The Standard:Banks facing China claims

21 July 2009

Hong Kong bankers still trying to calm Lehman Brothers minibond investors are likely to face a second wave of claims _ this time from mainlanders.

The banks are expected to reach agreement with the Securities and Futures Commission this week about their settlement with local minibond clients, sources said yesterday.

But a group of mainland accumulator investors will hold a press conference in Hong Kong this week to seek compensation from Hong Kong banks, according to Sing Tao Daily, sister publication of The Standard. ``Some of the victims in our group have started litigation. We will fight against unscrupulous banks until the end,'' a representative of the group said in an e-mail.

Protection of Investors Association president Lui Chi-wah said Hong Kong banks have been promoting high-risk accumulator products in the mainland. Lui predicts the banks will face claims from investors who made losses.

State-run China Central Television ran two episodes recently on how Hong Kong banks sold accumulators to mainland investors. The investor group has set up a website to attract more people. Meanwhile, the 16 banks which sold Lehman minibonds have reached a tentative compromise with the SFC as they are reportedly willing to repay more of the collaterals sold. It was earlier reported that the banks agreed to pay investors 60 percent of the principal. On top of this they may now repay investors 30 percent of the value of collaterals sold, sources told Sing Tao Daily.

Assuming an investment of HK$100, banks will repay HK$60 plus an extra HK$21 if the collaterals are worth HK$70, taking the total settlement amount to HK$81.

A source said the Bank of China HK (2388) and Standard Chartered Bank (2888), the two largest lenders involved in minibonds distribution, were among the lenders seeking more time to agree on a compensation formula.