Lehman Brothers Minibond saga

Singapore Infopedia


The Lehman Brothers Minibond saga refers to the chain of events resulting from the Lehman Brothers’ bankruptcy filing in September 2008.Following the collapse of the Lehman Brothers, about 10,000 retail investors in Singapore lost their investments totalling over S$500 million in structured investment products linked to the American investment bank.2 The financial institutions that distributed the products were accused of having mis-sold these relatively high-risk products to investors, many of whom were elderly and less educated. This prompted government investigations, which led to penalties being imposed on 10 financial institutions, and tighter supervision of the industry. 

The investment products in question were the Minibond Notes, High Notes 5, Jubilee Series 3 LinkEarner Notes and Pinnacle Series 9 and 10 Notes.3 For each of these products, the investor was paid a regular stream of interest or coupon until maturity, at which point the investor was entitled to a redemption amount as described in the terms and conditions of the product.4 Pegged to considerably higher interest rates than fixed deposit rates, the notes were eagerly taken up by investors.5 As the notes had multiple risk exposure, there was no guarantee that investors would get back their principal when the notes were redeemed, either upon or before maturity.6

Unwinding of products
On 15 September 2008, news broke that Lehman Brothers had filed for bankruptcy in the United States, which sent shockwaves across the world and worried investors who had bought its Minibond Notes.7 Lehman Brothers had arranged all nine series of Minibond Notes. It was also the swap counterparty, which meant that its collapse would cause the notes to default on their scheduled interest payments.8 This would, in turn, lead to an early redemption of the notes and liquidation of the underlying assets.9

Shortly after, investors who had bought High Notes 5 (arranged and issued by DBS Bank) and Jubilee Series 3 LinkEarner Notes (arranged by Merrill Lynch) discovered that the collapse of Lehman Brothers had also triggered a mandatory early redemption of their notes. They could get nothing from the forced sale of the underlying collateral, as the values of these assets had fallen drastically amid the global credit crisis then.10 Their worst fears came true in October 2008, when it was announced that investors would not receive any payout from the unwinding of the two products.11

The hopes of Minibond Notes investors were raised in October 2008 when some financial institutions expressed interest to take over as the swap counterparty, thus avoiding an early redemption.12 However, this option was ruled out in December 2008 because of legal challenges by Lehman Brothers’ lawyers in the United States. As the legal issues had to be cleared first, the investors were also told that the underlying assets could not be sold for at least another two years.13 Fortunately, this happened earlier than expected, and the process of liquidating the assets began in October 2009. In February 2010, investors received their share of the proceeds,14 with payouts ranging from 21.5 to 70.8 percent of the amount invested.15

In November 2008, investors of Pinnacle Notes Series 9 and 10 were informed that their notes would be unwound, and that they could lose almost all of their original investments. The event was triggered by the failure or near-bankruptcy of five underlying assets, namely Lehman Brothers, two mortgage giants in the United States, Freddie Mac and Fannie Mae, and Icelandic banks Kaupthing and Landsbanki.16

Investor activism and compensation
Soon after the affected investors found out that they could lose their entire capital, the local media began carrying stories on the plight of those who claimed they were misled into buying the investment products.17 The unhappiness stemmed from the way these risky products were marketed and sold as safe investments.18

A large number of the investors were elderly and less educated. They were not proficient in English or had little financial knowledge, and thus would have found it difficult to fully understand the risks of these complex structured investments.19 Questions were raised on why the products had been offered to these investors in the first place.20 Public anger was directed at the institutions that sold them the products.21 Adding to the debacle was news that eight town councils run by the ruling People’s Action Party had S$16 million invested in various products linked to Lehman Brothers.22

Thousands of complaints were sent by affected investors to the 10 financial institutions that distributed the notes: DBS Bank, ABN Amro (now Royal Bank of Scotland), Maybank, Hong Leong Finance, CIMB-GK Securities, DMG and Partners Securities, Kim Eng Securities, OCBC Securities, Phillip Securities and UOB Kay Hian.23 Some who were dissatisfied with the responses they received from the financial institutions took their cases to the Financial Industry Disputes Resolution Centre.24 Many investors also joined public protest rallies, petitioned to the Monetary Authority of Singapore (MAS), and/or initiated collective legal action against the distributors.25

As of 31 May 2009, DBS Bank, ABN Amro, Maybank and Hong Leong Finance received 5,551 complaints. Of the 5,352 cases decided on, 3,607 (67 percent) received settlement offers, of which 85 percent were accepted by the investors. The compensation offered totalled S$104.6 million or 32 percent of the amount invested in the cases decided.26

The six brokerages, which received 952 complaints, offered compensation for 33 percent of the 889 cases decided on. The offers, of which 70 percent were accepted, totalled S$2.74 million or 5.6 percent of the amount invested in the cases decided.27 All settlements were offered without admission of liability.28

The first lawsuit arising from the Minibond saga was by a group of 204 investors. They sued DBS Bank in July 2009 for the S$17 million they lost from investing in High Notes 5.29

Government response
While reminding investors that they were ultimately responsible for their own financial choices and should understand what they were investing in,30 the MAS took an active role in helping those affected.31 Besides telling the distributors to handle all complaints fairly and prioritise vulnerable investors such as retirees with little education, the MAS also ordered them to appoint independent parties to oversee the investigations into mis-selling and the complaints handling procedures.32 In addition, the MAS drew up a timeline that distributors had to follow in the handling of customers’ complaints, requiring them to complete their review of each complaint within four weeks of receiving it.33

After looking into the sales practices of the 10 distributors, the MAS’s findings led to sales bans being imposed on them starting from 1 July 2009.34 Hong Leong Finance received the heaviest penalty – a two-year ban – while DBS Bank, Royal Bank of Scotland and Maybank were given six-month bans. The six brokerages were handed bans of six months or one year and could not resume selling structured notes until their internal processes were strengthened to the MAS’s satisfaction. Hong Leong Finance has since said that it would not sell such products in the future. The bans on the three banks were lifted with effect from 12 February 2010,35 while the six brokerages had theirs lifted with effect from 24 August 2010.36

In a move to keep rules updated and relevant, the MAS reviewed the regulatory framework for marketing investment products and proposed several measures to better safeguard the interests of retail investors.37 For example, financial institutions have to provide a user-friendly product highlights sheet describing the key features and risks of an investment product, and investors have a seven-day window during which they can cancel their investments without incurring sales charges or commissions.38

Other proposals put forth by the MAS included measures to raise the competency of individuals selling complex investment products.39 Having sought public feedback in early 2009 and early 2010, the MAS also published an online consumer guide titled Making Sense of Structured Products to help investors make more informed decisions regarding such products.40

1. Siow Li Sen, “Investors Fret Over Lehman’s Minibonds,” Business Times, 17 September 2008, 1; Francis Chan, “Minibond Investors Turn to MAS,” Straits Times, 25 September 2008, 49. (From NewspaperSG)
2. Gabriel Chen and Francis Chan, “MAS: 10,000 Here Invested $501M,” Straits Times, 11 October 2008, 55. (From NewspaperSG)
3. “Investigation Report on the Sale and Marketing of Structures Notes Linked to Lehman Brothers,” Monetary Authority of Singapore, 7 July 2009, i. (From NLB’s Web Archive Singapore)
4. Oliver Chen and Anand Srinivasan, “Which Credit Products Are Suited to the Masses?,” Straits Times, 29 October 2008, 22. (From NewspaperSG)
5. Tan Dawn Wei and Jamie Ee Wen Wei, “How Pushy Can They Get?,” Straits Times, 28 September 2008, 10. Retrieved from NewspaperSG.
6. Monetary Authority of Singapore, “Investigation Report on the Sale and Marketing,” iv–v.
7. Francis Chan, “Minibond Investors to Get Some Money Back,” Straits Times, 2 October 2009, 57.
8. Monetary Authority of Singapore, “Investigation Report on the Sale and Marketing,” 2.
9. Monetary Authority of Singapore, “Investigation Report on the Sale and Marketing,” 3.
10. Chan, “Minibond Investors Turn to MAS”; Francis Chan, “DBS High Notes Investors at Risk,” Straits Times, 18 September 2008, 4; Siow Li Sen, “Investors of Merrill Notes to Get Back Nothing,” Business Times, 10 October 2008, 4. (From NewspaperSG)
11. Siow, “Investors of Merrill Notes to Get Back Nothing”; Siow Li Sen, “Zero Payout for Most High Notes 5 Investors,” Business Times, 29 October 2008, 3. (From NewspaperSG)
12. Chen and Chan, “MAS: 10,000 Here Invested $501M.”
13. Siow Li Sen, “Restructuring of Minibonds on Hold,” Business Times, 3 December 2008, 2. (From NewspaperSG)
14. Genevieve Cua, “Minibond: 80% to Recoup Half or More of Principal,” Business Times, 4 February 2010, 2. (From NewspaperSG)
15. Francis Chan, “MAS Lifts Ban on Three Banks,” Straits Times, 12 February 2010, 16. (From NewspaperSG)
16. Francis Chan, “Bad News for Pinnacle Buyers,” Straits Times, 15 November 2008, 3. (From NewspaperSG)
17. Siow Li Sen, “Move to Help Lehman ‘Victims’ Gathers Pace,” Business Times, 24 September 2008, 2. (From NewspaperSG)
18. Francis Chan, “Minibond Investors Begin Legal Action,” Straits Times, 11 September 2009, 7. (From NewspaperSG)
19. Ignatius Low and Francis Chan, “MAS to Banks: Do the Right Thing,” Straits Times, 18 October 2008, 1. (From NewspaperSG)
20. Mavis Toh, “Over 500 Investors at Protest Rally,” Straits Times, 12 October 2008, 1. (From NewspaperSG)
21. Chen and Chan, “MAS: 10,000 Here Invested $501M.”
22. Goh Chin Lian, “Town Councils’ Exposure: $16M,” Straits Times, 18 November 2008, 1. (From NewspaperSG)
23. Monetary Authority of Singapore, “Investigation Report on the Sale and Marketing,” 4; Chan, “Minibond Investors Begin Legal Action.” 
24. Francis Chan, “Unhappy Investors Turn to Dispute Body,” Straits Times, 25 October 2008, 18 (From NewspaperSG); Chan, “Minibond Investors Begin Legal Action.” 
25. Chan, “Minibond Investors Turn to MAS”; Chan, “Minibond Investors Begin Legal Action”; Toh, “Over 500 Investors at Protest Rally.” 
26.  Monetary Authority of Singapore, ““Investigation Report on the Sale and Marketing,” xvi.
27. Monetary Authority of Singapore, “Investigation Report on the Sale and Marketing,” xvii.
28. Francis Chan, “Brokerages Act to Help ‘Vulnerable’ Investors,” Straits Times, 29 October 2008, 4. (From NewspaperSG)
29. Chan, “Minibond Investors Begin Legal Action.”
30. Monetary Authority of Singapore, “Investigation Report on the Sale and Marketing,” v.
31. Kor Kian Beng, “MAS Active in Looking after Investors’ Interests: SM,” Straits Times, 7 November 2008, 65. (From NewspaperSG)
32. Chan, “Minibond Investors Turn to MAS”; Low and Chan, “MAS to Banks.” 
33. Low and Chan, “MAS to Banks.” 
34. Chan, “MAS Lifts Ban on Three Banks”; Monetary Authority of Singapore, “Investigation Report on the Sale and Marketing,” xviii.
35. Chan, “MAS Lifts Ban on Three Banks.”
36. Francis Chan, “MAS Lifts Ban on Six Brokerages,” Straits Times, 25 August 2010, 18. (From NewspaperSG)
37. Genevievie Cua, “MAS to Review Structured Products Rules,” Business Times, 3 October 2008, 2. (From NewspaperSG)
38. “Review of the Regulatory Regime Governing the Sale and Marketing of Unlisted Investment Products,” Monetary Authority of Singapore, March 2009, 39.
39. Chan, “MAS Lifts Ban on Three Banks.”
40. Monetary Authority of Singapore, “MAS Releases Investigation Findings on the Sale and Marketing of Structured Notes Linked to Lehman Brothers,” press release, 7 July 2009; Monetary Authority of Singapore, “MAS Issues Consultation Paper on Regulatory Regime for Listed and Unlisted Investment Products,” press release, 28 January 2010; Monetary Authority of Singapore, “MAS Lifts Ban on the Sale of Structured Notes for CIMB Securities (Singapore) Pte Ltd, DMG & Partners Securities Pte Ltd Kim Eng Securities Pte Ltd, OCBC Securities Pte LtdPhillip Securities Pte Ltd and UOB Kay Hian Pte Ltd,” press release, 24 August 2010. (From NLB’s Web Archive Singapore)

The information in this article is valid as of August 2023 and correct as far as we are able to ascertain from our sources. It is not intended to be an exhaustive or complete history of the subject. Please contact the Library for further reading materials on the topic.


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