Process to return collateral to Lehman minibond customers expedited

Customers in the 16 Lehman Brothers' Minibond distributing banks will recover much higher amounts of their initial investments.

This was announced by Securities and Futures Commission CEO, Mr Martin Wheatley.

In the Minibond Agreement, the Banks were required to take reasonable steps to expedite the return of the collateral including creating a fund using the commission income earned from the sale of Minibonds.  In compliance with this obligation, the Banks provided a fund of up to HK$291 million which enabled PricewaterhouseCoopers, appointed as Receivers by HSBC Bank USA, N.A., the Trustee for the Minibonds, to take all necessary actions to recover the underlying Minibond collateral.

The proposed distributions, if approved, will provide substantial recoveries for all customers who held Minibonds issued in the relevant series including those who were ineligible to receive repurchase offers under the resolution between the SFC, HKMA and the Banks on July 22, 2009.

 In addition, the regulators note that the 16 Banks have agreed to make additional ex gratia payments to customers who were classified as eligible customers in the Minibond Agreement and the Banks will continue to support the Trustee. The additional ex-gratia payment will increase the level of recovery of eligible customers to 85% to 96.5% of their initial investment.

"This outcome would have been seen as impossible in the months following the collapse of Lehman and demonstrates the value

of good regulators responding efficiently and robustly when things go wrong. It is unlikely these recoveries could have been achieved by any other means.  The SFC acknowledges the additional voluntary payments by the Banks and their continuing support for the Trustee which will further bolster the market's confidence in Hong Kong's financial institutions following the global financial crisis," Mr Wheatley added.

"This is an important development which not only allows investors to avoid lengthy litigation and potentially costly fees and legal uncertainty, but also represents the concerted efforts among regulators, the participating banks and the relevant investors to recover the invested amount as far as practicable.  We are pleased to note that investors of the relevant Minibond series will benefit from the high level of recovery," the Deputy Chief Executive of Hong Kong Monetary Authority, Mr Arthur Yuen said.