THE €820 million collapse of specialist Dublin lender International Securities Trading Corporation (ISTC) has been felt as far away as China where litigation has started over investor losses in a bond issued by the company.

A retired couple are suing investment bank Merrill Lynch after losing US$410,000 (€258,000) on a mortgage-backed bond issued by ISTC.

Retired engineer, Chu Hoi-fai, and his wife, Chu Shui-ping, are seeking the return of their money in addition to damages, interest and costs from Merrill Lynch after the bond became worthless following the collapse of ISTC last November, according to a report in the South China Morning Post.

The newspaper said it believed the case to be the first lawsuit launched in Hong Kong by investors who have lost money arising from the subprime loans fallout.

In a writ filed in the High Court on Monday, the couple claim they were persuaded to buy into the ISTC bond by their Merrill Lynch investment adviser.

However, unbeknown to them, the writ alleges, the bond - described as a "9 per cent cumulative perpetual subordinated securities" product - had not been authorised by the Securities and Futures Commission for sale to non-professional investors in Hong Kong.

Mr Chu expressed alarm when the price of the ISTC bond fell from $100 to $85 per unit within a month of being issued.

He claims he was placated by his Merrill Lynch adviser who told him the price would rebound after ISTC announced results in November.

The firm eventually delayed its results, suspended its shares and cancelled a fundraising after some of its riskier assets were devalued.

Bond investors were forced to write off €270.5 million in ISTC, which has been sold to UK investment bank Collins Stewart for €5 million.

Investment banks, trade creditors and other investors wrote off a further €549.5 million.