Hong Kong banks to buy back mini-bonds at market value

HONG KONG: Hong Kong banks on Friday agreed to buy back controversial "mini-bonds" linked to failed US investment house Lehman Brothers at market value, an industry spokesman said.

The extraordinary move came as regulators in the southern Chinese financial hub said they had referred 24 cases of possible mis-selling of the investment products to the Securities and Futures Commission (SFC).

Despite the banks' decision to back the government proposal, which has been criticised for contradicting the territory's laissez-faire economic policy, it remained unclear whether disgruntled investors would accept it.

"The task force... announced that the distributor banks involved have agreed to the buy-back proposal made by the (Hong Kong government) regarding the Lehman Brothers mini-bonds," the Hong Kong Association of Banks said in a statement.

"By accepting the government's proposal, the banks are offering assistance to mini-bond holders in this extraordinary market situation," the statement added.

The association had appointed accounting firm Ernst & Young to try and assess the bonds' market value, the statement said, but did not provide a timetable for when the issue would be resolved.

Thousands of investors have held protests across the territory in the past few weeks claiming the banks mis-sold the mini-bonds as risk-free investments, and lured vulnerable citizens into using up their life-savings.

In fact, the mini-bonds are complex financial products linked to a bundle of derivatives backed by Lehman's, and their value plummeted after the revered bank collapsed in September as a result of the turmoil in the global banking industry.

Investors here are estimated to have put 12.7 billion dollars (1.63 billion US) into the products.

It is not clear if the investors will accept the banks' proposals. Some had previously rejected the government's proposal, saying they should receive a full refund rather than the inevitably-reduced market-value sum.

The Hong Kong Monetary Authority (HKMA), the territory's de facto central bank, said Friday it had received more than 12,000 complaints about the bonds and was referring 24 cases to the SFC.

"The HKMA is satisfied that there are adequate justifications for referring them immediately to the SFC, which is the authority ultimately responsible for deciding whether a bank has been guilty of misconduct," a statement said.

"The SFC will review the evidence and will consult with the HKMA in determining what sanction, if any, is to be imposed."

The SFC could issue a public reprimand, fine the bank or suspend the seller's licence, the SFC said in a statement.

The HKMA said it had formally opened investigations into another 95 complaints and was seeking more information on 783 more.