Team agrees on minibond buy-back formula

PUBLISHED : Tuesday, 04 November, 2008, 12:00am
UPDATED : Tuesday, 04 November, 2008, 12:00am

A taskforce set up to asses the value of Lehman Brothers derivatives has decided on a formula for calculating the buy-back cost of minibonds.

Ann Kung, chairwoman of the taskforce, formed under the Hong Kong Association of Banks (HKAB), said member banks and the government had agreed on the formula, proposed by accounting firm Ernst & Young. The government welcomed the decision.

Roger Tam Kwok-wah, press officer to the Secretary for Financial Services and the Treasury, said: 'This reflects they are making good progress.

'We understand that HKAB will continue to work vigorously on the details so they can go ahead with the buy-back in December.'

The decision on the formula meant that holders of all failed derivative products, and not just some of them as previously thought, would know how much banks would pay to buy them back by the beginning of next month, sources said.

The formula would take into account the risk factor, they said, referring to any possible further devaluation that could occur after the valuation was made.

Some 43,700 Hongkongers invested HK$15.7 billion in minibonds and other high-risk derivatives linked to Lehman Brothers. Most of their investments became worthless when the US investment bank collapsed on September 15 and thousands of investors claim they were misled by the banks that sold them.

Minibonds are high-risk, credit-linked derivatives sold as proxy investments in well-known firms.