HONG KONG, April 14 (Reuters) - Hong Kong's central bank chief on Tuesday said he had warned investors about the risks of buying derivatives long before Lehman Brothers collapsed, but revealed that Lehman minibonds had been ranked "high risk" by only half of the 16 banks investigated.
More than 40,000 Hong Kongers ploughed nearly US$2.5 billion into failed structured products, known as minibonds, offered by U.S. investment bank Lehman Brothers, which collapsed last September.
Hong Kong Monetary Authority Chief Executive Joseph Yam, answering questions on the sale of Lehman minibonds in the Legislative Council, said he had issued several warnings in the media from the middle of 2006 about the risks of investing in derivatives products. By June 2008, banks in the city were no longer offering the Lehman products, he said.
"In terms of forewarning of risk, I think we have done enough," Yam said. Investors, however, claim they were misled over the sale of the products, which were called "minibonds" but were actually complex derviatives products, and have demanded full compensation.
Yam admitted that in late 2007 three banks distributing the bonds had ranked them as "low-risk" investment products and another five banks were selling them as "medium risk".
That was partly because the products were less risky before the credit crisis spread in 2008, Yam said.
"The risk for CDOs (collateralised debt obligations) suddenly shot up," Yam said. "We warned the market ... It did not mean banks were wrong, it was just that banks did not respond in a timely manner."
Only two distributors, Sun Hung Kai Financial and KGI Asia Ltd, have agreed to compensate Lehman minibond investors so far.
A spokeswoman for Bank of China (Hong Kong) declined comment on media reports that the bank, the largest distributor of the Lehman products, was in advanced talks with the Securities and Futures Commission about compensating investors.
The HKMA and the Securities and Futures Commission have separately made recommendations on how to better protect investors, including forcing banks to separate their deposit-taking and retail investment businesses from the end of September at the latest.
Investors in Singapore and Indonesia have also lost money on the products.
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