Mibibond has return of 3 (on scale) and risk of 9

This contribution has been edited by TKL

Dear Mr. Tan
If we using the rating scale of 1 to 10 for the return and risk, then if the fixed deposit is rated at return of 1 with the risk of 1 , then minibond should be rated at return of 3 but with the risk of 9. OCBC 5.1% preference share should be rated at return of 3 and with the risk of 3.

Risk analysis for OCBC PS and minibond :

> We can sell the OCBC 5.1% PS anytime if we need cash
> We are locked up for 5 full years for minibond.

> The risk for losing everything for OCBC 5.1% PS is when OCBC bank go bankrupt
> The risk for losing everything for minibond is any one of the followings:
1) any one of the six major banks or Lehman brothers go bankrupt
2) some others credit events(out of 150 CDOs) occurred (very complex)

Under (1), the risk of minibond is already 7 times of OCBC PS. If we include (2), the risk will multiply, say 20 to 30 times. (I have the impression that the 150 CDOs are much more risky than the six banks)

Clearly, no one in the right mind will buy minibond for a return of 3 but with the risk of 9, if they are aware of the full risk.

Pang