The Standard:Octave Notes spark concerns

The Hong Kong Association of Banks said it is monitoring developments involving Octave Notes, credit-linked notes issued by Morgan Stanley that have plunged in value, while lawmakers said the issue could threaten Hong Kong's financial sector.

The association has not yet discussed the issue but will keep in touch with banking and securities regulators, chairman Peter Wong Tung-shun said. The issue is very complex, Wong added.

Democratic Party legislator Kam Nai-wai yesterday called on the 16 local distributing banks to buy back the Octave Notes at their full value. A special meeting of the financial affairs panel will discuss the issue on June 11.

``This is really a time bomb,'' Kam said.

Eight thousand Hongkongers invested a total of about HK$2 billion in Octave Notes, which invested in synthetic collateralized debt obligations.

``There has been mis-selling,'' said Peter Chan Kwong-yue, chairman of the Alliance of Lehman Brothers Victims. The product's name in Chinese is ``Smart Bond.''

``The translation is intentionally misleading,'' Chan said. ``They promoted Octave Notes very much the same as minibonds.''

Octave Notes Series 10, 11 and 12 used Lehman Brothers as a reference entity and are now worthless.

Some other series used bonds issued by collapsed institutions like Icelandic banks and Canadian papermaker Abitibi-Consolidated as a reference and are now worth less than 1 percent of their original value.

Dah Sing Banking Group managing director Derek Wong Hon-hing said Dah Sing Bank sold a ``very small amount'' of Octave Notes and has received ``very few complaints.''

The bank has kept in touch with those customers and will follow up on a case-by-case basis, Wong said.

A 54-year-old housewife, who gave her name as Chan, said she walked into her bank to update her passbook and before she left had been convinced to buy Octave Notes Series 11.

Chan said she lost HK$400,000 of her husband's money on the investment, which is now worth nothing, and is afraid to tell him lest he divorce her.

She said she has been seeking mental help because she is so distressed about the issue.

``I didn't think the bank would cheat me,'' she said. ``I hate the bank; I hate the government.''