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Hong Kong Monetary Authority (HKMA)

Minibond saga drawing to a close

PUBLISHED : Monday, 04 June, 2012, 12:00am
UPDATED : Wednesday, 06 May, 2015, 5:14pm

As the closing chapter to the Lehman Brothers minibonds settlement, about 3,000 people who invested in the four series of minibonds directly issued by Lehman Brothers will get up to 70 per cent of their initial investment.

But those who received 70 per cent or more of their investment from their banks in a 2009 settlement would not get any more because the value of the collateral of their minibonds was too low, according to a statement issued by 13 banks that sold the minibonds, including Bank of China (Hong Kong), Bank of East Asia and Fubon. Next month investors will vote on the deal, which needs 75 per cent approval to go ahead.

This means investors who invested in series 5,6,7 and 9 will receive less than those who had the other minibond series. They have been paid up to 96.5 per cent of their investment because their minibond series' collateral values were higher.

After this last four series of settlement, all banks will have completed settlement arrangements with all investors.

Investors reportedly lost about US$2.5 billion on minibonds offered by Lehman Brothers, which were issued or guaranteed by the US lender, and the products became almost worthless when Lehman collapsed in September 2008.

Despite the name, minibonds are not corporate bonds, but risky derivatives linked to the credit of listed companies.

More than 30,000 investors complained to the Hong Kong Monetary Authority and Securities and Futures Commission, accusing the banks of not telling them about the risks.

In 2009, the 16 banks that sold the minibonds agreed to a deal that would pay investors at least 60 per cent of their investment, or 70 per cent for investors over 65. At that time, the banks agreed to pay more to investors if they could recoup the collateral value of the minibonds.

In March last year, the 31,000 investors who bought series 10 to 36 minibonds got more from banks from the collateral. Most got back 80 to 90 per cent and the rest 96.5 per cent, depending on the value of the collateral.

The series 5, 6, 7 and 9 minibonds were handled separately because they were issued directly by Lehman Brothers. Series 1 to 4 and 8 had expired when Lehman collapsed.

PricewaterhouseCoopers, the receivers handling these last four series' collaterals, said their value represented about 30 per cent of the principal.

The receivers recommended the 3,000 investors agree to unwinding them to get the remaining value back to banks, which would then pay 10 per cent extra to investors who in 2009 received only 60 per cent.

Legislator Chim Pui-chung, who represent brokers, said while the Lehman minibonds settlement was finally completed, the regulators could not escape their responsibility.

Legco this week will receive a report on the Lehman Brother minibond saga.

'The HKMA has obviously failed in its duty to regulate how banks sell the investment products to investors, as reflected in the minibond saga. This has hurt the confident of the investing public and the monetary authority needs to tighten regulation on banks,' Chim said.


The number of investors who complained to the HKMA and SFC that banks had not told them about the risks