Tuesday, 19 March 2013

JP Morgan Asia Confidence Notes (Part 1)

Let's talk about my experience with the purchase of a structured product.  Of course that was before the collapse of Lehman Brothers, Sep 2008.

It was one day in June 2008 when I renewed my fixed deposit at the bank.  That day I learnt that the bank have assigned a "personal banker" to "take care of all my financial matters" with the bank.  This "personal banker" told me that interest rate for FD was too low, and introduced a structured product for better returns.

The JP Morgan Asia Confidence Notes has the following structure:

1. Tenure of 2.5 years
2. 7.5% p.a coupon fixed – payable quarterly.
3. Based on Singapore, Malaysia, Thailand and Taiwan Indices movement.  The buffer level for Principal to be affected is 50% of index (index level at start of tenure) for any of the 4 countries.   Meaning one of the indices must fall by 50% (at observation date) for the Principal to be affected.

4. Early callable every quarter (at observation date), if all of the indices go above the initial index level.

The minimum investment amount was $50K.  Although the "personal banker" told me that the principal is not protected, I was given a strong impression that it was safe and low-risk.

This was also the opinion of most of the financial "gurus" and analysts at that time.  Most people did not believe that the indices would drop by 50% during the next 2.5 years.   Most people thought that the most likely outcome was that the bank would "call" the notes early before the 2.5 years tenure is up because all indices go above the initial index level.  One analyst even regretted that the minimum investment amount was too high, so that not more people can reap the benefits.  

Decided against putting all my eggs in one basket, I invested $50K from my FD into this JP Morgan Asia Confidence Notes, while the remainder stayed in the FD account.

This portion of investment with JP Morgan Asia Confidence Notes will be earning 7.5% p.a, with payment every quarter.  The portion with FD will be earning a miserable 1%.

But in this world, anything can happen......

(To be continued......)

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