HONG KONG: Chief Executive of Hong Kong Monetary Authority (HKMA) Joseph Yam Chi-kwong apologized for claiming the authority had foreseen the subprime mortgage crisis. He reiterated however that the authority had done its best to warn investors about high risk investments.

Yam's statements came at the latest round of public hearings on the minibond disaster that ruined thousands of investors, and hurt many more. Lawmakers continued their attacks on HKMA, blaming the agency for failing in its responsibility to monitor the market.

Chim Pui-chung from the financial services constituency lashed out at Yam, charging the HKMA chief had only boasted about his frequent warnings before the collapse of Lehman Brothers.

"I'm sorry that I was impetuous to say HKMA had foresight on the debacle as some legislators alleged we had belated awareness," Yam said in his second testimony.

He explained the HKMA started its active efforts to warn investors away from the mini bonds, six to nine months before the crash of Lehman Brother's Bank. "I don't entertain hope saying that I am smart. Sorry," he added.

Yam testified that he started to worry about the structured products and had been warning the market broadly since mid-2007. The HKMA also assisted in studying the products, which he found satisfactory.

The authority cited mortgage-linked products in its 2007 annual report, although at the time sales of structured instruments comprised a small minority of investment sales.

Yam said the action reflected the HKMA's concern for investors.

Inspections began last year, targeting 11 banks, with regard to dishonest sales practices. Four of those investigations now have been completed.

The authority chief explained some staff had to be deployed elsewhere to handle other cases, thus delaying some investigations.

He added guidelines were issued to banks after Lehman Brothers went bankrupt last September.

Regina Ip Lau Suk-yee questioned why the HKMA failed to advise banks to rate the mortgage-linked products as high risk, after the products were launched in 2002.

"Risk evaluation depends on the structure of the investment instruments, so we cannot lump all mortgage-linked products together saying they are high risk," Yam replied.

Banks had been asked to raise the risk evaluation. Yam added, however, the HKMA had no authority to forbid the sale of structured products.

Investors are responsible for their own decisions and have freedom of choice, based on information provided by the banks, he said.

The chief said it is impossible to eliminate all dishonest sales practices.

The subcommittee will read the entire report, including the sealed section which Yam earlier had refused to disclose in the public interest. That part of the report will be discussed at a closed-door meeting next Tuesday.

Earlier about 20 minibond investors protested outside the Legislative Council building, criticizing Yam for overseeing a protracted investigation then concealing the report.

The HKMA received 20,732 complaints concerning the investment debacle and referred a total of 433 cases to the Securities and Futures Commission for further action.

(HK Edition 04/18/2009 page1)