or there is an Issuer Call Option built in.
[Reply]
Hopeful Reply:
October 15th, 2008 at 5:28 pm
Hi Intheknow,
The 2 jubilee that I bought earlier is called Jubilee Retail Secured Note Programme (Nov 2006) and Jubilee Step-up Fixed Rate Notes (Mar 2007). Both of the notes have a Issuer’s Call Option.
In Jubilee 8, there is no issuer’s call option. Obviously, this is a different situation as compared to the previous two notes.
Intheknow, really appreciate that you point this out.
So can I say that…
If there is an early redemption, there definitely will be loss of money?
If there is no early redemption and I hold until maturity (2.5 years later), I can get back full principal plus interest.
Please advice.
Thanks
Hopeful Reply:
October 15th, 2008 at 5:09 pm
Hi Amy,
For the 2 early redemptions, I get back full principal plus interest. There is no loss. ML redempt the notes. That is why I continue to buy Jubilee 8.
[Reply]
Intheknow Reply:
October 15th, 2008 at 6:35 pm
Yes Hopeful.
1. if there is an early redemption, it will be because of a ‘bad’ event and you will most likely get back less than 100% of your principal.
2. if there is no ‘bad’ event, ML will continue paying you the promised interest and you will get back 100% of your principal on maturity date.
What kind of justice can be done for sales misinterpretation for Jubilee Series 8? Do we join the Jubilee ‘protest’ group as indicated in your front page?
Can we demand early redemption at 100%?
I know all this sound ridiculous but i just want to know my options at this point of time other than waiting.
[Reply]
Intheknow Reply:
October 15th, 2008 at 10:31 am
Jubilee Series 8 is very similar to a fixed deposit except you are ranked as a Senior Unsecured creditor rather than Depositor. You are mainly taking on the risk of the ISSUER.
Jubilee Series 8 cannot be compared to the Lehman-linked notes which are complex derivative instruments with mainly Credit Default Swaps imbedded.
Not all structured products are like the Lehman-linked notes.
In essence, understand the structured product.
[Reply]
Hi,
Thanks everyone for sharing their experience. I am also holding the jubilee 8 notes and did not know what I got into when I bought them. My RM told me the Merrill Lynch buy-back price is 87%, which is fairly low.
Is there anyone holding the Merril Lynch Citrine Golden Cushion notes? I have a larger amount there, and could not get much information on that. It seems that those notes were not sold to many people. I just want to know whether I should sell those. The buy-back price now is only 78%.
Anyone can share any information/experience on the Golden Cushion notes — I would greatly appreciate….
[Reply]
Intheknow Reply:
October 15th, 2008 at 6:41 pm
Hi Confused.
Not to worry.
Citrine and Jubilee Series 8 are very similar in structure. All my earlier comments on Jubilee Series 8 and why it will be safer after BOA takes over ML continue to apply.
The only difference is the final interest payment on Citrine is not guaranteed. You could get 0% interest for the final interest period if the cushion amount is exhausted.
The 9% lower buyback price for Citrine compared to Jubilee Series 8 is because it’s widely expected that the cushion amount will be exhausted and that the investor will get 0% interest for the final interest period. Citrine is therefore a ‘lousier’ product compared to Jubilee Series 8 and hence has a lower buy-back price. However, CITRINE IS AS SAFE AS JUBILEE SERIES 8. Both are based on the credit worthiness of ML and BOA (after the takeover).
All in all, no big deal. Jubilee Series 8 holders will get 7.875% total interest over 2.5 years while Citrine holders will most likely get 7% total interest over 2.5 years (i predict the cushion will be fully exhausted).
[Reply]
CKH Reply:
October 15th, 2008 at 6:47 pm
Hi InThKnow
any advise on the HSBC SGD Double No touch note on Financial Basket Notes.
I have some investment as well
thx
[Reply]
Intheknow Reply:
October 15th, 2008 at 6:57 pm
Is that some sort of Range Accrual product?
Please post link to prospectus and I will take a look at it for you.
anyway it sounds like it’s issued by HSBC with its interest components liked to some bank stocks.
I will be able to better advise only after checking out the prospectus.. but i think it sounds pretty safe as I suspect you will only lose your principal amount should HSBC go bust.
lioninvestor Reply:
November 9th, 2008 at 12:31 pm
It appears to be some form of Notes that provide “enhanced returns” if certain equity index or components of it stay within a certain range.
Intheknow Reply:
November 9th, 2008 at 8:49 pm
Hi CKH,
Lioninvestor has emailed me the termsheet.
No problem. This is a principal protected structured product that is guaranteed by HSBC. So, you will only lose your principal if something bad happens to HSBC (e.g. HSBC defaults).
However, your interest amount is dependent on the performance of the 6 underlyings. ALL 6 underlyings have to have their market prices kept within 70% to 130% throughout the 1.5 years in order for you to earn 14%. If at any point in time, ANY of the 6 underlyings move out of that range, that’s it, the max interest payable would only be 8% as long as ALL 6 move back within the range on 24th December 2009. If ANY of the 6 underlyings move out of that range and STAY OUT as at 24th December 2009, you get 0% interest.
Based on current market prices, I believe the Lower Trigger event has occurred. Thus, the best case scenario would be for you to get back 100% of your principal + 8% in 1.5 years time. You can NEVER get 100% principal + 14% in 1.5 years time anymore.
The worst case scenario (other than HSBC defaulting) would be to get back 100% of your principal and 0% interest. This may be likely in my opinion, unfortunately.
As stated above, the worst case scenario would take place if ANY of the 6 underlyings remain more than 30% below their market price stated on Page 12 of your termsheet on the Valuation Date of 24th December 2009.
Merrill Lynch and Morgan Stanley are currently down more than 50% from your ’start price’. (You may want to argue a typo error as they spelt ‘Merill Lynch’.. joking..)
Cheers,
Intheknow
[Reply]
Hi Intheknow,
Thanks a lot for your reply. I think your explanation on why the buy-back rate differs does make some sense.
I just wonder (and I believe many other people do as well) — how is this buy-back rate determined?
My RM told me that it is not determined by market (i.e., demand and supply). Rather, it is set by Merill Lynch and it is the price that ML is willing to buy the notes back.
Then it comes to the natural question — why wouldn’t Merrill Lynch just set the back-back price as low as possible (i.e. 0%)?
[Reply]
Intheknow Reply:
October 16th, 2008 at 9:32 am
ML, being a reputable financial firm, has to provide FAIR buy-back prices on a regular basis (weekly where possible, monthly on a minimum).
You are right, they could set the buy-back price at 10%, but who would sell back to them at that price?
All issuers of structured products have to provide buy-back prices. Of course these buy-back prices can vary rapidly depending on market conditions, but they are usually a ‘fair’ price (after factoring in cost of unwinding and commisions.. etc..)
[Reply]
Hi Intheknow,
Thanks for “unpacking” the finer points of these structured products so clearly.
Can you please shed some light on the “Merrill lynch SGD 3-Year Principal Protected Fixed Income Notes” product. Is this product the same as the MLJ8 and the Citrine Golden Cushion? I have just received the first dividened payment from this ML Fixed Income Notes. This is good thing, right? This means, there is no default on the part ML.
Would appreciate it if you can let me know your thoughts on this. Much thanks!
-ppl
[Reply]
Intheknow Reply:
October 16th, 2008 at 9:36 am
Hi PPL,
Would you be able to give me the link to the prospectus/termsheet so I can examine the product before advising further?
ML has issued many structured products and as you can see, they can vary from potentially explosive credit default swap products to very safe ‘fixed deposit’ like products.
You are right. Receiving dividend payments indicate that everything is fine with the product.
If you do not receive dividend payments, it constitutes an event of default (unless the prospectus specifically caters for deferrment of dividend payments).
[Reply]
PPL Reply:
October 16th, 2008 at 11:45 am
Hi Intheknow,
Thanks for your speedy reply! Unfortunately, there is no link to the termsheet but I do have it in PDF format. Hmmm…is there any way I can attach here for you. Can’t seem to figure out how though.
Is there a way I can send the document to you? Thanks.
-ppl
[Reply]
Intheknow Reply:
October 16th, 2008 at 4:13 pm
Upload the file to:
http://www.filesend.net
and post the link here.
lioninvestor Reply:
October 16th, 2008 at 4:23 pm
Hi intheknow,
I have emailed the file to you.
Intheknow Reply:
October 16th, 2008 at 9:57 pm
I have looked through the termsheet and these are my conclusions:
1. The 3 year ML note is as safe as Jubilee Series 8 and Citrine.
2. The 3 year note can only be early redeemed if there is a bad event, which is ML defaulting.
3. If no bad event occurs, the note will be redeemed at 100% after 3 years.
4. This is like a 3 year fixed deposit paying 3% p.a. (quarterly payout) with a possible 0.1% bonus coupon if the underlying basket moves up 30%.
5. You are taking on the credit risk of ML (in future BOA).
Hi Intheknow,
I had invested some ML Jubilee series 8 notes. Is adviceable to sell the notes now at a loss of 13% and put the sum into some STI index shares ?
[Reply]
Intheknow Reply:
October 16th, 2008 at 4:14 pm
My advice is hold on to the Jubilee Series 8 notes.
[Reply]
kilo Reply:
October 16th, 2008 at 4:52 pm
Thanks Intheknow, just need some assurance advice.
[Reply]
stanley leow Reply:
October 18th, 2008 at 11:17 am
Dear all,
it’s been an excellent website here with so much varied contribution from both experts who are willing to share their knowledge, people like me who are amatures.
Just to inform all that I received a letter informing about the interest that has been credited into my account and it works out to be about 3.17%.
[Reply]
anyone have the latest buyback price for this week? Thanks.
[Reply]
An update here.
1) Saw the first coupon payout in my bank account today.
2) ML posted a net loss of US$5.2billion for Q3 2008. Heard that this is their 5th consecutive lossing quater.
We have to constantly lookout for the news on the merger. Hopefully they(ML and BoA) would have successfully completed the merger by end of Q1 2009.
[Reply]
Hi Intheknow, many thanks for reviewing the termsheet and coming back so quickly with your feedback. Will continue to monitor the devt of the merger between ML and BOA. Thanks for availing your time!
Have a good weekend!
Hi LionInvestor, thanks again for facilitating this! You have a good weekend too!
[Reply]
lioninvestor Reply:
October 18th, 2008 at 5:00 pm
Hi PPL,
you are welcome.
Many thanks to Intheknow for helping out here with his time and knowledge.
[Reply]
Hi, intheknow,
thank you for you insight in jubilee series 8. I am also holding DBS high Note 2. DBS told us that they May early redeem the notes if the fund is insufficient to secure the obligation of Constellation, a investment vehicle of DBS, due to the credit events in the Reference Notes (CDOs of 100 companies). However, I do not think they can take such optional actions for their own benefit while sacrifcing us investors, as it is not clearly stated in the pricing statement (the early redepmtion terms mentioned are credit events in the reference entities). Do you think my argument make sense? please advice.
the pricing statement of HN2 can be download from
http://www.4shared.com/file/63984958/421d5bc9/high_notes_2_pricing_statement1.html?
[Reply]
Intheknow Reply:
October 17th, 2008 at 3:49 pm
DBS High Note 2 has the same structure as Lehman Mini-bonds.
For both these products, there are reference entities as well as a basket of underlying securities.
1. If any of the reference entities default, the whole structure will early redeem and the investor will suffer a loss in principal.
2. If more than 8 (approximate) of the underlying securities in the basket default, the whole structure will early redeem and the investor will suffer a loss in principal.
The good news for DBS High Note 2 is neither Lehman, Freddie, or Fannie are the reference entities, so there is no early redemption under my point 1.
However, Lehman, Freddie, and Fannie belong to the basket to underlying securities. Once the loss amount in the basket exceeds a certain threshold, the whole structure will early redeem and the investor will suffer a loss in principal. This is what DBS is trying to say when they make statements like “fund is insufficient to secure the obligations of Constellation”.
The figure of 8 underlying securities defaulting is only APPROXIMATE and the number can change depending on the recovery amount from each defaulting security in the basket.
PLEASE NOTE THAT NEITHER JUBILEE SERIES 8 or CITRINE NOTES HAVE THE ABOVE STRUCTURE. THE ABOVE STRUCTURE IS ONLY RELEVANT TO DBS HIGH NOTE 2 and LEHMAN MINI-BONDS.
[Reply]
LOST Reply:
October 17th, 2008 at 6:05 pm
Hi
I have placed an S$100k estate (from by husband) with DBS High Notes 2 two years ago. I am not a risk taker, and also with that sum of money that was left by my husband for my 2 kids, I really don’t know what to do with it except leave it with a reputable bank…thinking surely a very safe place
I am lost and don’t know what else to do, except praying that there’s a turn-around on the world financial crisis, and hoping that the money will be ‘well-protected’ until the maturity date.
The banker told me that should another 2 of the banks/financial institution that they have invested in, in relation to the DBS high notes 2, go bust…..the DBS high notes 2 will equal to $0. But after reading what you’ve said, it seems like my understanding from the banker is totally different from your statement.
Can you pls advise me what should I do next? To get out now? Cause the banker has called me and informed me to consider to get out now since many of her clients did the same
[Reply]
Intheknow Reply:
October 17th, 2008 at 8:51 pm
What your banker said about “should another 2 of the banks/financial institution that they have invested in, in relation to the DBS high notes 2, go bust…..the DBS high notes 2 will equal to $0″ MAY be true. Why do you say your understanding from your banker is different? Are you referring to the number ‘2′?
As I mentioned in my point 2, If more than 8 (approximate) of the underlying securities default, the whole structure will early redeem and you will suffer a loss in principal.
Your banker has mentioned that if another 2 go bust (3 have already defaulted), you may suffer a loss in principal.
There is no magical number. If the first X number of defaults cause a loss above the threshold, the whole structure will early redeem and you will suffer a loss in your capital.
With regards to your question on whether you should get out, there is no right answer. I suspect if you get out now, you will already suffer a HUGE loss in your principal. Have you asked what is the latest buy-back price of your note? I suspect it will be 50% thereabouts or less since 3 underlying securities have defaulted already.
It’s up to you if you want to take the gamble. Sounds like a 50% 50% to me. Get out now and lose half. Or hold on to maturity and you may get back 100% or nothing.
coffee-o Reply:
October 17th, 2008 at 8:59 pm
Lost :
From today’s Lianhe Wanbao, I read that DBS agreed to do full refund to two High Notes investors go see them with sad storys.
Go pick up a copy and read, hope you are the third person.
All the Best.
financeBlind Reply:
October 17th, 2008 at 9:14 pm
Lost,
yes, ask your banker to guide you a way to see the relevant person in DBS to get your money back, or simply tell your PM about your case.
For me,I complained with the senior manager in DBS, no response, although I didn’t understand more about the product than you:).
financeBlind Reply:
October 17th, 2008 at 9:21 pm
thanks a lot, intheknow.
But there is no statement regarding to your point 2 in the pricing statement. Are the pricing statements for all such products are ambiguous? or is HN2 a special case?
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Intheknow Reply:
October 17th, 2008 at 9:48 pm
DBS High Notes 2 and the Lehman Minibonds all have this sort of structure.
1. Credit linked to X number of reference entities. ANY goes bust, you will suffer a loss in principle.
2. Proceeds from investors will be used to buy a basket of underlying securities. Up to Y number goes bust, you will suffer a loss in principle.
I don’t have the pricing statement for DBS High Notes 2 on hand. But the FAQ from DBS on High Notes 2 actually mentions this (the part about THE COLLATERAL PURCHASED BY CONSTELLATION, 100 NAMES FROM 17 INDUSTRIES AND 14 COUNTRIES):
—-QUOTE—-
As explained in the HN2 Pricing Statement, investors are subject to the following credit risks:
a) The credit risk of the Issuer;
b) The credit risk of Constellation and the collateral purchased by Constellation (‘collateral’) to secure its
obligations under the Reference Notes; and
c) The credit risk of the 8 Reference Entities in the first-to-default basket (FTD basket).
With reference to (b), investors were informed that Constellation would be using the funds raised in issuing the
Reference Notes to invest in high quality bonds or structured securities rated at least AA by S&P, AA by Fitch
or Aa by Moody’s (at time of the issue of HN2) to secure its obligations under the Reference Notes (collateral).
Investors were also informed that the specific composition of the collateral was yet to be determined at the
time of the Pricing Statement. The collateral, which comprises of 100 names from 17 industries and 14
countries, was rated AA by S&P at the time HN2 was issued.
Lehman Brothers Holdings Inc., Federal Home Loan Mortgage Corporation (Fannie Mae) and Federal Home
Loan Mortgage Corporation (Freddie Mac), are not Reference Entities in the FTD basket but are all entities
linked to the collateral. As a result of recent events surrounding these 3 entities, S&P has on 23 September
2008 downgraded the collateral from AA to BBB+. The downgrading will not result in an early redemption of
the Reference Notes and the current valuation of HN2 has already taken into account the events surrounding
these entities.
If HN2 is held to maturity, and there is no credit event in the FTD basket and the Reference Notes are not
redeemed early, investors will receive at maturity, the principal that they invested.
As the amount of principal and/or interest payable to investors in HN2 is dependent on payments received
from Constellation, if the collateral becomes insufficient to secure the obligations of Constellation under the
Reference Notes, the Reference Notes may be redeemed early. If this happens, HN2 would be redeemed
early as well and investors may get significantly lower than their investment.
—-UNQUOTE—
Intheknow Reply:
October 17th, 2008 at 10:00 pm
“As the amount of principal and/or interest payable to investors in HN2 is dependent on payments received
from Constellation, if the collateral becomes insufficient to secure the obligations of Constellation under the
Reference Notes, the Reference Notes may be redeemed early. If this happens, HN2 would be redeemed
early as well and investors may get significantly lower than their investment.”
This is the KILLER part..
In essence, what it is saying is if the pool of 100 securities have deteriorated to a level determined by DBS, the whole structure will be terminated and the note early redeemed AT A LOSS OF PRINCIPAL to the investor.
You see… how High Notes 2 and Lehman mini-bonds generate their income to pay the investors the 5 to 6% interest is like this. Of course, I am simplifying things:
a) they collect X amount of money, say USD100million.
b) they use the USD100million to buy a pool of securities
c) they SELL credit default swaps on the Reference Entities to willing buyers
‘b’ essentially is being used to ‘maintain’ your money and to pay you your principal back after 5-6 years.
‘c’ essentially is being used to pay investors the regular 5 to 6% interest
so if the pool of securities deteriorates significantly below USD100million (which is the 8 [approximate] defaults I mentioned), the Issuer of the note will ‘cut loss’ and liquidate whatever is left of the pool. This is because at this level, the issuer knows that they will never be able to pay you back 100% at maturity date.
and if the jackpot event ‘c’ happens, ho say liao… the buyer of the credit default swap will make a ‘claim’ on the Issuer. At that point in time, the issuer has to make a big payout to the party who bought the Credit Default Swap, and guess where the big payout is coming from? Of course, it’s going to be from the Pool of Securities and it will be liquidated.
financeBlind Reply:
October 18th, 2008 at 1:19 pm
intheknow,
thanks for the reply for my complaint about HN2. as a matter of fact, in the DBS website FQAs about HN2, DBS has intentionally changed the words, for example,
(1) the original sentence HN2 is “designed for defensive investors seeking enhanced yield” has been changed to “designed for investors seeking enahnced yield…”
(2). for the risk factor b, the original sentence is “you are subject to the credit risks of Constellation that is collateralized by securities rated AA or better”, has been changed to “The credit risk of Constellation and the collateral purchased by Constellation (‘collateral’) to secure its
obligations under the Reference Notes”.
besides, we haven’t been notified of the 100 CDOs until recently after the three credit events.
so, shall we have a say?
Intheknow Reply:
October 18th, 2008 at 4:19 pm
Hi Financeblind,
I am not sure about your last 2 paragraphs.
Do you mean?
a) we haven’t been informed by the bank until recently that 3 of the 100 securities have defaulted? If you meant this, the default of Fannie, Freddie, and Lehman only happened within the last 6 months, so I don’t see this as a possible argument area.
OR
b) you never knew that the 100 securities played a part in your High Note 2? i am pretty sure something in the thick prospectus of High Notes 2 (i haven’t read the prospectus myself), there will be some mention of the ‘Pool of 100 securities’ and how their defaults will affect the ‘Collateral’ required to secure Constellation’s obligations.
LOST Reply:
October 20th, 2008 at 9:15 am
Hi intheknow
Thanks for your explanations, and having read the paper on Sat and from the lists of response, guess what I can say is all this while my understanding from my banker about the HN2 was all a mistake.
I was actually investing on something know as Credit Rating (Credit Risks) and not simply ‘investing’ on the ‘chances’ of the entities going into bankruptcy. To me having an entity to go bankrupt is totally a different story of having an entity’s credit rating being downgraded. That was why I’ve mentioned that my understanding was difference.
financeBlind Reply:
October 18th, 2008 at 9:35 pm
intheknow,
thanks for your patience and expertise. I think we are in urgent need of you and the like.
as a matter fact, the 100 securites was generally called Reference Notes in the HN2 pricing statement, but DBS had never told us until recently what it is and how it works. The reason they gave is that what security to hold had not determined at the moment the pricing statement was drafted.
the function of the Reference Notes is to “earn a high coupon”. the risk involved in the Reference note is very general, such as it will fluctuate with the market, the performance of the Notes is directly linked to the Reference Note, credit risk of COnstellation cited as (b) in my last post, no more details at all. There is no formula to tell us how it works. you can find the brief version which DBS applied to marketing (i.e., the one showed to uswhen we bought the product) from the following link:
http://www.4shared.com/file/63984958/421d5bc9/high_notes_2_pricing_statement1.html?
In the full pricing statement which DBS sent to us weeks after the transaction, there is a paragraph (Risk relating to COnstellation and the Reference Notes) as follows:
In addition, while the obligation of COnstellation under the Reference Notes are to be secured by the relevant Charged Assets and Swap aggrement, there can be no assurance that such Charged Assets or Swap Aggrement will be sufficient to secure any or all of the obligations of Constellation under the Reference Notes”.
that’s all, no specific details about how it will affect us investors.
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Intheknow Reply:
October 19th, 2008 at 10:45 am
Hi Financeblind,
No worries. I am glad to be sharing my views.
Just to set the record straight, I am not working in DBS nor one of the retail banks/FIs who sold these products to the retail investors.
I do not hold Jubilee Series 3, DBS High Notes, nor any Lehman Mini-bonds.
My views comes from my experience handling structured products due to the nature of my job. I am NOT into sales.
Thus, I can say my views are neutral and not biased in any direction. Also, my views should not be considered as legal advice.
Back to your question.
1. DBS was not able to break down the 100 securities when High Notes 2 was sold is because they have yet to buy the 100 securities. Remember my simplified example whereby DBS uses your USD100 million to buy the securities? Since they have not collected all the monies from the investors, they have indeed not purchase the 100 securities and thus could not tell you what they are.
2. Look at Page 7 of your attachment. It is stated that “you are subject to the credit risk of Constellation which is collateralised by securities rated AA or better”. This is making reference to the 100 securities.
3. Look at Page 69 (labelled as Page 53) of your attachment. This portion tells you that the USD100 million received from the investors is going to be used to purchase a pool of assets rated AA and above.
4. There is no formula to determine how many of the 100 securities defaulting will cause the note to early redeem since it depends on the recovery rate on the defaulted securities as well as the loss threshold of Constellation before they decide ‘ok.. time to cut loss and early redeem’.
Hi, have found the many comments here very useful.
I’m also a investor in Jubilee 8 and have been appalled by the general lack of knowledge that my Citibank RM has displayed regarding this and similar structured products.
Unbeliveably, she forgot to call me on 9/10 Oct to update me on the redemption value despite my request a few days prior to 9/10 Oct. Also, she could not even confirm that redemption was on friday and had to check with her team to ascertain this! Of course, any other more technical questions were met with similar responses. I simply fail to understand why such RMs should be licensed to sell structured products to start with.
Just wondering if any one else has had a similar bad experience with their RMs at Citibank.
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Intheknow Reply:
October 17th, 2008 at 8:56 pm
Sometimes, the problem of adverse selection come into play.
Ask yourselves, who are the PFCs you see in the banks selling the products?
Will they likely be fresh grads eager to make big/quick bucks? Or would they likely be experienced finance professionals? I believe more likely the former.
Do you think fresh grads possess the right skills and sufficient knowledge/experience to clearly explain or even understand the complex products themself? I suppose not.
Even myself, who have seen and encountered hundreds of structured products will take a while to digest a prospectus/termsheet of a product and I dare not profess I understand it 100% all the time.
Just remember, RMs are hired to SELL, not to EDUCATE.
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Intheknow Reply:
October 17th, 2008 at 9:00 pm
of course they are always good RMs out there..
i should not have used a bamboo to knock the whole boat.. sorry about that…
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Alexis Reply:
October 18th, 2008 at 12:05 pm
Hi Annoyed,
I agreed with you. I also had the same experience like you when I tried to contact my RM at citibank.
Also, when she recommended the Jubilee Series 8 notes to me, she told me there’s no risk involved and it’s liked a fixed deposit and didn’t even explained to me about the product.
After i realised that merrill lynch has been brought over by boa and the recent market situation, I tried to contact her but she doesn’t even return my call and worse still, I had to go down to the branch to personally ask for the buyback rate.
Fortunately, there’s a RM there who explained the notes to me thorougly again when I went down recently.
Well, I guessed I will still be holding on to the notes for the time being and have to monitor closely to the situation.
Please share you views.
Thanks.
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I have the same experience as you.
I call up last Friday and was told the buy back rate is now 85%.
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