Wednesday, November 12, 2008

SCMP:Legco probe best hope for minibond mess

12 Nov 2008
Chris Yeung is the Post’s editor-at-large.

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.


Anonymous said...

If the banks have nothing to hide, why do they fear investigation by the authorities ? And why does probing too deeply into the operation of the banks will damage business confidence ? It just goes to show the banks wants to hide their dirty laundry from the public.

Anonymous said...

I totally agree that by probing more into the operations of the banks in how they come about issuing and distributing these toxic products will benefit the financial industry in the long term. With that the public will then eventually "open your eyes" whenever they walk into a bank in the future. ie. "listen to them at your own risk" .Unless the banks admit that they are doing something very unethical and unprofessional, they should not be afraid to face any fair inquiry. I will support any class action against the FI that I have bought the minibond from if there is one.

Let us just forget about whether our current leaders will help us in this issue. The people sitting at the top are new generations of "scholars". Most of them come from well to do and educated families. Never in their life they have ever got to face difficulties and hardship like us commoners in the street. Obama in his victory speech say that US has been wrong in allowing Wall Street to prosper while the Main Street suffer. Our leader have the same upbringing as MR Bush and is currently doing what the bush administration is doing for the last 8 years. Singapore is going in the wrong direction and the worst thing is that we might come out worse then US in the future because there is less checks on the decisions and policies granted to us here. Quoting from MM, "I would let you decide on your next choice of your MPs" when the time is due.



Anonymous said...

If the banks have done no wrong, why are they afraid of facing the legco. What so secretive about packaging a Lehman-related product?

My hunch is that there are many unethical things (although legal)in the packaging of minibond. The exposure will surely put the banks in bad light and force the Government to come out more regulations to keep those C*Os in check. Something like Sarbin-Oxley bill for the collapse of Enron.

Anonymous said...

Does this apply only to investors in Hong Kong? Is there a way that Singapore investors can take the same path, so as to drive the Singapore banks to choose either to compensate all Singapore investors, or face the prospects of having to wash some dirty laundry in public?

Anonymous said...

"Theres nothing to investigate if theres nothing to hide, isnt it"

I will leave YOU to decide WHO might actually say that.

Anonymous said...

HK to launch probe against banks in Lehman saga
11.12.08, 10:00 AM EST

HONG KONG, Nov 12 (Reuters) - Hong Kong lawmakers voted late on Wednesday to invoke special powers for a probe into alleged misconduct by banks who sold investors failed Lehman Brothers investments, as pressure built on such banks for compensation.

The city's legislature voted after a marathon half-day debate to invoke sweeping and rarely used powers to investigate 21 banks alleged to have misled investors over failed Lehman Brothers investments, which could force top bankers and officials to testify, and banks to disclose commercially sensitive information.

40,000 Hong Kong investors ploughed nearly $2.5 billion into failed Lehman-linked structured products and mini-bonds, with many accusing the banks of duping them into buying what they thought were low-risk products.

While Hong Kong banks initially agreed to buy back Lehman-issued mini-bonds at market value, some banks like DBS recently deemed such notes to be almost worthless, angering many of the burnt investors.

A small number of investors have reached settlements with a few banks, but the bulk of claims remain unresolved or pending, with neutral arbitrators having been called in to mediate disputes.

Hundreds of investors, including many elderly retirees protesting outside the legislature cheered the move.

Lucky Hong Kong Lehman Investors.

Anonymous said...

Legislators across the political divide came together last night to pass a controversial motion to evoke the Legislative Council (Powers and Privileges) Ordinance to investigate the minibond debacle.

More than two-thirds of the 56 members present - 20 from the functional constituencies and 27 from the geographical constituencies - voted in support of the motion.

Three functional constituency lawmakers voted against it and four abstained. Independent Regina Ip Lau Suk- yee was the only geographical constituency member to vote against it.

Raymond Ho Chung-tai, engineering-sector lawmaker and chairman of the Lehman minibond saga subcommittee, left the chamber during voting, which came after more than eight hours of debate with 37 legislators expressing their views.

The Hong Kong Association of Banks last night said it respects the Legco decision and will cooperate with the investigation.

A motion by Democrat Lee Wing-tat to ban banking-sector lawmaker David Li Kwok-po from voting as he had "direct pecuniary interest" was withdrawn after other pan-democrats showed disapproval.

Li, in "mourning" in a black suit with white handkerchief, said he knew his attempt to persuade lawmakers to reject the motion would fail after the Democratic Alliance for the Betterment and Progress of Hong Kong pledged to support the motion.

Democratic Party lawmaker Kam Nai-wai said closed-door meetings may be ar
ranged if sensitive issues are involved. Fellow party member Cheung Man-kwong said it is not uncommon for senior executives to answer questions in US congressional hearings, and nobody has questioned New York's status as an international financial center.

"Long Hair" Leung Kwok-hung, of the League of Social Democrats, said turning down the motion would be tantamount to allowing banks a "black-box operation."

"When we are in a war, we need the best weapon," tourism sector lawmaker Paul Tse Wai-chun said. "That's why we need the special power."

DAB lawmaker Starry Lee Wai-king said principal officials under the accountability system have so far refused to hold dialogue with the minibond investors, but found time to entertain bankers.

Chief Executive Donald Tsang Yam- kuen said he hoped the Legco probe will not delay measures tailored for Lehman investors, and will not have a negative impact of Hong Kong as an international financial center.

As the motion was passed, around 60 investors of failed Lehman minibonds cheered and shook hands with legislators.

Earlier, Liu Heung-loi, 61, kneeled down and wept outside the building, pleading with legislators to vote for the ordinance. Liu, who is illiterate, said she invested HK$300,000 in minibonds.

However, opinions remained divided as lawmakers voted. Peter Wong Yee- wai, executive director of the Lion Rock Institute, a free-market think-tank, said the probe would be a step backward in resolving the case.

"Legislators are taking the role of the Judiciary and that's just not logical," he said.

Anonymous said...

10:58AM reported : "DAB lawmaker Starry Lee Wai-king said principal officials under the accountability system have so far refused to hold dialogue with the minibond investors, but found time to entertain bankers".

Same in S'pore., MAS refused to hold dialogue with Mr. Tan Kian Lian and investors but found time to entertain bankers !

Anonymous said...

"MAS refused to hold dialogue with Mr. Tan Kian Lian and investors but found time to entertain bankers !"

Don you understand??

One is Prospect. One is Sold.

Blog Archive