The deal was struck with the the Securities and Futures Commission and the Hong Kong Monetary Authority this week, bringing to end more than three years of uncertainty for investors.
The offer price will exclude the amount of coupon already paid to eligible customers but will include an additional amount representing the interest that would have been earned if the amount invested in LB notes had been invested with Citibank HK on a fixed term deposit.
Although Citibank HK’s written guidelines to staff in relation to the sale of securities were comparatively sound and provided a foundation for compliance with key regulatory requirements, the SFC had a number of concerns regarding the bank’s implementation and supervision of those guidelines and associated procedures and controls which posed risks that regulatory requirements would not be met.
In particular the SFC were concerned with:
- the adequacy of disclosure of credit risk of Lehman Brothers to customers;
- the sufficiency of the assessment of customers’ experience and some customers’ level of tolerance to risk for LB Notes, including risk profiling procedures before the purchase of LB notes; and
- the overall monitoring of the sale process of LB Notes.
Under the repurchase scheme, Citibank HK will also pay top-up payments to those customers of outstanding LB Notes with whom Citibank HK has already entered into settlement agreements but would otherwise have been eligible to receive a repurchase offer to the extent that such payments are needed to ensure those customers are treated in the same way as other customers participating in the repurchase scheme.
