Over 40,000 small savers lost heavily from banking system’s shady practises

Published in Chinaworker, May 18, 2009

On Friday 8 May, this reporter joined a victim’s rights demonstration in front of the Hong Kong Monetary Authority, in Central, Hong Kong. Between 300-400 people took part initially, holding signs in Chinese and English protesting bank fraud. Signs said “Fuban Bank is a Fraud”. Several signs said “Dumb Donald Tsang Dumb” and “Stupid Donald Tsang” a reference to the unelected Chief Executive of Hong Kong. Signs also denounced the Bank of China, Wing Hang Bank, Public Bank, DBS, Dah Sing Bank, and others. The age range of the crowd was varied, but over half were over 50. As the protest continued, the size of the crowd picked up to around 1,000. There were speeches, chanting, and much rhythmic drumming and cymbals.

Demonstrators were demanding justice after having put their savings into high-risk Lehman financial products just before the company crashed. Some of them told chinaworker.info that the official estimate of the number of victims put out by the government and the media, is 20,000. But the real figure was much higher, over 40,000, many of them retirees, who had lost everything investing in the bonds. People were very angry at Lehman Brothers. The crowd was made up of Chinese, but also many Indian and European residents of Hong Kong had also lost much in this debacle. There were many victims also in Singapore and Taiwan.

One woman told me she was very angry at the banks. She said the debacle began about nine months ago. Victim’s rights organisations had formed within the past 2-3 months. I asked her why people had mainland (PRC) flags. She said this was meant as a protest against the Bank of China, the mini-bond investors of which had suffered the heaviest losses.

One of the organisers of the protest said there was almost nothing in the way of consumer protection for savers. As far as I could understand the Hong Kong Consumer Council was not doing anything to help the victims. There were no efforts or plans to provide any compensation to the victims. The Hong Kong government was not doing anything to prevent Lehman Brothers and the banks from evading their responsibilities to investors. He further explained that many of the investors were elderly, retired and were born on the mainland. He said some of the investors had “poor mental health” and had been pressured into investing. A fair number of those who lost on this affair were bank employees or worked in the financial sector. Few people had gotten compensation, and these had been required to sign waivers saying they would not seek further compensation and would not talk about their ordeal. The organiser said the banks have teams of very good lawyers and it is difficult to fight against this. He told me that the presence of PRC flags reflected the feeling that this affected all Chinese people, whether on Taiwan, Singapore, Hong Kong, or the mainland.

Thoughout the protest there was much drumming and chanting. Several Monetary Authority (the central bank) officials periodically came out of the building to observe. There was a heavy police presence thoughout the demo but the event remained peaceful. I was offered a red ribbon, as a sign of solidarity,which I wore, and a plastic toy hand clapper, which I kept.

Over 40,000 Hong Kong savers and thousands of other investors in Singapore and Taiwan have been hit hard by the fallout from the bankruptcy of the New York investment bank Lehman Brothers in September of 2008. Tens of thousands of  Hong Kong residents, mostly older people, put 15.7 billion HK dollars into what are termed “mini-bonds” issued by virtually all the banks doing business in Hong Kong. Mini-bonds are a financial product designed for small, individual investors. The minimum required for investment can be as low as 3,000 HKD (386 US dollars) as compared with 100,000 HKD required for bonds sold to large institutional investors. These mini-bonds, sold in Hong Kong and Singapore, were attractive to many small investors because they offered much higher rates of return than deposits, with annual fixed rates of return between 5 and 7 percent, compared with .01 percent for deposits in Hong Kong. The mini-bonds were serviced by what are termed “collateralized debt obligations” of both foreign and Hong Kong companies, meaning essentially that they were based upon the “toxic waste” that Wall Street banks produced and sold around the world, triggering the current global crisis. These mini-bonds were guaranteed by Lehman Brothers and were linked to the debt of some of the biggest Hong Kong companies such as Hutchinson Whampoa (owned by Asia’s richest man, Li Ka-shing).

The debacle began when the effects of the US sub-prime mortgage crisis hit Lehman Brothers nine months ago. Investors, many of them elderly, lost much of their life savings when Lehman Brothers went bankrupt. Within the past three to four months victim’s rights organisation have formed in Hong Kong and Singapore. These groups are asking for some compensation and are protesting their government’s inactivity and unresponsiveness to their plight.The victims want $1.6 billion USD of collateral held by the banks released to the more than 40,000 victims and not be treated as part of Lehman Brothers’ bankrupt estate.



What we think: nationalise the banks!

Socialists support the call for compensation for small investors, and punishment of the banks and financiers that have tricked savers into buying “toxic waste”, in some cases just 24 hours before Lehman Brothers collapsed. But this scandal raises wider issues about Hong Kong’s pro-rich economic model, with its weak social security net and abysmally low government pensions system, paying less than 1,000 HKD (129 US dollars) per month! This “small government, big market” system has meant rich pickings for the banks and insurance companies as people are forced to save hard and buy private retirement insurance. The trade unions and the left in Hong Kong must step up the fight for a decent publicly funded and controlled retirement pensions system, with a minimum pension tied to a statutory minimum wage of at least 7,700 HKD per month. The banking system, which is crucial to general welfare as it is to the hopes of a recovery from the current deep crisis, should be taken out of the hands of the criminal financiers, and nationalised under democratic workers’ control and management. This is the only way to insure such abuses are never repeated.