Last week, the United States bankruptcy court gave the go-ahead for Lehman Brothers minibonds’ collaterals to be sold, to pay back disgruntled minibond investors. The decision paves the way for a closure to this painful saga, which has been a tormenting nightmare for bond holders.

The only hurdle now waiting to be removed are “yes” votes from at least 75 per cent of the minibond holders for every tranche, at a meeting to be held in May. That means more than 30,000 buyers of 24 tranches of minibonds will be able to recover as much as 85 to 96.5 percent of their original investments under the final settlement proposal offered by 16 banks that sold the toxic minibonds. In other words, their votes for each tranche will be bundled together to determine the overall fate of all holders. If only one tranche fails to garner sufficient support, the whole plan will falter, signaling another round of battles from which there can be no end in sight in the struggle for a full payback.

If this final hurdle is overcome, it will effectively bring an end to the long-running tussle between the banks and minibond buyers whose lives have been turned into a veritable hell by the Lehman Brothers debacle. Investors who trust their life-savings to the minibonds saw their savings evaporate when Lehman Brothers went bankrupt in September 2008. In their fight for full recovery of their original investments, some vociferous minibond holders have spent days and nights outside various banks in Central over the past two and a half years to protest against what they condemn as “blood-sucking” banks. As an outsider, one can only imagine how much stress, time and energy they have spent on fighting their cause.

Given the latest settlement package which offers at least 70 percent of initial investments from the collaterals, with a top-up of an ex-gratia payment of 15 percent by the banks, the question now remains for minibond investors to think hard about whether to take it or leave it. By initial estimates, roughly two-thirds of the investors could recover about 80 per cent to 90 percent of their principal investments. About 31 percent could get back about 70 percent to 80 percent, while only 4 percent of bondholders would qualify for the maximum payback. Is it worth settling for a lesser evil or should the aggrieved parties keep fighting for a full refund to see justice done?

Still, there are a number of diehard opponents insisting on fighting for 100 percent compensation or greater, as retribution for the banks, for what minibond holders have called unscrupulous and misleading selling tactics. More than 90 percent of bond holders have already settled with the banks under a buyback offer in 2009 for a 60 percent payout. Therefore, under the bundled-up voting system, the numbers of bond holders opposed to the settlement offer will factor heavily in the determination of the final outcome. They could overturn it. Once the offer is overthrown, the process will have to start all over again. The payout that potentially could be in hand for minibond holders by June at the earliest, will be tossed up in the air for an indefinite period.

Is it worth the effort to keep on wasting time, money and energy on this arduous court battle with no guarantee of winning? Those who insist on fighting to punish the banks in the courts should remember that not long ago the District Count acquitted a Bank of China (Hong Kong) manager in a land mark case, in which deceptive practices were alleged in the sale of Lehman minibonds. Why don’t they put this nightmare behind them and move forward? It would be better for them just to take the payback as much as they can and to invest the money elsewhere than in this exhausting wrangle with the banks.

Given the ex-gratia payments from the bank, including nearly HK$300 million commissions that came from minibond sales, let alone the tainted reputations suffered by the banks, it can be said that the banks have accepted part of their responsibilities for the alleged misdeeds. This should be a deal worth every consideration. Bondholders should bear in mind that their Singaporean counterparts got only half money back while those who invested in blue chip stocks two years ago saw prices plummet by 30 to 40 percent.

After all, minibond investors have their share of responsibility. Whenever one makes an investment, he has to take the moral hazard risk - the consequences of their actions and decisions. It is the responsibility of investors to get to know and understand the details of the investment they are going to make before signing their names on the paper. Investors should know that in the world of investment, there is no such thing as a guaranteed investment. Even a bank may go bankrupt. SAR depositors are indemnified only for HK$500,000 at most however much one may put in the bank.

It has been a painful lesson for the banks as well as the bondholders. Let’s hope that the banks have discarded their predatory sales culture, given the tightened-up regulations including the imposition of cooling off periods and segregation of commercial banking and securities investment business. It is time to put a full stop to this drawn-out saga.

The author is a current affairs commentator.

21 Apr 2011