The Standard:Minibonds saga hurts Yam

24 Feb 2009

Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong said he is sad that the reputation of Hong Kong banks has been tarnished by the Lehman Brothers minibond fiasco, which remains unsettled.

``What banks are doing in their banking business has been acceptable and the banking system is rather robust,'' Yam told legislators yesterday. ``Only this issue has left them with a black mark, and I feel very distressed.''

However, he revealed that in early 2008 some banks did not follow the HKMA's guidance to adjust the ratings of investment products when they turned more risky.

Abraham Shek Lai-him, who sits on Legco's financial affairs panel, accused the banking regulator of failing to warn Lehman minibond investors.

``If you already knew there were problems, why didn't you remind the more than 30,000 investors about redeeming the products when they became high risk from low risk in 2008?''

Yam responded: ``As a regulator ...we can never warn that a specific product or a specific financial organization is not doing well and [ask investors to] sell their products right away. How can we do that? It's not possible.''

He said the HKMA told banks they must inform clients when the rating of a certain product has changed.

Civic Party legislator Ronny Tong Ka-wah lashed out at regulators. ``It's unbelievable that you still can't tell if any bank broke the rules after investigating for five months.''

Secretary for Financial Services and the Treasury Ceajer Chan Ka-keung replied: ``It may harm the investigation results if we release the report before the Securities and Futures Commission completes its investigations.'' Yam added that some Lehman investors could not provide enough information for investigation.

He also said banks have generally agreed with the proposal to physically segregate ordinary banking and securities business.

Chan said the government is studying whether to boost the SFC powers to punish financial institutions engaging in improper marketing practices.