Saturday, July 25, 2009

SCMP:Lehman inquiry to call SFC chief again

25 July 2009

The Legislative Council subcommittee investigating the Lehman Brothers minibond debacle will again summon the head of the Securities and Futures Commission to explain the HK$6.3 billion deal to repay thousands of investors.

Speaking after a closed-door meeting yesterday, the subcommittee's chairman, Raymond Ho Chung-tai, said it decided to summon the regulator's chief executive, Martin Wheatley, for an open hearing as early as Friday or early next month.

"It's because after announcing the repurchase proposal, we need to understand the deal thoroughly {hellip} and ask about the terms, which are unclear," Mr Ho said.

The 16 banks that sold Lehman Brothers minibonds will send letters to investors early next month, and investors will have 60 days to decide whether to accept the deal.

Mr Ho said the legislators therefore hoped to hold the hearing as soon as possible to obtain more information about the repurchase arrangement. The subcommittee also decided that Financial Secretary John Tsang Chun-wah would be the next to be summoned, Mr Ho said.

The SFC announced on Wednesday the HK$6.3 billion buyout deal, which covers 29,000 investors of Lehman Brothers minibonds.

Under the agreement, those who are over 65 years old will get 70 per cent of the value of their initial investment back, while those below 65 will get 60 per cent back. They will receive at least a further 10 per cent of their initial investment from the residual value of the collateral. Despite their name, minibonds are not corporate bonds but credit-linked derivatives whose worth depends on the health of the underlying assets.

Mr Ho said the subcommittee members had also agreed to extend the area of investigation to include investors' protection, the complaint mechanism and the penalty system for any violation of the law during the selling of financial products.

The subcommittee chairman reiterated that the agreement would not interrupt the subcommittee investigating the matter.

"Unlike previous Legco inquiries, this time the incident is developing and we need to make plans accordingly. But it will not halt our investigation," he said.

Although the subcommittee decided earlier to take a break next month, Mr Ho said that as a result of the latest development, meetings would continue during the summer as long as there were enough lawmakers on hand.

"A lot of members have told me they won't be in Hong Kong in August. But because this is something which has got very wide public attention and interest, we will try our best to find enough members," he said.

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