Canadian report on Minibonds in HK

Asian investors shaken and stirred by mini-bonds crisis

http://www.nationalpost.com/rss/story.html?id=981667

Asian investors shaken and stirred by mini-bonds crisis

Duncan Mavin, Financial Post
Published: Friday, November 21, 2008



Investors march to the government headquarters during a rally in Hong Kong, China, on Sunday, Sept. 21, 2008. More than 100 Hong Kong investors who purchased bonds issued by Lehman Brothers Holdings ...HONG KONG --

There are glaring parallels between the Lehman mini-bond debacle playing out in several Asian cities and Canada's ongoing asset backed commercial paper fiasco. There are some striking differences, too.In both cases, significant numbers of retail investors claim they thought they were buying low-risk savings products that turned out to be opaque financial derivatives. Both sets of investors are demanding their money back after the dud investments soured.That may be where the comparison ends.While hundreds of Canadians are still waiting to see if they will ever be reimbursed well over a year after the ABCP crisis broke, thousands of ordinary investors in Hong Kong and Singapore have taken to the streets to demand rapid action.Government buildings and the headquarters of banks that sold the mini-bonds have been beseiged by an angry, placard-wielding mob on a weekly basis. Similar protests are apparently planned for later this month in Taiwan.The result? Just weeks after the investors lost their savings, some banks in Hong Kong that sold the failed securities have already paid out to a handful of clients. In Singapore, too, banks have committed to reimbursing some investors soon, after the government said they should help "‘vulnerable customers" such as the elderly. In all, more than 100,000 people in Asia are thought to have bought in excess of US$4-billion worth of the duff investments between 2006 and the collapse of Lehman in September this year. The so-called mini-bonds, sold by banks and brokers across Asia, were actually not corporate bonds at all. The investments involved a complex structure of collateralized debt obligations and sometimes equity holdings managed by one firm -- often Lehman Brothers -- that handled a 'dividend' payment. The products offered a slightly better return than a standard deposit account, but ran into trouble when Lehman was forced into bankruptcy and could no longer meet its obligations. Products that were arranged by Merrill Lynch and others also collapsed because they had been backed by Lehman credit. While it remains likely some investors will lose at least a portion of their savings, governments in Hong Kong and Singapore are keen to show they are acting on the matter. Authorities in Hong Kong announced on Friday they had received almost 19,000 complaints alleging mis-selling related to the mini-bonds, and had referred 166 cases involving nine chartered banks to the city's securities regulator. Also, this week, the city's legislative council voted in favour of a special ordinance allowing lawmakers to force senior bankers and government officials to hand over confidential documentation and to appear at public hearings. The move follows a promise from Hong Kong's top politician Donald Tsang that the government will "punish" bankers or regulators found guilty of mishandling the saga.In Singapore, the government is taking a different tack and has said it is working with groups on efforts to restructure the investments.Meanwhile, some of Hong Kong's most high-profile lawyers, including Democratic Party chairman Albert Ho, have vowed to take the fight into the civil courts, too. Mr. Ho said this week that the banks involved had shown a poor attitude and had only approached investors under the threat of litigation, according to the South China Morning Post.The protesting investors have garnered much media attention with stories of life-savings lost and seem to have public opinion on their side. But that might not last, said David Webb, a former investment banker who is now a well-known governance advocate in Hong Kong. "If everything else is going down the pan, the sympathy for these people [who bought Lehman mini-bonds] will probably disappear," said Mr. Webb, who is also a member of Hong Kong's takeover and mergers committee. Already there are several facebook groups dedicated to pouring scorn on the investors, with many posters suggesting they should have looked more closely into their investments. Most of the minibond holders may end up getting a payout equivalent to the market value of their holdings, which would be significantly lower than their initial investment, Mr. Webb added.In Canada, several hundred retail investors were caught out when the country's $32-billion ABCP market froze up 16 months ago in August 2007. About $300-million is held by individual investors. A planned restructuring has missed several deadlines, and the group of lawyers and bankers tasked with resolving the crisis now claims it will do so by the end of this year. So far none of the noteholders have received a settlement. A report by investment industry regulators into the fiasco found that there were "inadequacies" in the selling of ABCP to retail customer