From Lehman Minibond To Oracle Capital Limited

The Lehman Minibonds were single handedly created and arranged by Lehman Brothers Asia Pacific. The main contributor was the CDO & Structured Credit Group headed by Leon Hindle.

Oracle Capital Limited was described in the "The other side of structured credit of The Asset October 2009 by Chito Santiago (http://www.theasset.com/article/17587.html)" as follows:

[
When the saga of Lehman Brothers started to unravel and eventually led to its spectacular demise in September last year, two of its senior bankers, Leon Hindle and Fredric Teng, were already contemplating lives outside of the firm – and outside of investment banking for that matter. After all, the sellside was gone as the investor base was shattered at that point in time. Perhaps it was opportune to move to the other side of the fence – into the buyside.

Hindle used to be managing director and head of collateralized debt obligations (CDOs) and structured credit trading group for the Asia-Pacific region at Lehman Brothers. He was also a member of Lehman’s Asia-Pacific fixed income management committee and the global credit products management team.

(...)

Together, they formed Oracle Capital Limited, the Hong Kong-based sub-investment advisor of Oracle Investment Fund SPC focussing on structured credit asset class . Their motivation came at a time when investment banking was changing significantly. In every asset class, it looks as though there is a huge opportunity to move to the buyside. Teng says they have already obtained an asset management licence from the Hong Kong Securities and Futures Commission, and are currently applying for an advisory licence and expect the process to be concluded soon.

In setting up Oracle, Hindle and Teng followed the footsteps of fellow investment bankers who have decided to leave the industry and strike it on their own so as to take advantage of the market dislocation. For instance, Jeremy Amias, a 23-year veteran at Citi who left the US firm as head of fixed income, currencies and commodities for Asia-Pacific, has joined hands with another former Citi banker Charlie Berman to set up Amias Berman and Company, a fixed income advisory, origination and brokerage firm.

(...)

While markets in other asset classes have witnessed rallies, this seems to be less the case for structured credit and according to Hindle, this situation may last for another four to five years. Structured credit is pretty much the whole gamut of products, ranging from single name credit linked notes to balance sheet collateralized loan obligations (CLOs) and synthetic CDOs. “These assets are not straight-forward,” notes Teng. “There is a lot of work to be done before you can understand what is going on. And the barrier to entry is high, you need a team of credit derivatives specialists and also a lot of investment in technology. We think we are the only outfit wholly dedicated to this asset class in Asia. We see a lot of opportunities.”

Hindle adds: “Asian investors are really in a difficult position, if you like, to make decisions about how to manage these things going forward given the overall environment now. It is probably less the case for the European or US investors because they do have a greater sense of the underlying risks in these products. That is why I think the opportunity in Asia is present for us. There are people who are running similar funds in the US and Europe, but there is not really anyone on the ground in this region with the same focus.”

(...)

Unlike CLOs, which have rallied and boast a deeper liquidity now, synthetic CDOs did not have a chance to rally to the same extent, because there are not that many pure-end buyers and because, in some cases, the risks of the transactions are tied up to the riskiest names in the former investment grade universe such as the monolines. “The kind of valuation for certain deals at this point in time, if they are managed right, should be able to generate a pretty healthy return despite the lack of liquidity in that area,” Hindle points out.

(...)

]

According to its website, Oracle Captial Limited is located on the 20th Floor, Central Tower of Central, and its Chief Investment Officer is Leon Hindle.

Leon Hindle and his CDO & Structured Credit Group surely have done an excellent jobs for boosting Lehman Brothers revenue and his own bonus in selling synthetic CDO/CDS at the cost of Hong Kong retail banks' clients with the innovation product "Lehman Minibond".


Lehman Brothers sold CDO to their clients by taking advantages of the CDO boom. Lehman Brothers also sold synthetic CDO / CDS to the clients to provide insurance for the event of CDOs bust. However, Lehman Brothers did not want to be the insurance-provider on the related CDOs.

What did Lehman Brothers do? One of the solution is the Lehman Minibond.

Lehman Brothers Asia-Pacific region created the Lehman Minibond which was essentially providing credit default insurances for a basket of reference entities. According to "Derivatives Week" (Dec.8,2008), Leon Hindle oversaw Lehman's origination and distribution of all structured credit in the Asia-Pacific, including the strucuring of CDOS linked to its controversial minibond series.
In 2003, from the poor sales results of Minibond Series 6, the Minibond creator realized that Hong Kong retail banks' clients are not keen in a product that is credit linked to 150 reference entities. The Minibond creator quickly switched to a smoother strategy. They added a facade to the Minibond and prominently promoted the Minibond as "Credite Linked with 7 well-known Companies". While Hong Kong retail banks' clients thought that they bought into a Lehman Minibond which was credited linked to 7 well-known companies, they did not realize that they have actually become the ultimate synthetic CDO /CDS insurance provider, to provide insurance on the default event of a basket of undisclosed 125-194 reference entities. It's the insurance premium for the undisclosed 125-194 reference entities (Synthetic CDO) that pays the Minibond interest.

With all the experience and in-depth knowledge on CDO / Synthetic CDO / CDS, knowing how little that people understand and can be fooled by financial experts on such innovation products, Leon Hindle and his company Oracle Capital Limited surely would provide excellent service to their clients.

Related blogs on Leon Hindle: " Why did Lehman Asia head of structure division Leon Hindle Lie "
(http://minibondvictim.blogspot.com/2009/06/lehman-asia-head-of-structure-division.html)

Watch out, if you are considering to buy a product from the experts of CDO / CLO / Synthetic CDO. The product may have a conservative branding name and a beautiful facade, but the true features & risks of the product probably can be anything that is totally different from the branding name & the prominent facade.