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HK DBS give pair partial refund for minibonds
<HR style="COLOR: #989898; BACKGROUND-COLOR: #989898" SIZE=1><!-- / icon and title --><!-- message -->Bank to give pair refund on derivatives
Joyce Man
http://www.scmp.com/portal/site/SCMP...ng+Kong&s=News
Updated on Oct 17, 2008
An 84-year-old woman and her mentally ill son who bought derivatives linked to bankrupt US investment bank Lehman Brothers have reached an agreement with DBS on a partial refund, the woman's younger son said last night.
They are the first Hong Kong investors in Lehman-linked derivatives known to have reached a settlement with a bank.
"Of course we're very happy. It is a settlement that I think is reasonable," said Chan Kam-wah, the woman's younger son.
The settlement could put pressure on more banks to offer refunds to investors in such products.
It is the first sign of a resolution of the row over Lehman Brothers derivatives, most of them so-called minibonds, sold to retail investors, and comes a day after Chief Executive Donald Tsang Yam-kuen demanded banks respond by today to the government's proposal that they buy back such investments.
The Hong Kong Association of Banks says it hopes to have a reply by today.
Some 43,700 investors have bought HK$12.7 billion of minibonds and HK$3 billion of similar derivatives issued or guaranteed by Lehman Brothers. They face losing much or all of their investment. Many claim banks mis-sold them as low-risk investments.
Mrs Chan and her elder son, who is 58, bought "global corporate basket credit-linked notes" from DBS in 2006 and last year.
Mr Chan said Linda Wong, DBS regional head of consumer banking, had met him yesterday to disclose the settlement.
Last night DBS said it had "not made any settlements with any parties on the grounds of alleged mis-selling". Asked whether it had reached any settlements without such grounds, a spokeswoman said the bank had nothing to add.
Meanwhile, the chief executive, appearing on a radio phone-in, said a minibond was "very obviously a derivative".
"Maybe some people think it is a bond. I don't think that it is a bond," he said.
A derivative is a financial instrument that derives its value from an underlying security. Minibonds comprise high-risk, complex credit-linked derivatives.
Political parties have been helping some of the investors negotiate with banks. In the Legislative Council yesterday, Civic Party leader Audrey Eu Yuet-mee asked Mr Tsang whether the Securities and Futures Commission had failed in its duties by authorising the use of the word minibond to describe such derivatives.
An SFC spokesman said it was understandable retail investors might mistake minibonds for corporate bonds, which are relatively risk-free investments.
The commission and the Monetary Authority are assessing more than 10,000 complaints from investors. The authority has said dozens require investigation for possible mis-selling.
Mr Tsang told Legco: "Any criminal offences that are found through this investigation ... I assure you I will seriously follow up on."
Three derivatives investors are preparing to file lawsuits against banks next week, Democratic Party chairman Albert Ho Chun-yan said.
Meanwhile, the Consumer Council welcomed Mr Tsang's pledge to replenish its legal action fund to help derivatives investors go to court if efforts to mediate with banks fail.
Copyright © 2008 South China Morning Post Publishers Ltd.
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