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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Moominoid who wrote (41421)	10/20/2008 6:18:35 AM
From: TobagoJack	2 Recommendations Read Replies (1) \| Respond to of 219927

hello david, regarding the "accumulator" products thestandard.com.hk sold by hk banks to retail clients and wealth management newbies we had spoken about, the rumblings started, just in in-tray, about a lot of folks who are totally stuffed and must soon unload their otherwise very good real estate at super duper geewhizbangohwaohwee death level discount player #1: Another little tit bit... have been hearing over the weekend just how pervasive the whole structured note issue is here in Hong Kong. Well known investment bank in HK has been very active peddling toxic financial weapons of mass destruction and the devastation is only just starting to sink in... Like to hit HK property prices hard... Over the weekend met a professional who is not well versed in finance...who had been asked to sign a form saying he is a sophisticated investor (so they could sell him crap) ... and they sold him a series of notes that go along the following lines... Buy a 10 year note worth $10 million but you only have to put down $3. In the first year you get a guaranteed coupon of 20% ... the next year 0-20% depending on the price of HSBC and DBS bank (whichever is the lower) and a coupon of 0-7% for each of the years 3-10 again depending on the price of the shares... First margin call when markets collapsed was for loss of 65% explained by the HSBC down 16% and DBS down 28% So MTM -33% Vega -9.6% Libor margin - 2.3% Coupon -20% TOTAL MARGIN CALL - 65% If you are confused by this math... so am I ... I thought the coupon was guaranteed by GS so why is it in the margin call? (I assume the vega component is connected to all time highs in volatility). Also the average fall of both shares is only 22% not 33% ... don't get it... but the way it was sold the question is why would it even have a margin call ... seen the selling document and no mention of downside other than the fact that you may not get a coupon in future years.... Poor guy who has bought these things has been hit with margin call after margin call depleting his saving over a life time. Problem is no one can explain where the pain is likely to stop ... what is his maximum downside? And at the end of this does he own stock ... get his principle back... what? Another extremely aggrieved client (who is a sophisticated investor) has also lost a bomb on accumulators with same IB. Doing some further research on the issue he understands that this IB has written 45000 contracts of an average US$ 3million each. This suggests that there is US$135 billion of these things out there from just one IB ... what about the others? Don't know if this answers the question of the great unwind but these are just the products that the private wealth managers have written to all manner of wealthy investor... they are not so wealthy now!!! This recession is probably going to hit the wealthy first ... unlike other recessions where it is the poor worker who gets laid off first... not sure I would want to be selling luxury goods in this environment... does this now make people forced sellers of high priced real estate? Interesting? player #2 I've actually been toying with writing to the press for the last two or three weeks pointing out the following; The main reason that the banks have sold so many of these products is of course that they were extremely profitable. Typically the sales dept receives around 5% in selling commissions. I do not know how much the prop book makes from what amounts to selling expensive options or buying cheap ones from their clients. So a client invests $100, the bank makes AT LEAST 5% without offering the client any gearing. Gear it up 2 or 3 times and the bank makes anything from $10- $20 out of the client's $100 capital investment. In bull markets the client quite often makes a quick profit. The bank's "wealth manager" then reminds the client of the great investment he made. Tells him that he has a great profit. Tells him that the situation has got a bit ahead of itself and suggests taking a profit. No one ever went broke taking a profit ( as the saying goes) and of course it feels good especially when the bank tells the punter that we've got another great investment situation we can put you into. Punter loves it. Punter says yes. Bank gets another $5,$10, $20 out of the original $100. Keep doing that and the bank is quickly vomiting profits. Anyone within the bank who is worried about ethics is shouted down by the bank's profit center.....