He Guangbei China Daily

Hong Kong banks will buy back the soured investment products guaranteed by collapsed US investment bank Lehman Brothers from holders at market value, as proposed by the government, the Hong Kong Association of Banks (HKAB) said yesterday.

A task force arranged by the association had appointed accounting firm Ernst & Young as the independent financial adviser for the buyback process - including re-valuation of the products - HKAB Chairman He Guangbei told reporters after a meeting with the Hong Kong Monetary Authority (HKMA).

"As the market situation is volatile, the task force wants to assist Lehman minibond holders, as it's very difficult to wait until the end of the (company's) liquidation process," He said.

Linus Yip, a strategist at First Shanghai Securities, said bond holders might be unmoved by the announcement because the association didn't specify at what price the products would be purchased from investors, and officials said that determining the prices would take time.

"Investors are unlikely to get back 100 percent of what they have banked; the value of those minibonds is shrinking in the second-hand market. But the buyback of bonds sold by illegal selling practices will be an exception," Yip said.

He said the price should be decided according to a methodology acceptable to banks. Hong Kong's government had proposed a way to let investors recoup some of the losses from a reported $2 billion in securities linked to failed bank Lehman Brothers.

"We are still working on a timetable with independent financial advisers," He said. "For the time being, I don't have a deadline."

"I believe banks will handle the problem as quickly as possible, but everyone needs to understand it takes time to estimate the value and design the buyback procedure," said Chan Ka-keung, secretary for financial services.

The agreement with the HKMA marks a big step forward in the process to resolve compensation demands by Hong Kong investors.

More than 40,000 Hongkongers had bought Lehman-related investment products through banks, with the total outstanding value of the products estimated at HK$20.2 billion, according to the HKMA, which is the territory's de facto central bank.

The majority of the investments, about HK$12.6 billion, are minibonds.

The authority has received more than 12,000 complaints related to Lehman Brothers investments.

Minibonds are designed for individuals. As little as $5,000 had to be invested in the Lehman bonds for each hand, prospectuses show, compared with $100,000 for each hand for most bonds sold to institutional investors.

Two banks were referred for possible sanctions as part of an investigation into misleading sales tactics in connection with Lehman Brothers investments, the HKMA said.

The authority sent securities regulators 24 cases involving allegations of misconduct and "misselling" against the lenders.

(HK Edition 10/18/2008 page2)