Hong Kong Chief Talks Tough on Minibonds - Bravo

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16 Oct 2008
South China Morning Post
Joyce Man

The chief executive appears to be losing his patience with banks over their handling of minibonds linked to bankrupt US bank Lehman Brothers – insisting they respond swiftly to a government buy-back proposal and warning the administration may fund legal action by minibond investors.

“They cannot keep dragging on,” he said in a strongly worded message after delivering his policy address.

He said investors had waited for weeks and the Monetary Authority had found evidence of mis-selling by some banks.

“Considering this situation, I am now requiring that banks reply this week,” he said.
Financial Secretary John Tsang Chun-wah announced the proposal on Monday last week, and said banks had a week to respond.

His proposal is that banks which sold the minibonds buy them back at their current value.

Investors bought HK$12.7 billion of minibonds issued or guaranteed by Lehman Brothers. They face losing much or all of their investment. Many claim that banks and brokers mis-sold them as low-risk. In fact, minibonds are high- risk creditlinked derivatives.

A further HK$3 billion has been invested in similar, equity-linked Lehman derivatives.
Several banks have responded positively to the proposal, but none of the 16 banks that sold minibonds have publicly agreed to a buy-back. Many banks say they cannot respond until they have a valuation. A taskforce set up under the Hong Kong Association of Banks will assess the minibonds’ current value.

The Monetary Authority has received more than 9,200 complaints about the sale of complex derivatives. Mr Tsang said it would set up an independent panel to mediate with banks in cases where it finds evidence of mis-selling.

If mediation fails, the Consumer Council will help complainants apply to its consumer legal action fund, which provides help for joint lawsuits. Mr Tsang promised the government would inject money into the fund if necessary.

“It’s a positive step,” said one man who bought HK$10 million in minibonds. He would welcome a buyback as long as it left him free to pursue his bank for the rest of his money.

Mr Tsang also ordered the banks to communicate with the complainants yesterday.
One bank, DBS, has agreed to buy back similar complex derivatives once it has valued them. Citibank has agreed to full refunds if its inquiries prove mis-selling by any of its agents.