Critics want tougher rules after Lehman Brothers buy-back deal

PUBLISHED : Thursday, 03 March, 2011, 12:00am
UPDATED : Thursday, 03 March, 2011, 12:00am

Standard Chartered's decision to buy back Lehman Brothers-linked derivative products may have pleased affected investors, but critics have urged the government to keep a tighter rein on the city's banks to prevent any repeat of the incident.

Standard Chartered has agreed to spend HK$1.48 billion to buy back most of the outstanding Lehman-issued Equity Linked Notes (ELN) it had sold, the Securities and Futures Commission and the Monetary Authority announced on Tuesday.

Most ELN buyers appeared satisfied with the arrangement, but lawmaker Kam Nai-wai, of the Democratic Party, said the government needed to tighten the regulatory regime so retail customers would not be exposed to inappropriately high risks in future.

'We must look into whether it is appropriate to sell such complex and high-risk financial products to the general public through retail [outlets]. If it is, we must regulate how they sell them,' he said.

The two regulators said they were concerned Standard Chartered might have exposed Lehman Brothers customers to higher levels of risk than appropriate.

Elsie Ho, who invested HK$1million in ELN from Standard Chartered, may be able to get back about HK$800,000.

But this would depend on whether the bank considered her a retail customer, rather than a professional investor or a customer of its private banking division. Only retail investors are eligible for the buy-back scheme. Ho said she was not sure which category she would be put into. The bank's announcement this week did not spell out the criteria it would use.

'This is definitely good news, if the bank can be clearer on who is what,' Ho said.

'I received the money from my family in Canada in July 2008 and the bank staff noticed and quickly and strongly persuaded me into buying it,' she recalled. 'Then within three months Lehman collapsed and my money turned into dust.'

She urged the government to keep an eye on what the banks did because 'they can do pretty much anything they want'.

Most investors will get back the amount they put into the ELN, minus 5 per cent of their total assets in the bank. For those with principal-protected ELNs, the deduction would be 10 per cent. Only about 3 per cent of the bank's ELN investors own principal-protected products.

Eddy Chan Ho-wai, 51, chairman of Allied Victims of Lehman Products, said victims wanted to know why some investors would get more money than others from the scheme.

'This is unreasonable because those who bought the principal-protected one [did so] for the safety. Now they end up getting back less than those who took a greater risk,' Chan said.

However, a spokesman for the SFC said the higher payout for holders of the unprotected products was reasonable.