HK Banks set up legal fund

Dec 18, 2008

http://www.straitstimes.com/Breaking%2BNews/Money/Story/STIStory_315885.html

HONG KONG - HONG KONG banks that sold financial products backed by collapsed firm Lehman Brothers will provide HK$100 million (S$18.6 million) for a potential US legal battle on behalf of investors.

The 18 banks will put up the cash to challenge claims by Lehman's US lawyers that any proceeds from a proposed buy-back scheme would have to be first turned over to liquidators and not investors, the Hong Kong Association of Banks said.

'The distributors (banks) are prepared to provide finance to the trustee of up to US$100 million to assist it in the performance of its duty to protect the interests of investors,' the association said in a statement released late on Wednesday.

The move is the latest twist in the saga over compensation for thousands of Hong Kong investors who bought the so-called minibonds on the understanding their money was safe.

The collapse of Lehman Brothers in September meant the value of their investments dropped dramatically, which sparked protests across the city from investors who say they were missold the products.

The financial hub's government and the banks who sold the products then proposed for the banks to buy back the minibonds at market value, a process that was meant to begin this month.

But a unit of HSBC in the United States, which is acting as the trustee for the Hong Kong banks in the liquidation, has been told the move to compensate the investors here could be illegal under US law, the statement said.

The local banks have therefore 'decided to continue the buyback only after these legal issues have been clarified and addressed and the market value can be determined unless, in the meantime, the minibonds are redeemed early as a result of action taken by the trustee,' the statement said.

More than 40,000 Hong Kong investors - including many retirees - had put a total of HK$15.7 billion of their savings into minibonds and other complex products backed by Lehman Brothers.