SCMP:Treat us the same as minibondvictims, say Octave Note buyers

21 July 2009

Investors who bought complex investment products - called Octave Notes - linked to Lehman Brothers have accused the government of offering them no help since the collapse of the US investment bank on September 15.

At a meeting last night at which they agreed to negotiate jointly for compensation, one tearful woman said: "As early as September 16, I already knew that my Octave Notes were worth nothing. But how come the government is only helping Lehman minibond victims?"

She was one of 80 investors at the meeting, which the Democratic Party organised.

A total of 48,000 Hongkongers put HK$20 billion into Lehman Brothers-linked minibonds - which, despite their name, are complex, credit-linked derivatives - and lost most of their money with the bank's collapse. The affair has spawned a Legislative Council inquiry and investigation by the city's two watchdogs of thousands of investor complaints that local banks mis-sold the products.

"We hope to press the government to handle the Octave Notes matter together with the minibond debacle," said Ran Leung So-chun, who bought notes worth US$130,000.

Those at last night's meeting had the same complaint as minibond buyers: bank staff neither properly explained to them the risks in buying the complex products nor performed risk assessments before they agreed to put their money into them.

Octave Notes were issued by US investment bank Morgan Stanley; 16 local banks sold HK$2.1 billion of them to about 8,300 customers between 2004 and 2007.

Like most minibonds, the notes contain synthetic collateralised debt obligations (CDOs) - conceptual products that mimic the financial health of a pool of companies. When these businesses collapse, the CDOs lose value. Many of the Octave Notes were connected to the performance of firms that went bust - among them Lehman Brothers.