Hong Kong banks agree to repay Lehman investors' losses

image captionLehman's collapse provoked widespread anger in Asia and became a hot political topic in Hong Kong

Hong Kong banks will repay investors who lost money after the collapse of investment bank Lehman Brothers.

Sixteen banks have agreed to buy back financial instruments they sold to investors for up to 96.5% of their value.

More than 40,000 customers had invested close to $2.5bn (£1.6bn) in Lehman's financial products.

Lehman Brothers filed for bankruptcy in September 2008 facing huge losses linked to the US property market.

The payment of some sort of compensation has been an ongoing saga in Hong Kong.

Mini bonds

At the heart of the controversy are products called mini bonds.

Bonds are financial derivatives that are generally sold to large institutional investors.

But in this case a special set called mini bonds were introduced for retail investors. These were priced attractively so that smaller investors could purchase them.

The collapse of Lehman Brothers saw the value of these mini bonds plummet.

Investors accused the banks of misleading them with complex products, triggering a tussle between customers, banks and regulators.

The banks had previously offered to buy back the products at 60% of their value in 2009.

The current offer will need to be approved by at least 75% of the investors who hold the products. They are expected to hold meetings to discuss the issue in the coming months.

'Concerted efforts'

The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) had signed an agreement with the banks in 2009 calling on them to make payments quickly.

The banks were even asked to create a fund using the commission they had earned by selling the products.

The authorities say they are now satisfied with the agreement struck.

"This is an important development which not only allows investors to avoid lengthy litigation and potentially costly fees and legal uncertainty, but also represents the concerted efforts among regulators, the participating banks and the relevant investors to recover the invested amount as far as practicable," said Arthur Yuen, Deputy Chief Executive of HKMA.

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