According to a joint announcement issued by the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA), RBS has agreed, “without admitting any liability, to make a repurchase offer to all eligible customers holding outstanding Lehman Brothers equity-linked notes [LB-ELNs] sold” during that period by the bank, at “100% of the principal value of each eligible customer’s investment” in the notes.
It said the offer included those LB-ELNs sold by ABN Amro in Hong Kong before RBS acquired its retail and commercial banking business there.
The SFC and HKMA said they estimate that around 540 individuals are eligible for the repurchase offer. If the offer is accepted by all of them, it will result in a total payout by the bank of approximately HK$513m ($66m, £43.5m), the regulators said in their statement.
‘Conservative’ approach to risk
The 540 individuals deemed eligible to sell their Lehman Brothers notes back to RBS are described has having been retail customers who had been assessed, at the time they purchased these investments, to have “a risk tolerance level that was more conservative than the risk rating assigned to the [note they purchased]".
The risk profiling process at issue in the case was said to have been developed by ABN Amro prior to RBS’ acquisition of ABN Amro’s retail and commercial banking business.
Professional investors who purchased the same notes are not being offered the repurchase offer. In today’s statement, the SFC said its investigation into the handling of professional investors by RBS in respect to LB-ELNs “is continuing”.
Also eligible: those who settled
Individuals who would have been eligible to benefit from the repurchase order unveiled today but who had already entered into a settlement agreement with RBS will receive top-up payments, “to ensure these customers are treated in the same way as other customers participating in the repurchase scheme”, according to the statement.
The offer price will exclude the amount of coupon such individuals have already received, as well as any money they may have recovered as a result of the bankruptcy of Lehman Brothers Holdings Inc, or its related entities, the statement said.
In addition, the total being offered to the out-of-pocket investors “will include an amount representing the interest that would have been earned if the amount invested in the LB-ELNs had been invested with the bank on a savings deposit”.
RBS to review complaints
Individuals who purchased Lehman Brothers notes that are not eligible for the repurchase offer will have their complaints reviewed by RBS under its “enhanced complaint handling procedures”, the statement today noted.
It said the agreement was expected to bring the matter, at last, “to an appropriate end for the benefit of RBS and those customers who participate in the repurchase scheme”.
Lehman Brothers’ saga
The saga of the out-of-pocket Lehman Brothers’ investors in Hong Kong has been running since the New York-based investment bank filed for bankruptcy in September 2008. As reported, a major break-through occurred in March, 2011, when all 16 Hong Kong banks that distributed the so-called Lehman Brothers minibonds agreed a deal whereby investors would get back as much as 96.5% of their initial investments.
In July of that year, in a deal similar to the one unveiled today, Citibank Hong Kong agreed to repurchase HK$1.06bn of Lehman Brothers backed equity-linked notes from investors. Under that deal, the offer price excluded the amount of coupon already paid to eligible customers, but would 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.
