HONG KONG -- Hong Kong legislators questioned Monday if a settlement deal returns enough money to investors who bought $1.8 billion in failed Lehman Brothers-backed derivatives and whether it punishes the banks that sold them.
The investors - some of them retirees - were outraged when Lehman collapsed in September, staging protests and accusing banks of peddling risky financial products without explaining them properly. The Lehman-backed products were labeled "mini-bonds," giving the impression of a safe, conservative investment.
Under a settlement deal negotiated by Hong Kong's Securities and Futures Commission announced on July 23, 16 local banks agreed to return 60 or 70 percent of the principal to thousands of investors, with those over 65 getting the highest amount. The payout amounts to $6.3 billion Hong Kong dollars ($813 million).
But in a legislative hearing Monday, lawmakers questioned why regulators didn't pressure the banks to return the principals in full. Several dozen investors chanting "100 percent compensation" protested outside the legislature building in Hong Kong's financial district before Securities and Futures Commission Chief Executive Martin Wheatley testified.
Wheatley said the commission doesn't have the legal power to order banks to return a certain amount and had to accept what the banks offered. He added the deal offers the certainty of some compensation soon, instead of relying on litigation.
"We have all along sought to reach an agreement that can see rapid return of a significant part of investors' capital, rather than a very complex and drawn-out set of procedures through the courts with no certainty as to the ultimate outcome," he said.
