Banks must bear Lehman minibond losses, Hong Kong investors say

Protestors bang on drums, gongs and metal plates at a demonstration in front of the Bank of China building in Hong Kong, China, in June.

Hong Kong investors in notes linked to failed Lehman Brothers Holdings Inc. will balk at a reported compensation offer of 60 to 70 cents on the dollar, a group representing individuals who bought the securities said.

“This would mean the bank wouldn’t have to be responsible at all,” said Chan, whose organization represents investors who’ve bought the notes. “If you do the math, the notes’ collateral is probably worth about 60 to 70 percent right now.”

Lenders including BOC Hong Kong Holdings Ltd. and Bank of East Asia Ltd. sold a total of HK$13.9 billion (US$1.8 billion) of so-called Lehman-linked minibonds, which collapsed in value after the US investment bank failed last September. A Hong Kong Monetary Authority probe has found evidence that banks sold notes to elderly, poorly educated and mentally ill people, and investors have held almost nine months of daily street protests claiming the securities were marketed as low risk.

Martin Wheatley, chief executive of the Securities and Futures Commission, declined to comment on whether the commission has received any proposal from the banks when probed by lawmakers at a public hearing Friday. Clarina Man, a spokeswoman at BOC Hong Kong, also declined to comment.

Financial institutions may suffer losses of as much as HK$1.5 billion in the proposal, Friday’s Sing Tao report said.

Compensation paid

Sun Hung Kai Financial Ltd. and KGI Asia Ltd. finished buying back notes they sold at prices equal to the principal invested, the SFC said on Thursday. The two local brokerages are the only minibond vendors who have fully refunded investors, with Sun Hung Kai paying about HK$86 million and KGI about HK$1.5 million.

The securities watchdog is unlikely to accept the banks’ proposal, according to yesterday’s Sing Tao report. The SFC is demanding that banks follow Sun Hung Kai and KGI and repay the full principal, Sing Tao said.

Separately, the Hong Kong Monetary Authority, the city’s de facto central bank, will send 68 reports on its investigation into banks’ selling method to the Legislative Council before July 15, Raymond Ho, chairman of the committee set up for investors’ minibond complaints, told reporters at a briefing Friday.

Source: Bloomberg