The Standard:BOCHK, regulator reach minibond impasse

23 June 2009

Talks between Bank of China (Hong Kong) (2388) and the Securities and Futures Commission have stalled over how much Lehman minibond investors should be compensated despite nearly two months of discussions.

BOCHK will not accede to the regulator's demands that it pay back 100 percent of the purchase value of the toxic investments and is suggesting a maximum offer of 70 percent, sources said.

Peter Chan Kwong-yue, chairman of the Allied Victims of Lehman Products, said he is disappointed by the development and demanded BOCHK take responsibility.

``They did not even show they felt sorry for the situation and it is not acceptable to just pay back 60 percent,'' he said.

Investors aged 65 or older would get up to 70 percent of their capital back. Everyone else would be offered 60 percent. Both offers are on the condition that BOCHK does not accept liability for misselling of the toxic products.

The government has no intention of intervening, The Standard has learned.

A government spokeswoman said: ``We hope the matter can be resolved as quickly as possible.''

BOCHK, the city's largest distributor of Lehman minibonds products in Hong Kong, has submitted a proposal to the SFC and is awaiting its response, sources said.

BOCHK's proposal was based on the government's buyout plan submitted last year with an ``additional premium,'' a source said.

The administration last November suggested banks refund 55 percent of the principal on all minibond products but this proposal was scrapped for legal reasons.

The SFC has insisted on pursuing the same 100 percent rebate for investors that it has already negotiated with Sun Hung Kai Investment and KGI Securities.

BOCHK led minibond sales in Hong Kong with 40 percent of the market. Dah Sing Financial was the second-biggest seller of the structured products, according to research.

BOCHK's settlement will set a precedent for other banks' negotiations with the SFC.

Its 60 percent proposal will cost it HK$2.52 billion, according to Citigroup Global Markets, while paying back 100 percent would cost HK$4.2 billion.

It has so far set aside HK$769 million in provisions.

Dah Sing Financial sold about HK$1.1 billion in Lehman minibonds. So far it has put aside HK$300 million in provisions, according to Citi.