HSBC slammed in Legco over mini-bonds
31-12-2008
Legislators have slammed HSBC for helping to sell Lehman Brothers mini-bonds. They questioned whether the bank should have done more to protect investors from products that may be worthless in the aftermath of the Wall Street firm's collapse. More than 40,000 local people bought Lehman-backed investment products through banks, with the total outstanding value of the products estimated at HK$20 billion. Investors have complained that sales staff misled them and failed to fully explain the products connections to Lehman Brothers. At a Legco financial affairs panel meeting, Abraham Shek said HSBC had "betrayed" investors. HSBC provided the directors for the company that was set up to issue the mini-bonds. The bank also served as the trustee that held the collateral that backed the investment products. Other Hong Kong banks, not HSBC, sold the mini-bonds to retail investors. HSBC officials told legislators that the bank wasn't involved in designing the mini-bonds and didn't have a responsibility to ensure their quality. The company created to issue the bonds, known as a special purpose vehicle, was "for all intents and purposes a creature of Lehman's design," said Susan Sayers, deputy head of legal affairs for the Hongkong and Shanghai Banking Corporation. "It is not our responsibility as trustee to comment or have any view on the product that is being sold," she said. But legislators argued that HSBC bore more responsibility to the investors. "You said you are not a designer of that scheme, but knowing that as a bank, an experienced bank, an international bank, you must be aware that this is a product that is an entrapment of people," said Mr Shek. "To society, you cannot really wash your hands of the entire matter ... You are the director," said another legislator James To. Ms Sayers said Lehman Brothers had a high credit rating when the mini-bonds were sold and that the Hong Kong government had approved the products. "None of us, unfortunately, had the benefit of foresight to know what terrible circumstances would happen," she said.
