Have the banks learned their lesson after minibond fiasco?

PUBLISHED : Tuesday, 29 March, 2011, 12:00am
UPDATED : Tuesday, 29 March, 2011, 12:00am

Sixteen Hong Kong banks on Sunday offered to pay back Lehman minibond investors up to 96.5 per cent of their investments. While this may provide some relief to those who got burned with minibonds, it fails to address the questions about mis-selling in the banking industry that refuse to go away.

The latest offer follows the banks' July 2009 proposal of a repurchase scheme whereby those accepting the terms could recover 60 to 70 per cent of their initial investment.

Minibonds crashed when Lehman Brothers went bankrupt in the early days of the financial crisis in September 2008. Banks have since paid back about HK$5.2 billion to customers who complained they were misled by bank staff about the risk levels associated with the minibonds.

Legislator Chim Pui Chung said investors should accept the new offer, drawing parallels with investment in HSBC before the crisis. HSBC stocks were trading around HK$140 before the crisis and are now hovering around HK$80, having lost more than 40 per cent.

The latest offer from the banks, however, does not constitute a healthy trend as it means alleged malpractices can be compensated with monetary settlements.

Will all individuals and small brokers who have committed malpractices in the past now be allowed to wash away their sins using money and allowed to carry on as if nothing happened?

In handling complaints of alleged misconduct, the Securities and Futures Commission has, in the past, settled some cases with brokers, but at the same time pulled them up and forced them to conduct internal reviews and make improvements where necessary. We have not seen the same approach concerning the banks.

The central question in the minibond saga remains unanswered: did banks really mislead their clients? Not just minibond investors, but everybody in Hong Kong wants to know the answer as it is fundamental to the reputation of the institutions we trust our money with.

Have banks taken any lessons from the minibond experience? The Hong Kong Monetary Authority stipulated they must introduce measures to protect investors, including segregating commercial banking and securities investment businesses. Mystery shoppers were also sent out to check on banks and brokers.

But the hard sell culture has barely been dented. Every time White Collar swings by a bank for a simple transaction, the teller goes through the accounts and launches into a detailed sales pitch for insurance policies or other products where money would be better spent.

This clearly is an invasion of the customer's privacy. When all the customer wants is to renew a time deposit and has not asked for any information on any other investment product, why does she have to listen to a sermon on the flavour of the month?

Banks also deploy poorly trained and ill-equipped outsourced personnel for products and loans promotions. This does serious damage to banks' reputations as most people appointed to make these telephone sales are out of their depth. They crack and reveal the real cost of the loans when subjected to the lightest of grillings.

Many of these callers are salespeople who need to meet their quotas to keep their jobs. The choice between keeping one's job and protecting customers is a no-brainer, one would think.

The minibond fiasco did lasting damage to the banks' reputations and brought their flawed sales tactics into sharp focus. Putting money back in the pocket of angry investors might lessen the protests on the streets, but won't restore the trust they have lost.