Hong Kong's Consumer Council helping poor and elderly to sue banks over minibonds

[tsadaq21]

HK Consumer Council suing banks.
HK Government also promising litigation
funding to cases that have merits.
So what is CASE and our gov doing?

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Hong Kong watchdog may sue banks over Lehman
mini-bond sales

Hong Kong's Consumer Council said Friday it was considering suing banks which allegedly mis-sold mini-bonds
backed by failed US investment bank Lehman Brothers as risk-free investments.

The 50 cases the council was considering backing mostly concerned vulnerable elderly people who said their
banks had not fully explained to them the risks involved when selling them the mini-bonds, a spokeswoman for
the council said.

The complainants in the cases, which involved 14 banks, had invested between 100,000 and two million Hong
Kong US dollars (12,800 and 256,000 US) in the controversial financial products.

"We will continue our vetting to identify representative cases for legal action," the spokeswoman told AFP.

"We now have 16 million US dollars in our legal action fund. But the government has promised that it will give
us unlimited financial support once we have identified cases with good grounds," she said.

Johannes Chan, chairman of the council's legal action fund, told the South China Morning Post that their focus
on elderly and poorly educated investors would give them a higher chance of success in court.

"It's easier to establish that their trust has been abused or that they have been misled than (to make the same
case for), say, someone who has a university education and has invested for years."

Despite their name, the mini-bonds are complex financial products linked to a bundle of derivatives backed by
Lehman, and their value plummeted after the investment bank collapsed in September.

The council said in a statement that it had received 3,638 complaints and 1,388 enquiries from investors.

Meanwhile, more than 100 investors protested outside the Hong Kong Monetary Authority, the city's de facto
central bank, before marching to individual banks to demand a full refund of their investment Friday morning.

Individual banks, including the Bank of China (Hong Kong), have started to negotiate compensation deals with
customers. But many of the cases remained left out as gathering evidence to prove mis-selling could be difficult.

All the banks have agreed to adopt a government proposal for them to buy back the products from customers at
their current market value but the move failed to pacify investors who said they would only get back a portion of
their investment.

© 2008 Agence France-Presse(AFP)

 

[lepkwl00]

In a letter dated 31 March 2008 sent by DBS regarding DBS High Notes, it was stated “.... it would take several underlying reference entities in the collateral to suffer Credit Events before investors suffer a loss to their principal amount."

In actual fact, it only requires one underlying reference entity to suffer a credit event to wipe out the whole principal amount, not several underlying reference entities. This is the case in the bankruptcy of Lehman Brothers which is a credit event to only one single reference entity.

Saying that it requires several reference entities to suffer credit events before any losses will be incurred gives investors the wrong impression that there is some kind of buffer and may have delayed them from selling the product and cutting their losses earlier.

Furthermore, since an official letter from DBS can get it so wrong with regards to the workings of the product, then it is reasonable to conclude that the Relationship Managers selling the product is no better at explaining the exact workings and risks of the product to customers when making the sales.

Thus, I do believe that all the investors of DBS High note series have a strong case against DBS if they wish to recoup all their money. I wish to stress that base my above analysis, every investors have a strong case regardless of your investment risk profile/appetite. The best course of action is for all the investors to negotiate with DBS or take other necessary actions collectively. I urge all investors to seek legal redress if DBS is not willing to accept full responsibility as I believe DBS is standing on shaky grounds as a result of the release of the said letter to the investors.

I wish to give DBS the benefit of the doubt and believe that this is only proof that DBS as an institution is clueless about how the product actually works and that it is not out to defraud the customers with wilful misrepresentation.

 

[Bigfuck]

Hor say liao! Now can do case study. Sue Banks in HK, but sue investors in Sin. One say product flawed, the other say investor flawed. A tale of 2 cities, asian edition.