SCMP:Legco probe best hope for minibond mess

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12 Nov 2008
Chris Yeung is the Post’s editor-at-large. chris.yeung@scmp.com

Two days ago, before the scheduled Legislative Council vote today on whether to invoke special powers to investigate the Lehman Brothers minibonds saga, local banks mounted a counter-lobbying drive. In full-page newspaper advertisements on Monday, they stressed their commitment to “offering practical, transparent and fair solutions” to address the difficulties faced by more than 40,000 Hong Kong investors affected by Lehman’s demise.

It did not mention the Legco vote, but the writing is on the wall: the last thing they want is to be summoned to the legislature to give evidence on the Lehman case.

Also on Monday, finance functional constituency legislator David Li Kwok-po urged members to vote down the motion. He warned that, if it were passed, it would allow Legco to exercise “unlimited” powers over banks. It would set a bad precedent and might undermine the status of Hong Kong as an international financial centre, he added.

Banks, he said, would also have to stretch their resources for the Legco hearings at the expense of handling the buy-back efforts.

Privately, senior government officials have cautioned that a Legco inquiry would “put banks on public trial”.

If an inquiry goes ahead, banks might put the buy-back process on hold, according to one official. Banks fear they would be under pressure at the public hearings to divulge details of their business strategies and practices, the official said.

In view of the quasi-judicial nature of an independent inquiry and the style of Legco politics, their fears may be justified.

There is no denying that such an inquiry would further complicate matters and raise more uncertainties about the minibonds row. It may create tension that is not conducive to mediation and arbitration.

But, while the arguments against an inquiry carry some weight, the case for an investigation should not be dismissed lightly.

From a broader perspective, a full Legco probe could arguably help the banking industry, whose image has been tarnished by allegations of fraud, at worst, and misselling, at best, over the sale of Lehmanrelated products.

It would also allow the Monetary Authority and the Securities and Futures Commission, as well as the relevant policy bureau, to give detailed accounts of their respective roles and responsibilities.

Doing so would help set out a full picture for the affected investors and the general public so they could judge who, if anyone, should take the blame. More importantly, the investigation process would help identify faults in the regulatory system and make recommendations for improvement.

With their reputations at stake, there is no reason to believe banks would deliberately stall resolving this dispute because of a Legco inquiry.

Now that independent experts are tasked with assessing the value of the products, investors should feel assured that the findings would not be affected.

In view of the demise of Lehman and the plunge in the value of its investment products, a considerable number of the 40,000plus affected investors might not get what they want from the buy- back exercise. A feeling of injustice may prevail. If left unattended, their grievances could turn to anger and feelings of betrayal.

Undoubtedly, an early settlement between banks and investors is important. But, as the row has already damaged the authority and credibility of political and financial institutions, failing to seek a solution through a fair and open inquiry would be unjust.

The media and the public should ensure that Legco’s investigative powers do not go unchecked, to minimise any unintended consequences – such as probing too deeply into the operation of banks, or damaging business confidence.