New swap counterparty to replace Lehman Brothers

Many investors asked for my view about the new swap counterparty that will be appointed to replace Lehman Brothers. Will they be able to get their money back on the maturity of the mini-bonds?

My reply: It depends on the series of mini-bonds.

The risk of the mini-bonds come from the following sources:

> failure of any one of the reference entities
> failure of the underlying assets (CDOs or other assets)
> failure of the swap counterparty

If you have invested in the earlier series of mini-bonds and many of the underlying assets have already failed, you may lose all of your money when more of the assets failed in the future. You will also lose your money when any one of the reference entities failed.

If none of these events happened, you may get back part or all of your investments (depending on the value of the underlying assets at that time). There is no guarantee that you can get back 100% of the invested sum, as the bonds are "capital protected" but not "capital guaranteed".

Read this:
http://tankinlian.blogspot.com/2008/10/capital-protected-product.html

For the newer series of the mini-bonds, the loss in value now is quite small. When the new swap counter-party is found, you can sell the mini-bonds at its current market value (hopefully, the loss is less than 20%). If you do not wish to take the risk, you can take the loss now.

If you have been mis-sold, you can ask the financial institution to buy back the mini-bonds at your original price