BOC Hong Kong Holdings Ltd and 15 other banks agreed to pay at least 60 cents on the dollar to investors in notes linked to failed Lehman Brothers Holdings Inc after a 10-month dispute that stirred street protests and forced lenders to change the way they sell investment products.
The banks will repurchase the so-called Lehman minibonds in two stages, Securities and Futures Commission Chief Executive Martin Wheatley said at a press conference on Wednesday. The total compensation will amount to about HK$6.3 billion ($813 million), said central bank Deputy Chief Executive Y K Choi.
Hong Kong, where banks sold $1.8 billion of the notes, is an example of how the financial devastation resulting from Lehman’s September 15 bankruptcy rippled across the globe. As the securities plunged and allegations of mis-selling mounted, citizens who lost their savings took to the streets and lawmakers scolded the heads of the city’s central bank and securities watchdog in public.
The minibond debacle “exposes the problems with both the regulations and banks’ selling methods,” Peter Wong, head of the Hong Kong unit of HSBC Holdings Plc, said in a July 13 interview.
HSBC, the biggest bank in Hong Kong by branches, and its local subsidiary, Hang Seng Bank Ltd, didn’t sell the notes.
Note buyers will receive at least 60 per cent of the principal, Wheatley said. About 29,000 minibond investors are eligible for compensation. Banks’ losses related to the refunds are “difficult to estimate,” Choi said.
Beyond the 60 per cent floor, refunds will depend on how much collateral banks can collect from Lehman’s liquidators.