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Minibonds . . .
October 23rd, 2008 in Random musings
The issue regarding the structured products that DBS and a host of other banks distributed to Singaporeans is an interesting one.
I never spent too much time thinking about it but was forced to over dinner yesterday when my friend’s mum asked me what I thought - “after saying that the banks should compensate the buyers of the asset”.
For several seconds I deliberated: should I prematurely end the conversation and just agree with her or should I highlight reasons why that might not be a “fair” outcome.
Okay, it didn’t take me several seconds . . . it was more like half a second. Now if my understanding is correct, the likes of DBS were only responsible for distributing the Lehman product. Now that everything has gone pear shaped, is it really fair to shareholders if these banks are “encouraged” to return the principal amounts back to the buyers of this security? These distributing banks only made a distribution fee and now they have to bailout Lehman’s liability. . .
Before the flaming starts, let me be clear that I’m not against returning money to the investors who were deceived. I just want to highlight that the issue is not as clear cut as it seems and there are justifiable arguments why these distributing banks shouldn’t be liable for these minibonds.
DBS is trading at ~$11 . . . crazy isn’t it? I reckon we are either going to see either UOB or OCBC tank over the next few weeks or see DBS bounce back to trade at multiples comparable to the two other listed peers.