Irish Life reviewing tracker bonds deal in wake of Lehman Brothers downfall (Irish Independent)

04 November 2011

Investors in Irish Life tracker bonds have fallen victim to the collapse of Lehman Brothers after it emerged that the failed New York bank provided the capital guarantees on a number of the Irish life company's investment products.

The collapse of the New York investment bank effectively means there is now no longer a guarantee with some of the Irish Life trackers.

Irish Life is now reviewing the arrangement where Lehman provided the set returns and capital protection on a number of tracker bonds it sold, the Irish Independent has learned.

A spokesman for Irish Life insisted last night that no-one had lost money over the development and said the situation would be resolved long before the tracker bonds mature.

In a statement, Irish Life said: "Lehman Brothers is contracted to provide the set returns and capital protection on a small number of tracker products sold by Irish Life.

"The first maturity is in 2011 -- three years from now.

"Irish Life is assessing the implications of this week's events at Lehman Brothers but it is too early to say whether these events will have any impact or require any action."

The spokesman said that less than half a dozen tracker bonds had guarantees provided by Lehman Brothers.

Tracker bonds are fixed-term investments generally over three to six years. Most trackers offer a guarantee that investors will at least get their money back at the end of the investment.

With tracker bonds, most of the money is actually placed in a bank deposit account and the remainder is invested in complex financial derivatives and/or options.

Trackers have been heavily criticised for offering poor returns as the capital guarantee effectively operates as a drag on the performance of the investment.

One of the Irish Life trackers which has a Lehman guarantee, which closed for business in March this year, is the SureOptions Series 39 tracker.

Described in the sales literature as a "worry-free way to make your money work harder", the tracker runs for three years and 11 months.

In the sales literature, it states: "Lehman Brothers has contracted to provide us the minimum capital return amounts for the Sureoptions 39 Funds."

The Irish Life spokesman said the situation with Lehman Brothers, which has filed for protection from its creditors, was still quite fluid and it was too early to say what would happen.

Barclays Bank is attempting to buy sectors of the failed bank, and if that were to happen it would resolve the tracker bond guarantee issue.

The spokesman added that Irish Life had three years to resolve the capital guarantee issue.