Hundreds of investors in soured financial products of failed US investment bank Lehman Brothers rally outside the Legislative Council in Hong Kong yesterday. The investors urged lawmakers to investigate the alleged improper selling of the financial products by local banks. AP

The Legislative Council (LegCo) passed a motion last night to invoke the Powers and Privileges Ordinance to probe the Lehman Brothers saga.

The decision came amid government reservations and opposition from the banking sector.

After eight hours of heated debate, the motion was endorsed by 47 votes from the lawmakers, with four abstaining and four opposing.

Speaking at both the beginning of the session and just before voting, Secretary for Financial Services and the Treasury Chan Ka-keung said banks and financial-monitoring institutions have been dealing with the incident and progress has been made.

He called on the legislators to support the government, monitoring institutions and banks in their efforts, and to give them time to prove they can handle the problem.

Since last week, the Hong Kong Monetary Authority has been investigating 700 complaints and gathering information of an additional 3,100 cases.

It is also offering mediation and arbitration services to help resolve compensation issues between minibond holders and banks, while the Securities and Futures Commission (SFC) is probing allegations of malpractice in minibond selling.

"The government does not tolerate any inappropriate selling practices," Chan said. "The SFC pledges to complete its investigation as soon as possible."

Meanwhile, he doubted whether invoking special statutory powers is in line with public interest.

He questioned whether the current SFC investigation will be obstructed by an additional probe.

Chan also warned that it is highly possible that banks can only continue their buy-back proposal after the LegCo investigation ends, as they need to divert time and resources to handle the hearings.

This was also the view of lawmakers who voted against the motion.

Finance constituency Legislator David Li Kwok-po - having refused to abstain from voting as demanded by Democratic Party Chairman Lee Wing-tat for reasons of conflicts of interests - added that the LegCo probe could set a bad precedent and harm Hong Kong's position as an international financial center.

He said no one, including the minibond holders, would benefit from the investigation.

Lawmaker Jeffrey Lam Kin-fung from the commercial sector warned against diverting government resources at a time of financial turmoil.

But legislators supporting the probe did so adamantly.

"The minibond victims not only care about reclaiming their capital, but they are also concerned about the banks' sales attitude," said Chan Kam-lam from the Democratic Alliance for the Betterment and Progress of Hong Kong.

He added that investors understand that the buy-back proposal may be hindered. "But, so far, there is no opposing voice from them," he said.

Chan also urged banks to continue mediation with investors, and to cooperate with legislators to resolve the situation.

Liberal Party Chairwoman Miriam Lau said the investigation aims at correcting any malpractice to deter similar incidents from happening again. "We are not targeting a particular bank or institution," she said.

Lawmakers also pledged not to abuse the special power.

Audrey Eu Yuet-mee from the Civic Party said the actions wouldn't set a bad precedent, as the LegCo has experience probing the private sector, and there are similar overseas examples.

Meanwhile, Chief Executive Donald Tsang, who returned to Hong Kong from a visit to Dongguan yesterday, urged legislators to ensure, when probing into the Lehman Brothers issue, that what is being done to help the victims will not be hampered, and that Hong Kong's status as an international financial center won't be undermined.

An alliance formed by the minibond holders welcomed the endorsement of the motion. It said invoking the special powers to probe the issue could manifest social justice.

Financial Services and the Treasury Bureau expressed disappointment in the result but said the government will cope with the LegCo's investigation.

The Hong Kong Association of Banks respected the lawmakers' decision but hoped the probe won't affect the banks' progress in handling the incident.

(HK Edition 11/13/2008 page1)