VZCZCXRO9393
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHK #2198 3401144
ZNR UUUUU ZZH
R 051144Z DEC 08
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 6394
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS HONG KONG 002198 
 
SIPDIS 
 
STATE FOR EAP/CM AND EEB/OMA, TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD HK CH
SUBJECT: Lawsuits, Layoffs and Interest Rate Hikes in Hong Kong 
 
¶1. Summary: The Hong Kong Association of Banks has reportedly 
suggested postponing plans to buy back Lehman minibonds, while a an 
American law firm has contacted Hong Kong investors, offering to 
explore the possibility of filing a class action lawsuit in the U.S. 
against HSBC.  Financial Secretary John Tsang and Secretary for 
Financial Services and the Treasury KC Chan continued to press for 
completion of a buyback agreement.  HSBC and Bank of China (Hong 
Kong) raised mortgage interest rates to generate additional cash 
flow; Standard Chartered Bank, and CITIC Ka Wah Bank confirmed 
lay-off plans designed to cut costs.  Hong Kong television station 
TVB also announced significant layoffs.  Government calls for 
private enterprise to remember their social responsibilities and 
avoid cutting staff appear to have fallen on deaf ears.  The Hang 
Seng dropped 42 points for the week on thin trading.  End Summary 
 
Buyback Plan Scrapped?  Investors Plan US Lawsuit 
 
¶2.  A December 5 report in the pro-Beijing Wen Wei Po said that the 
Hong Kong Association of Banks had canceled its scheduled meeting 
with government representatives.  A spokesman for the Hong Kong 
Association of Banks told Wen Wei Po that the buyback plan could be 
postponed "indefinitely."  The Association continues to seek advice 
from its legal counsels and hopes to propose amendments to the 
current proposal.  Retail banks involved in marketing minibonds are 
reportedly not willing to take the "unlimited risks" that the 
government plan would require. 
 
¶3.  The Hong Kong Economic Times reported that HSBC USA is also 
seeking legal advice as it seeks to understand its obligations as 
the trustee institution in possession of the assets underlying the 
minibonds.  Democratic Party Legco member James To told Ming Pao 
reporters that a group of American lawyers have contacted the 
Democratic Party, hoping to collect information to assist a class 
action lawsuit against HSBC USA for failure to adequately perform 
its duties as trustee.  A spokesman of the Alliance for the Lehman 
minibond holders confirmed to the press Friday afternoon that the 
Alliance is planning to hire American lawyers to file a class action 
against HSBC USA. 
 
HSBC and BOC(Hong Kong) Raise Mortgage Rates 
 
¶4.  HSBC and Bank of China (Hong Kong) raised mortgage rates on new 
residential properties by 50-75 basis points to 3.5-4.0 percent, 
despite the declining cost of funds in recent weeks.  Analysts 
believe the banks are seeking to boost their cash intake in the face 
of expected declines in fee income over the next several months. 
November property transactions in Hong Kong were the lowest since 
the mid-1980s, just 3700, compared to a normal average of closer to 
10,000 transactions per month. 
 
¶5.  Needless to say, the HSBC and BOC (HK) move was not welcomed by 
real estate developers or agents.  Two leading real estate 
developers continued to express confidence in the Hong Kong's 
property sector.  New World Chairman Cheng Yu-tung said property 
prices in Hong Kong would not drop significantly in 2009, while Sun 
Hung Kai Properties Vice Chairman Thomas Kwok said he expects a 5 
percent rise in Hong Kong's property prices in the coming year. 
While these estimates may be overly optimistic, property analysts 
note that Hong Kong's property market and developers are in far 
stronger positions than during the Asian Financial Crisis when 
property values dropped by 70 percent. 
 
Banks and Others Announce More Layoffs 
 
¶6.  Standard Chartered Bank and CITIC Ka Wah Bank have confirmed 
plans to lay off additional employees.  Hong Kong TVB, a free-to-air 
TV station owned by tycoon Sir Run-Run Shaw, fired over 200 staff 
early this week.  Early this week, Financial Secretary John Tsang 
again called upon major employers to remember their social 
responsibilities during the economic downturn as he briefed Legco 
members on Hong Kong's economic prospects.  The Financial Secretary 
reassured Legco that the government would create 7,000 new jobs in 
the next three months - presumably through expanded maintenance and 
public works projects and initiatives to support SMEs. 
 
Hang Seng Index Down 42 points for the Week 
 
¶7.  The Hang Seng Index closed at 13,846.09 on Friday, December 5, 
up 2.5 percent or 336.31 points from Thursday's closing.  Daily 
trade was a meager HKD 37 billion.  The Index lost 42.15 points for 
the week.  Market analysts believe that the Hang Seng Index could 
stabilize at the 13,000-14,000 level if there is no additional bad 
news coming out before Christmas, but predicted trading would 
continue to be weak as the Christmas and New Year's holidays 
approach.  HIBOR on Friday, December 5, was 0.2 percent for 
overnight, 0.3 percent for 1-W, 1.2 percent for 1-M and 1.78 percent 
for 3-M.