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Lehman Brothers

Citibank buys back Lehman notes

PUBLISHED : Saturday, 09 July, 2011, 12:00am
UPDATED : Saturday, 09 July, 2011, 12:00am

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Citibank (Hong Kong) yesterday said it would buy back equity-linked and market-linked notes issued by Lehman Brothers at 80 per cent of the value of each eligible client's investment.

Eligible clients exclude professional or experienced investors and holders of corporate accounts.

The total value of Citibank's buy-back offer is estimated at HK$1.06 billion, covering about 92 per cent of its customers holding the notes.

There are more than 1,400 people holding these outstanding Lehman notes in Hong Kong.

'It's not the greatest [deal] but better than nothing,' said Phillip Khan, a vice-chairman of the Alliance of Lehman Products Victims.

People were exhausted and frustrated after three years of protests, Khan said. The products in question and other derivatives, including minibonds, lost most or all of their value when Lehman Brothers, a US investment bank, went bankrupt in September 2008.

The bank said it was 'making this offer in the best interests of our clients without admitting any liability'.

Under the scheme, Citibank will also pay clients who have settled with the bank earlier but would otherwise be eligible for the repurchase offer. The bank will pay the difference if they received less than the current offer. Citibank has been settling with clients individually on terms that it says are confidential.

The new offer price will exclude the interest already paid but include an additional amount representing the interest that would have been earned if the amount invested in the notes had been put in a Citibank fixed-term deposit.

The buy-back offer follows an agreement between Citibank, the Securities and Futures Commission and the Hong Kong Monetary Authority to settle the issue.

'This outcome is a demonstrably good one for affected customers and brings the matter to an appropriate conclusion,' Alexa Lam, the SFC's acting chief executive, said.

Arthur Yuen Kwok-hang, a deputy chief executive of the HKMA, said the regulator welcomed the resolution, and that 'eligible customers are encouraged to consider the offer positively'.

Between March 2007 and June 2008, Citibank distributed 19 series of market-linked notes and 52 series of equity-linked notes. Market-linked notes were structured notes with a tenor of 21/2 years to four years and nine months, while equity-linked notes had a tenor of eight months to one year. The potential return of both types of notes was linked to the performance of underlying equities, such as a basket of stocks traded in Hong Kong.

Citibank sold only equity-linked and market-linked notes, and was not among the 16 banks that sold Lehman minibonds. Those banks agreed in March to pay investors up to 96.5 per cent of their investments.

Standard Chartered agreed earlier this year to buy back HK$1.48 billion worth of outstanding Lehman derivative products it sold. The repurchase scheme covered 95 per cent of the outstanding transactions in Lehman-issued equity-linked notes held by the bank's customers.

$15.7b

The value, in Hong Kong dollars, of the 'guaranteed minibonds' bought by more than 43,700 city investors. Many said they were mis-sold