Ir Dr Hon Raymond HO Chung-tai, SBS, S.B.St.J., JP
Chairman, Subcommittee to Study Issues Arising from Lehman Brothers-related Minibonds and Structured Financial Products
Legislative Council
8 Jackson Road
Hong Kong
Dear Mr. Chairman,
Follow-up Questions to Hearings on
Standard Chartered Bank (Hong Kong) Limited
Due to a business trip on 4 June 2010, I was out of town and hence not able to attend the hearing that day. However, as many questions were unanswered and this Subcommittee has the duty to collect more evidence before we draw a conclusion on the whole Lehman saga, I would be grateful if you could relay the following questions to Mr. Benjamin Hung of Standard Chartered Bank (SCB) for written response:
On the Structure of Equity Linked Notes (ELNs)
1. What was the rationale of offering unsecured ELNs to its customers instead of secured ELNs such as Citibank did? Does that mean Citibank has a better risk management mechanism in place?
2. This "unsecured" status of the ELNs is a material information. Did SCB instruct its sales staff to explain this to its customers explicitly before and during the selling process?
On Risk Management and Promoting Lehman ELNs
3. Citibank has internal provision that a customer's investment on derivative products such as ELNs cannot exceed 20% of all his/her investable net worth. Why did not SCB has similar provisions? (I have received complaints from SCB Lehman victims that bought ELNs exceeding 40% of his investable net worth).
4. Since 2007 SCB offered ELNs from different investment banks such as Lehman and UBS. What was the percentage of Leman-related ELNs sold as a proportion of all ELNs sold by SCB in that time frame? Did Lehman offer higher commission to SCB than other investment did?
5. As SCB claimed that its sales staff did not particularly promote ELNs, how could SCB explain why there were certain series that were particularly popular (such as series 17)?
On Lehman’s Credit Downgrade
6. Why did not SCB proactively approach its customers and relay the message of Lehman's downgrade after 3 June 2008?
7. On what rationale did SCB decide not to advise its customers to take further actions, such as an "exit" by selling the ELNs on the secondary market?
On Settlements
8. SCB decided to stop selling Lehman ELNs on 5 June 2008, but the last transaction date was 13 June 2008. Will SCB compensate all customers whose ELNs transaction was completed on or after 5 June 2008?
9. How many cases involving complaints by elderly customers had been settled?
10. What is SCB's comment on the more than 600 referrals (according to Lehman victims) from the Hong Kong Monetary Authority to the Securities and Futures Commission, indicating there is "preliminary evidence of mis-selling" by SCB? Has SCB contacted these customers to negotiate settlement? If not, why?
Yours sincerely,
Mrs. Regina IP
