The Standard:Banks, SFC meet to thrash out Lehman deal

30 June 2009

Representatives of 16 Lehman Brothers products distributor banks yesterday met with the Securities and Futures Commission in a bid to thrash out a settlement, sources said.

But no agreement was reached as yesterday's meeting was only of a "touch base" nature.

Bank of China (Hong Kong) (2388), the largest distributor of Lehman minibonds, was among the group to present the banks' proposal for settlement, according to sources.

Lenders were supporting BOCHK's proposal to offer an average of 60 percent of the principal invested as settlement and about 70 percent to those aged 65 or above.

Banks are also willing to repay the difference if collateral were sold at a higher price in the future, sources said.

However, some lenders also expressed their concern that the sum to be repaid was much higher when compared with penalties according to rules.

According to an SFC ordinance, if a bank is penalized for failing to reach a settlement, the total penalty would only be three times the commission earned.

As the total industry commission for distributing Lehman Brothers products was about HK$300 million, banks would only need to pay about HK$900 million and this is much less than that BOCHK's proposal, they said.

A spokesman for the SFC declined to comment, while one banker source said he hopes there may be breakthrough soon, saying: "Hopefully common ground can be reached in coming days."

Other sources said there might be a chance the banking group and the SFC could reach a compromise as Martin Wheatley, the SFC's chief executive, said last Tuesday the Sun Hung Kai Investment method "was not the only model" for resolution.

As the Lehman-related products sold were worth about HK$12 billion, a settlement at 60 percent would mean distributor lenders as a whole would pay out about HK$5 billion.