SCMP:SFC does not need to complete all minibond inquiries, chief say

8 July 2009
The Securities and Futures Commission did not need to conclude all the investigations into the 20,000 complaints by those who invested in Lehman Brothers minibonds to reach a deal with affected banks, its chief executive, Martin Wheatley, told lawmakers yesterday.

"We are working at the institutional level and looking at whether adequate systems and controls are in place to ensure they comply with the code of conduct. We don't need a conclusion on all the thousands of cases to reach a conclusion," he said.

"What our investigation is trying to do is to reach a conclusion for all of the banks' clients in one go."

Outgoing Hong Kong Monetary Authority chief Joseph Yam Chi-kwong has told lawmakers he hopes 70 per cent of the complaints can be dealt with by March.

The authority is investigating complaints about the way banks sold credit-linked derivatives, including minibonds, issued or guaranteed by Lehman, which collapsed during the credit crunch last year. The authority can refer cases to the commission if further action is warranted.
Minibonds are not corporate bonds, but high-risk, credit-linked derivatives. They are marketed as a proxy investment in well-known companies.

Testifying before the Legislative Council subcommittee probing the Lehman debacle for the fourth time, Mr Wheatley said investigations had dragged on for too long. He hoped banks would agree to settlement terms similar to those offered by Sun Hung Kai Investment Services last week.

The brokerage firm and KGI Asia settled with 329 customers by fully compensating them for their principal investments. The two firms are now entitled to a distribution from the underlying collateral of the minibonds, which is expected to offset a significant part of the buy-back costs.

"It is our hope that we can enter into such agreements with other banks that would achieve a much speedier outcome than the outcomes that we've talked about," Mr Wheatley said.

He said the commission had been in talks with affected banks about a possible deal.

Media reports have disclosed that 16 banks were offering to settle with minibond investors for about 60 per cent of their principal investment.

Investors aged 65 or above would receive about 70 per cent. This is similar to the Bank of China (Hong Kong)'s proposed settlement.

"We're involved in settlement discussions, which are supposed to be confidential, with a number of banks," Mr Wheatley said. "Specific details {hellip} have been leaked."