DBS to Pay $84 Million in Hong Kong Lehman Settlement

DBS to Pay $84 Million in Hong Kong Lehman Settlement
July 14, 2010, 6:32 AM EDT
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July 14 (Bloomberg) -- DBS Group Ltd., Southeast Asia’s biggest bank, agreed to repay HK$651 million ($84 million) to Hong Kong clients who bought notes linked to the collapsed Lehman Brothers Holdings Ltd.

DBS (Hong Kong) Ltd. has agreed to make the payments to clients it classified as having a low or medium investment risk profile, the Securities and Futures Commission said today.

“This will serve as a useful guide for other distributors in resolving complaints from customers,” said Martin Wheatley, the commission’s chief executive. Over 60 percent of clients who bought the so-called Constellation Notes from DBS will get back their full investment back with interest, he said.

Hong Kong investors bought a total of HK$6.5 billion worth of the notes, of which HK$1.3 billion were sold by DBS. Today’s agreement follows a settlement arrangement last July in which 16 Hong Kong banks including DBS agreed to pay at least 60 cents on the dollar, for a total of HK$6.3 billion, to buy back a batch of credit-linked notes linked to Lehman, known as mini-bonds.

“The issue over these notes appears to be largely settled, in which case it will be positive for the bank,” Harsh Wardhan Modi, a Singapore-based analyst at JPMorgan Chase & Co., said in an interview today.

Angry Investors

Hong Kong is an example of how the financial devastation resulting from Lehman’s 2008 bankruptcy rippled across the globe. As the securities plunged and allegations of mis-selling mounted, citizens who lost their savings took to the streets and lawmakers scolded the heads of the city’s central bank and securities watchdog in public.

“Resolution payments are being offered, without admission of liability, in the interests of our relationships with our customers and in the broader interests of the Hong Kong financial system,” DBS said in an e-mailed statement today.

Last month, two employees of BOC Hong Kong (Holdings) Ltd., the biggest seller of the mini-bonds, pleaded not guilty in the city’s District Court to fraudulently selling the product. The judge set Nov. 8 as the date for the trial.

The minibonds, or custom-made securities linked to the credit worthiness of companies, were backed by collateralized- debt obligations and often sold to elderly, mentally ill and poorly educated people, according to a Hong Kong Monetary Authority investigation made public by lawmakers a year ago.

Wheatley declined at a press conference today to name the other banks who have sold the Constellation notes.

For Related News & Information: Top legal stories today: {TLAW } Bloomberg legal resources: {BLAW } Structured notes and OTC Derivatives: {STNT } Asia Structured Notes: {TNI STN ASIA BN }

--With assistance from Joyce Koh in Singapore. Editors: Douglas Wong, Chitra Somayaji

To contact the reporters on this story: Kelvin Wong at kwong40@bloomberg.net; Debra Mao in Hong Kong dmao5@bloomberg.net

To contact the editors responsible for this story: Douglas Wong in Hong Kong at dwong19@bloomberg.net Philip Lagerkranser at lagerkranser@bloomberg.net