Lehman-Linked Pinnacle Notes Worthless, Says Morgan Stanley
For thousands of investors in Hong Kong and Singapore - many of them retirees - the name of Lehman Brothers probably wasn’t a topic of daily discussion. That is until now. Because of investments linked to the bankrupt brokerage, investors are seeing their life savings disappear overnight.
The problem investments are two structured finance products called Pinnacle Notes Series 9 and 10, and are part of a Pinnacle Notes Series of credit-linked notes. Series 9 and 10 notes were issued by Pinnacle Performance and arranged by Morgan Stanley Asia.
As of Nov. 14, the two notes were forced into a mandatory redemption because of their connection to toxic collateralized debt obligations (CDOs) and financially troubled companies like Lehman Brothers Holdings, Freddie Mac and Fannie Mae.
Now, New York-based Morgan Stanley is giving investors the news they do not want to hear: They can expect to lose their entire original investment in the Pinnacle Notes Series 9 and 10.
Rumors of the eminent collapse of the Pinnacle Notes Series 9 and 10 have been circulating for the past month, fueled in part by the failures of other structured products like DBS High Notes 5. Like the Pinnacle Notes Series 9 and 10, the DBS High Notes also were linked to Lehman Brothers. When Lehman filed for bankruptcy protection on Sept. 15, the notes became essentially worthless.
According to information posted on Morgan Stanley’s Web site, Standard & Poor’s had previously slashed the ratings of the underlying assets in the Pinnacle Series 9 and 10 from AA to CCC-, or junk status.
The two series of the Pinnacle Notes were sold solely in Singapore through five distributors: brokers DMG & Partners, Kim Eng Securities, OCBC Securities and UOB Kay Hian and lender Hong Leong Finance. Pinnacle Performance, the issuer of the Pinnacle Notes Series 9 and 10, is a special purpose company incorporated in the Cayman Islands.
Like many of the stories coming forth from investors burned recently by structured finance products, investors in the Pinnacle Notes Series 9 and 10 say they were unaware of the high-level of risk involved. They put their trust in the financial institutions that sold them the securities. Now, like their investments, that trust is shattered.
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