I know of a person who runs a small business. Due to the economic slowdown, his income was reduced, but his family expenses continued to be high. He had to use an bank overdraft secured on a second mortgage of his house. This overdraft accumulated to $50,000 within two years. He had to pay a high interest rate of 2% a month on the overdraft. The interest cost him $1,000 a month. It was a burden to him, as his income stream has not recovered.
Fortunately for him, he was able to approach a family member for financial assistance to pay off the overdraft, saving him $1,000 a month. Instead, he paid $1,000 a month to repay the loan, free of interest. In this way, he would be able to repay the loan within four years.
The bank pays interest at 0.5% per annum to depositors and charge 24% per annum on loans to borrowers - secured on a second mortgage. It seems that this bank is exploiting the desperation of people who have to borrow to meet their living expenses.
Tan Kin Lian
Wednesday, February 10, 2010
Large fee paid to swap counter-party
Dear Mr Tan,
I received the letter from HSBC on the recovery value of my Minibond Series 5. I am shocked by the huge fee paid to Lehmen LBSF for the settlement fee. The letter has these figures:
Series 5
Proceeds from liquidation – 82.30% (100% = principal amount)
Cost at underlying level – 0.47%
Swap payment to LBSF – 50.81%
Receivers fees – 0.38%
Legal fees – 0.48%
Other costs – 0.31%
Net proceeds to noteholders – 29.85%
A whopping 50.81% or $35 million is paid to LBSF.
Another friend, who has Series 10 has a liquidation value pf 104% but reduced by 41% fee to LBSF:
Series 10
Proceeds from liquidation – 104.04% (100% = principal amount)
Swap payment to LBSF – 40.60%
Receivers fees – 0.42%
Legal fees – 0.26%
Other costs – 0.33%
Net proceeds to noteholders – 62.43%
It is not true as reported in papers that some series has low recovery value due to nature of underlying assets or long maturity. The fact is huge fee has been paid to LBSF. Is this why Australia’s Lehman notes have been able to recover 85-95% instead (recently reported in your blog)? I feel HSBC and Receivers have failed the noteholders - a total of $200+ million has probably been paid to LBSF for this unfair settlement.
Mr Tan, do you think the large settlement fees to LBSF is fair? Thank you.
REPLY
I cannot understand why a large payment has to be given to the swap counterparty. I suggest that, as an investor, you ask the trustee on why the payment to the swap counterparty is so large. Maybe, you can get a few investors to join you in making a joint request.
FURTHER COMMENT
The swap is to take over the risk of default of the reference entities during the remainder of the contract. I believe that most of the reference entities are now quite secure, after the recovery of the global economy and markets. I am therefore surprised to find a large payment to take off the swap.
I think that the investors should ask the trustees to account fOR their decision to make this large payment, and ensure that it is in the commercial interest of the investors to accept this transaction.
I thought that the Monetary Authority of Singapore is monitoring this transaction, so they may have some information that may be helpful. We have to see if they make any statement on this matter.
I wish that we have a more active Parliament, similar to Hong Kong, where the legislators can ask questions, so that a clear explanation can be given to the public.
I received the letter from HSBC on the recovery value of my Minibond Series 5. I am shocked by the huge fee paid to Lehmen LBSF for the settlement fee. The letter has these figures:
Series 5
Proceeds from liquidation – 82.30% (100% = principal amount)
Cost at underlying level – 0.47%
Swap payment to LBSF – 50.81%
Receivers fees – 0.38%
Legal fees – 0.48%
Other costs – 0.31%
Net proceeds to noteholders – 29.85%
A whopping 50.81% or $35 million is paid to LBSF.
Another friend, who has Series 10 has a liquidation value pf 104% but reduced by 41% fee to LBSF:
Series 10
Proceeds from liquidation – 104.04% (100% = principal amount)
Swap payment to LBSF – 40.60%
Receivers fees – 0.42%
Legal fees – 0.26%
Other costs – 0.33%
Net proceeds to noteholders – 62.43%
It is not true as reported in papers that some series has low recovery value due to nature of underlying assets or long maturity. The fact is huge fee has been paid to LBSF. Is this why Australia’s Lehman notes have been able to recover 85-95% instead (recently reported in your blog)? I feel HSBC and Receivers have failed the noteholders - a total of $200+ million has probably been paid to LBSF for this unfair settlement.
Mr Tan, do you think the large settlement fees to LBSF is fair? Thank you.
REPLY
I cannot understand why a large payment has to be given to the swap counterparty. I suggest that, as an investor, you ask the trustee on why the payment to the swap counterparty is so large. Maybe, you can get a few investors to join you in making a joint request.
FURTHER COMMENT
The swap is to take over the risk of default of the reference entities during the remainder of the contract. I believe that most of the reference entities are now quite secure, after the recovery of the global economy and markets. I am therefore surprised to find a large payment to take off the swap.
I think that the investors should ask the trustees to account fOR their decision to make this large payment, and ensure that it is in the commercial interest of the investors to accept this transaction.
I thought that the Monetary Authority of Singapore is monitoring this transaction, so they may have some information that may be helpful. We have to see if they make any statement on this matter.
I wish that we have a more active Parliament, similar to Hong Kong, where the legislators can ask questions, so that a clear explanation can be given to the public.
Pension hit by lower investment returns
The low investment return has hit the retirement income of retirees. Read this article.
Discount on books for February 2009
A few customers bought several copies of the Practical Guide for Financial Planning. They may be giving to their children or friends, or may be buying on behalf of friends.
If you wish to buy the books at a discount of 15% (Promotion Code - BLOG), do so during February. The promotion will end on 28 February. The promotion applies to all the books and the rechargeable torchlight shown in the Internet Shop. The Shape Quiz book contains 100 challenging shape puzzles which can give hours of fun for children, adults and seniors. It trains their mind to be flexible and see out of the box. It is an important skill.
Click here.
If you wish to buy the books at a discount of 15% (Promotion Code - BLOG), do so during February. The promotion will end on 28 February. The promotion applies to all the books and the rechargeable torchlight shown in the Internet Shop. The Shape Quiz book contains 100 challenging shape puzzles which can give hours of fun for children, adults and seniors. It trains their mind to be flexible and see out of the box. It is an important skill.
Click here.
Tuesday, February 9, 2010
Vetting of mini-bonds in Hong Kong
Read this report about the proceedings in the Hong Kong Legislative Council, where the legislators questioned the Securities & Futures Commission that was responsible to regulate the financial market.
Long working hours in Singapore
Summary of comments
Lilian said
I agree on the long working hours in Singapore. the peer pressure and competitiveness is really strong. My american friend is working here and he also feel pressurized to stay back sometimes, which he tell me that it is very uncommon in US.
php said...
I am not sure if any government is able to help at all. I think the most important person who can influence the working hours is the BOSS himself. I have been running an Asian HQ of a European MNC for the past 20 years and I told my staff that there is no need to stay later than the office hours unless it is extremely critical. The result is (almost) all the staff will leave the office just 5 minutes after working hour.
Tan Kin Lian said...
Hi php. You set a good example. Unfortunately, there are not many bosses like you. The majority are of the other kind.
I believe that there is a lot that the Government can do. They have the power to legislate and to regulate. As they have ignore this problem, the situation has gone really bad.
So, if the Government and the Parliament address this problem, a lot can be done. At the least, it will send a message to the majority of employers.
(Note: somebody object to my use of 99% of employers, so I change to majority).
Lilian said
I agree on the long working hours in Singapore. the peer pressure and competitiveness is really strong. My american friend is working here and he also feel pressurized to stay back sometimes, which he tell me that it is very uncommon in US.
php said...
I am not sure if any government is able to help at all. I think the most important person who can influence the working hours is the BOSS himself. I have been running an Asian HQ of a European MNC for the past 20 years and I told my staff that there is no need to stay later than the office hours unless it is extremely critical. The result is (almost) all the staff will leave the office just 5 minutes after working hour.
Tan Kin Lian said...
Hi php. You set a good example. Unfortunately, there are not many bosses like you. The majority are of the other kind.
I believe that there is a lot that the Government can do. They have the power to legislate and to regulate. As they have ignore this problem, the situation has gone really bad.
So, if the Government and the Parliament address this problem, a lot can be done. At the least, it will send a message to the majority of employers.
(Note: somebody object to my use of 99% of employers, so I change to majority).
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