SCMP:How swift lobbying ended a dispute that had dragged on for 10 months

23 July 2009

A 20-day lobbying effort by government officials and bankers has ended a 10-month dispute between banks and investors over settling the Lehman Brothers minibonds issue.

"The past 10 months have been very tough - especially the last 20 days," a banking source said.

The 16 lenders yesterday sealed the HK$6.3 billion agreement with the Securities and Futures Commission and the Monetary Authority to pay back 29,000 investors.

The SFC, the HKMA and banking sources all denied that political pressure forced the agreement, although the Legislative Council is questioning the heads of both regulatory bodies and bankers over more than 20,000 complaints from investors about the conduct of banks in selling the minibonds.

Shortly after Lehman Brothers collapsed last September, the government proposed that banks buy back minibonds from investors - similar to the current agreement. But it took 10 months for the deal to unfold, as banks were initially concerned that it might attract legal challenges from the liquidators of Lehman Brothers.

Since then, the SFC persuaded two brokers - Sun Hung Kai Financial and KGI Asia - to repay investors fully. But until yesterday, it had yet to clinch a deal with the 16 banks that sold the minibonds.

The turning point came only 20 days ago, after Bank of China (Hong Kong) came up with an agreement similar to the deal agreed yesterday. Then the other 15 banks joined forces to negotiate with the SFC as a group.

Bankers said the sector's legislator, David Li Kwok-po, chairman and chief executive of the Bank of East Asia, was one of the most active in lobbying the SFC and the HKMA to accept the deal.

"This is the best deal possible, with the greatest sincerity from the banks. There is upside and no downside in this deal," one banker said. "We want to leave this all behind us, to move on and look forward."

Secretary for Financial Services and the Treasury Chan Ka-keung said: "I hope the settlement scheme {hellip} will help investors return to their normal lives."