Competition, strong investment sentiment and relaxed regulation may explain why 16 banks sold Lehman Brothers minibonds.
Banks sold them so aggressively because they were under pressure from competitors to expand their fee income - revenue from commission earned by trading stocks for investors or selling investment products for investment banks or fund companies.
Mandy Lam, managing director of OSK Securities, said wealth management businesses had expanded quickly in recent years and competition was intense.
'As the traditional lending business suffered from severe margin pressures, fee income became a major earnings driver,' she said. 'But their aggressive sales techniques backfired and it will take time for investors to regain confidence.'
Some smaller bankers found it hard to compete with the big players in the lending business and lacked the resources to develop their own investment products, so they opted to sell products for investment banks, such as Lehman Brothers.
But as the minibonds fiasco showed, many banking staff did not fully disclose the risks to clients. In fact, many staff did not fully understand the products themselves.
Chim Pui-chung, the legislator for brokerages, said relaxed regulation on banks' securities business was a key reason why so many banks aggressively sell risky products.
