VZCZCXRO3489
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHK #0167/01 0231117
ZNR UUUUU ZZH
R 231117Z JAN 09
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 6764
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 HONG KONG 000167 
 
SIPDIS 
 
STATE FOR EAP/CM AND EEB/OMA, TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD HK CH
SUBJECT: Hong Kong Market Report: New Year's Gifts for minibond 
Holders 
 
¶1. Summary: The Hong Kong Securities and Futures Commission 
announced that non-bank financial institution Sun Hung Kai 
Investment Services Ltd. would buy back all its outstanding Lehman 
Bros. minibonds from eligible clients at the original investment 
price.  Hong Kong Chief Executive Donald Tsang promised the 
government would hire an additional 8000 people by summer 2009 and 
floated a proposal to create a Chapter 11-style bankruptcy process 
in Hong Kong.  The Hong Kong Monetary Authority and the People's 
Bank of China signed a 200 billion renminbi swap agreement touted to 
increase short-term liquidity for Hong Kong banks in mainland China 
and Mainland banks in Hong Kong.  The Hang Seng Index lost 5.1 
percent this week after losing 7.8 percent last week.  HSBC shares 
were up slightly on Friday in weak trading but finished the week 
down 5.4 percent at 57.9 HKD per share.  The Hong Kong Stock Market 
will be closed through January 28 for the Lunar New Year holiday. 
End Summary. 
 
¶2.  The Hong Kong Securities and Futures Commission (SFC) brought an 
early Chinese New Year gift to a small segment of Lehman minibonds 
investors on Thursday, January 22.  SFC Chief Executive Officer 
Martin Wheatley announced that Sun Hung Kai (SHK) Investment 
Services Ltd. would buy back all outstanding Lehman Brothers 
minibonds bought by eligible clients at the original investment 
prices.  Each eligible client who accepts the offer will be required 
to sign a release and waive any future claims against SHK Investment 
Services. 
 
¶3.  Wheatley professed to be pleased with the result, saying it 
served "the best interests of the investors".  The SFC estimated 
that about 310 investors would get back a total of HKD 85 million 
within 30 days of accepting the terms.  After thorough 
investigation, the SFC reportedly raised four areas of concern with 
SHK Investment Services on its distribution of Lehman Brothers 
minibonds, including the adequacy of product due diligence, retail 
sales staff training, risk assessment and investment advice 
record-keeping.  SHK Investment Services acknowledged the 
seriousness of these concerns, but did not admit any liability or 
wrongdoing. 
 
¶4.  The SFC also issued a reprimand to SHK Investment Services for 
its lax internal controls related to the sales of Lehman Brothers 
minibonds since 2002.  SHK Investment Services was one of three 
licensed non-bank financial institutions that distributed the Lehman 
Brothers minibonds.  Grand Cathay Securities Hong Kong Ltd. and KGI 
Asia Limited also distributed these structured products. 
 
¶5.  A Hong Kong Economic Journal editorial (January 23) praised the 
SFC's efforts and suggested the Commission use the same approach to 
investigate banks involved in the distribution of Lehman minibonds. 
The editorial noted that the SFC already has the tools necessary to 
force the distributors of financial products to repurchase them if 
marketing malpractice is discovered.  The HKMA has referred 280 
cases of alleged bank mis-selling to the SFC for further 
investigation since October 2008. 
 
The HKG Announces Plans to Create Jobs, Ease Bankruptcy 
 
¶6.  Chief Executive Donald Tsang and Financial Secretary John Tsang 
told the press January 22 that the government would create 8,000 new 
jobs this summer with 5,500 new positions in the Hospital Authority 
and 1,290 positions offered by Ocean Park.  CE Tsang also encouraged 
large corporations in Hong Kong to provide internships for recent 
graduates.  Hong Kong's unemployment rate increased to 4.1 percent 
for the three months ended December 2008. CE Tsang has publicly 
warned that the number is likely to go up as the economic downturn 
continues and thousands of new graduates enter the workforce this 
spring. 
 
¶7.  The Chief Executive also announced that the government would 
study the possibility of creating a Chapter 11-like process to allow 
Hong Kong companies to restructure after a bankruptcy proceeding. 
Tsang did not want to raise expectations, noting that it would take 
at least one year of consultations before legislation could be 
proposed.  Hong Kong currently does not have a mechanism to allow 
debt restructuring following a bankruptcy proceeding. 
 
HKMA - PBOC Agree to Swap 
 
¶8.  Hong Kong Monetary Authority (HKMA) Chief Executive Joseph Yam 
signed an agreement with People's Bank of China (PBOC) Governor Zhou 
on Tuesday, January 20 for a 200 billion renminbi currency swap over 
a period of three years, a measure to increase short-term liquidity 
for the Mainland operations of the Hong Kong banks and Hong Kong 
operations of Mainland banks.  The move will also promote financial 
stability and support the development of renminbi denominated trade 
transactions in Hong Kong, said the HKMA. 
 
 
HONG KONG 00000167  002 OF 002 
 
 
The Numbers 
 
¶9.  HIBOR overnight and one-week were 0.15 percent; one-month, 0.35 
percent, three-month, 0.95 percent.  The Hang Seng Index closed 
Friday at 12578.60, down 79.39 points or 0.63 percent with a trading 
volume of just HKD 33.7 billion.  The Hang Seng Index lost 5.1 
percent this week, after losing 7.8 percent last week.  The Hong 
Kong Stock Exchange will be closed through Wednesday, January 28 for 
the Lunar New Year holiday.