HK to launch probe against banks in Lehman saga

HONG KONG, Nov 12 - Hong Kong lawmakers voted late on Wednesday to invoke special powers for a probe into alleged misconduct by banks who sold investors failed Lehman Brothers investments, as pressure built on such banks for compensation.

The city's legislature voted after a marathon half-day debate to invoke sweeping and rarely used powers to investigate 21 banks alleged to have misled investors over failed Lehman Brothers investments, which could force top bankers and officials to testify, and banks to disclose commercially sensitive information.

Around 40,000 Hong Kong investors ploughed nearly $2.5 billion into failed Lehman-linked structured products and mini-bonds, with many accusing the banks of duping them into buying what they thought were low-risk products.

While Hong Kong banks initially agreed to buy back Lehman-issued mini-bonds at market value, some banks like DBS recently deemed such notes to be almost worthless, angering many of the burnt investors.

A small number of investors have reached settlements with a few banks, but the bulk of claims remain unresolved or pending, with neutral arbitrators having been called in to mediate disputes.

Hundreds of investors, including many elderly retirees protesting outside the legislature cheered the move but some top bankers said the controversial move would tarnish Hong Kong's credentials as a global business hub.

"It would create a highly unwelcome precedent to apply the sweeping powers of the Powers and Privileges ordinance to the private sector," David Li, a banking sector lawmaker and head of the Bank of East Asia said.

"What harm would be done to Hong Kong's status as an international financial centre if international banks are forced to reveal privy information ... these are serious questions," Li told fellow legislators before the late vote.

The ordinance grants lawmakers sweeping powers to call any witnesses it chooses to hearings and to force banks to disclose any "paper, book, record or document," as part of the probe.

Some legislators said the powers were necessary to fully investigate malpractice claims and to bolster future regulations.

"The banks are suspiciously impinging on public interest and we do have the obligation to get on with our investigation," said unionist lawmaker Lee Cheuk-yan in the marathon legislative debate.

The government said earlier that financial authorities in the city were already carrying out their own investigations and that a parallel probe by lawmakers might not be constructive.