Were MiniBonds/DBS Notes 'Safe' ?

Pictured above is DBS credit ratings.

I am trying to put myself into the shoes of the Bank's relationship managers who sold the MiniBonds or the DBS Notes. What would I have said back in 2007 given the market conditions?

Back in 2007, Lehman's Long term credit rating by Fitch is AA- (DBS is now AA-). So the rating agencies are assigning an equal probability of default to DBS and Lehman back in 2007. To put it simply, placing a fixed deposit with DBS would be just as risky as selling protection on Lehman (if we discount the Deposit Insurance Act in Singapore).

So what does an AA- rating by Fitch mean? On their website, it says:
Very high credit quality. 'AA' ratings denote expectations of very low credit risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.

So to a lay person (no access to credit market data), given the information available in 2007, it is not impossible for one to judge that Lehman was indeed a 'safe' counterparty and the risk undertaken then was miniscle.

The turn of events over the last month was truely astounding. To this date, Lehman's credit rating by S&P is still A, four notches above junk status.

Retail Investors - More handholding needed?

The current debacle concerning retail investors due to the Lehman's bankruptcy brings to my mind a conversation I overhead in August last year.
Was on the trading floor of a Scandinavian bank back in August 2007 when the credit crisis first reared it's ugly head. Global equities suffered a 15% drop, credit markets froze, the bank's corporate clients started getting jittery and began calling in, presumably taken a larger than expected hit.

Head Trader: What are we gonna do with this xxx (client's name). They have been calling us non-stop.
Chief Trader: What do they expect us to do? Hand hold 'em? They are big boys and markets can go down. They should know the risks they are taking.

Do retail investors need hand-holding or in some cases, a bailout by citing ignorance? Are retail investors really that gullible? If someone gives more money for deposits, shouldn't one ask where the 'catch' is? If something is too good to be true, shouldn't one ask why it is so?

There will always be risks involved when dealing with money. Bonds issued by the Singapore government is good only if the government does not go bankrupt. Fixed deposits placed with a bank is only as good as long as the bank does not go bankrupt. There is always a probability that things will not go the way we expect, which is why we have to be prepared for the worst scenario.