StanChart in HK$1.48b Lehman buy-back

PUBLISHED : Wednesday, 02 March, 2011, 12:00am
UPDATED : Wednesday, 02 March, 2011, 12:00am

Standard Chartered will pay HK$1.48 billion to buy back the HK$2.19 billion worth of outstanding Lehman Brothers derivative products it sold.

The move marks a big step forward in resolving disputes over the sales of the soured investment products.

The repurchase scheme covering 95 per cent of the outstanding transactions in Lehman Brothers-issued Equity Linked Notes (ELN) held by Standard Chartered customers was announced yesterday by the Securities and Futures Commission and the Hong Kong Monetary Authority.

ELNs are debt instruments that base their performance on the return of the underlying equity. They are not minibonds but a similar type of credit derivative.

Earlier, 16 banks offered to buy back Lehman Brothers-issued minibonds from about 25,000 investors. Some people who bought Standard Chartered ELNs at the time argued that they should also get a similar buy-back package. The two regulators said they were concerned Standard Chartered may have exposed Lehman Brothers customers to higher levels of risk than appropriate.

'Intermediaries have an obligation to ensure suitability when making a recommendation or advising on securities. Assessing the right level of concentration is a necessary part of the suitability assessment,' SFC chief executive Martin Wheatley said.

Under the repurchase scheme, Standard Chartered agreed to offer a discounted price for the Lehman Brothers investments relating to each customer's total assets held at the bank. The bank, however, does not accept it committed any wrongdoing over the sale of the ELNs. It said the buy-back offer was made in the interest of its customers and Hong Kong's financial system.

The offered price is equal to an investor's investment in the ELN minus 5 per cent of his total assets in the bank if he bought ELNs in which the principal was not protected. For those with principal-protected ELNs, it would be 10 per cent. That means those who bought the principal-protected scheme would receive less than those who bought the other.

Some 2,234 customers hold 2,515 outstanding Lehman ELNs. Only about 3 per cent of them are holding principal-protected ELNs.

David Webb, a campaigner for better corporate governance, said investors should study buy-back options carefully. 'The bank is not paying 95 per cent of the value of the Lehman Brothers products,' he said.

Webb expected many customers would take the offer as there were not many options available. 'And I think such a formula would very likely be used by other banks. The banks would like to put the problems behind them and move forward,' he said, adding that the saga had dragged on for too long.

Standard Chartered sold more than HK$5 billion worth of Lehman ELNs from August 2006 to June 2008 of which HK$2.19 billion worth remains outstanding.