ANOTHER complex investment product sold to Singapore investors appeared last night to be in danger of being rendered worthless, according to industry sources and investors.
The latest drama involves two of the Pinnacle Notes Series of credit-linked notes, arranged by US financial giant Morgan Stanley.
It follows the crash of various products linked to bankrupt US investment bank Lehman Brothers in September.
Pinnacle Notes Series 9 and 10 were sold at five institutions and brokerages: DMG Securities, Hong Leong Finance, Kim Eng Securities, OCBC Securities and UOB Kay Hian in October last year.
'We understand Series 9 and 10 are goners,' said a broker who asked not to be named.
'Morgan Stanley is sending out notices today to investors in Pinnacle Notes - a few series - informing them that their notes could now be worth nothing,' said another who also asked to be anonymous.
Details of the reasons for the feared crash of the product were sketchy.
It was also not immediately clear how many Singapore investors are set to be affected, or how much money had been poured into the products here.
Pinnacle Notes Series 9 and 10 are part of a collection of credit-linked notes issued by Pinnacle Performance and arranged by Morgan Stanley Asia.
Over 51/2 years, investors in Series 9 stood to earn a yearly return of about 5.25 per cent, while Series 10 investors could earn about 5 per cent a year, excluding additional equity bonus coupons.
Some investors in series 9 and 10 said they had received letters over the last week from Pinnacle Performance, hinting at a 'mandatory redemption' of the notes.
'The letter, dated Nov 3, warned of a possible mandatory redemption due to credit events but what I heard on the grapevine was that like High Notes 5, Pinnacle Notes 9 and 10 are now worthless,' said a 47-year-old secretary who invested $50,000 in the product.
A person familiar with the matter told The Straits Times that a 'credit event' had likely occurred due to a ratings downgrade to one of the underlying assets of the two notes.
Pinnacle Notes are not principal guaranteed and investors will be repaid the principal sum at maturity only if, among other things, the reference entities do not suffer any credit event or default.
The pricing statement for the notes also indicated that if a credit event or default occurs, investors may 'lose all or substantially all' of their money.
Reference entities for Series 9 and 10 include Australia, Hong Kong, Singapore, SingTel and Temasek Holdings.
One issue arising from the sale of complicated products like Lehman Minibonds, DBS High Notes and Pinnacle Notes was how they were marketed as low-risk products.
The marketing material for Pinnacle Notes Series 9 and 10 depicted a young boy hugging two stuffed toys - a bull and a bear - with a tag: 'Profit from bull and bear markets'.
Investors told The Straits Times that they bought Pinnacle Notes when they were looking for safe investments offering slightly more than interest paid in fixed deposits. Morgan Stanley and distributors of the notes could not be contacted for comment at press time.
This article was first published in The Straits Times on November 14, 2008.
