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| No.4 July, 2009 |
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Agreement reached on repurchase of minibonds |
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 The Securities & Futures Commission, the Monetary Authority and 16 distributing banks have reached an agreement on the repurchase of Lehman Brothers minibonds.
The distributing banks will make an offer to repurchase all outstanding minibonds from eligible investors. During the first stage, they will buy back the minibonds at a price equal to 70% of the nominal value of the original investment from eligible investors at the age of 65 or more, and at 60% from those below 65.
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The banks will put commission payments received into a fund which will be used to cover legal costs and fees incurred in recovering the collaterals' value. Once the banks receive any recovery from the collaterals, they will pay eligible investors an additional amount as a second stage payment.
The vast majority of investors may be able to get back 70% or more of their original investments if they accept the repurchase package.
The banks also agree to make ex-gratia payments to eligible investors who have already entered a settlement with the banks if the amount is less than they would be offered under the repurchase scheme.
Repurchase costs HK$6 billion
The Monetary Authority said 29,000 investors will be eligible for the arrangements, adding the repurchase scheme will cost the banks more than HK$6 billion.
Investors will need to tell the banks whether they accept the offer. If they do the authority will terminate investigations into their cases.
Welcoming the agreement Financial Secretary John Tsang said it represents a reasonable settlement that has taken account of the interests and rights of the investors.
"The agreement will put an end to more than 10 months of distress for investors. It will also enable banks to resume normal operation."
Secretary for Financial Services & the Treasury Prof KC Chan said the repurchase offer covers more than 90% of the minibond investors. Those accepting the offer will be relieved of the delay and uncertainty in going though the liquidation process.
"The amount to be received under the repurchase offer scheme will be equal or higher than those obtained through liquidation of the minibonds," he said.
System review
The agreement also requires the distributing banks to appoint independent professionals to review the banks' internal control and systems, particularly the procedures for handling customer complaints.
"On the whole the settlement offers take into account investors' interest and regulatory objectives. It provides relief to thousands of investors and helps rebuild public confidence in the banking sector," Prof Chan said.
"I will continue to work with various stakeholders including the Legislative Council in exploring strategies and measures to further enhance investor protection and to improve our regulatory framework in Hong Kong."
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