HSBC and the Negative Equity Rich Man

Here is my abridged translation of the article:-

"In a 10-minute telephone conversation, persuaded by an HSBC private banking relationship manager, Jin Liang agreed to buy 1,000 shares of Chinalco. It turns out that within one year, these 1,000 shares ‘ate up Jin’s 10 million cash’ at a pace of losing HK$30,000 per day on average. Disputes between mainland investors and overseas private banks similar to Jin’s case are not unheard of. Often the money lost in these cases amount to hundreds of millions.

Last Wednesday, the Hong Kong private banking division of HSBC was again on Jin’s back for the money owed via phone call, email and letter. As previously, Jin said on the phone ‘I have been telling you this since November 3rd last year – please stop operating my account…., otherwise you have to bear all consequences.’ Then he sent them an email saying: ‘Please don’t send me any more of these silly messages.’

This is only one small haggling scene in the past year involving Jin and HSBC. Under the persuasion of an HSBC private banking relationship manager (in Jin’s view, it was misrepresentation or fraud; but HSBC contended that 'nothing was illegal'), Jin agreed to buy 1,000 shares of Chinalco. But in reality, HSBC bought on Jin’s account the high-risk 'Accumulator' financial derivative product, and caused him not only to lose his entire HK$10 million account balance, but also owe HSBC for over HK$230,000. Under these circumstances, Jin started the lengthy battle with HSBC. But the result has been disappointment and further disappointment.

This Monday, Jin’s 'Discounted Shares Website' is officially open. This IT entrepreneur calls himself ‘negative equity rich man’ (負翁) (which is a pun) when introducing himself on the site. His aim is, through sharing his own experience, to locate other mainland investors who have encountered the same problem, and to organize them into a protest alliance. Lawyers and the media have been getting involved too.

In August 2000, Jin had just sold off one website in Hong Kong. Although he had not lived for a single day in the city, he still thought it alright to deposit US$1 million into an account with HSBC’s Hong Kong branch. His logic was simple: ‘HSBC has been around for hundreds of years, such a bank must be safe and sturdy. Besides, I can communicate with them in Chinese.’

After becoming a private bank client, Jin’s HSBC relationship manager persuaded him to buy shares in the U.S. stock market, including shares of companies like Lucent Technology.

But that time was near the end of the IT bubble. Jin’s stock portfolio recorded huge losses. Within a year, his account balance shrank to only US$360,000. In order to comply with the private bank client status requirement (i.e. maintaining a minimum balance of US$1 million), Jin deposited another US$900,000 into his account. But he determined that he would never play the stock market again.

In the 2007 bull market, Jin revived his interest in the stock market. At that time, his US$1.3 million was mostly invested in low-risk assets like bonds. There was only HK$20,000 to HK$30,000 of liquid cash left in his account. On October 12, 2007, a newly assigned relationship manager Mrs. Tang (maiden name Lee) used 10 minutes on the phone to persuade Jin to buy 1,000 units of Chinalco-linked Accumulator, although Jin thought that he was buying 1,000 Chinalco shares.

After 21st Century Business Herald reported Jin’s case, in May this year, at the request of HSBC’s Hong Kong private bank, Jin went to their Central offices for a meeting. He made a special written record of the 10-minute phone conversation which HSBC had previously refused to produce. The entire phone record has been posted on Jin’s website and was reported in early July by several media like China Securities Journal.

In Jin’s opinion, Mrs. Tang did not clearly point out that it was an ‘Accumulator’ that Jin was buying. Neither did she explain that such kind of financial products carry high risks (something that could cause Jin’s US$1.3 million to be wiped out as well as bring him into debt). It was only when Jin was told a year ago that he had become a ‘negative equity’ account holder that he realized what he had bought into were not 1,000 shares of Chinalco offered at a discounted price, but an enormously risky gambling contract.

Jin has come to know that similar cases have happened in Beijing, Shenzhen, Shanghai and Zhuhai. Some have prepared a paper trail and shared their experiences on Jin’s website. Some have chosen not to participate due to having initiated legal procedures or for fear of being a laughing stock. Only last weekend, a Zhuhai citizen talked for over an hour on the phone with Jin. This Zhuhai citizen thought that he had been swindled by a certain Hong Kong bank for nearly HK$15 million and made to owe the bank a further HK$4.8 million.

In a phone interview conducted by Southern Metropolis Weekly, an HSBC private banking spokesperson Ms. Leung said that the bank would not disclose to media the number of accounts that mainlanders have opened at the bank, nor would it disclose the transaction volumes of a specific type of financial derivative like Accumulator. As for Jin’s allegations, she indicated that HSBC has been in contact with Jin on several occasions and said, 'We have studied the details of our sales procedures, including phone recordings, contents of trades, and found that they comply with the Hong Kong Monetary Authority’s rules and regulations. Therefore we think there is no need to compensate him.'

According to friends of Jin, he never used to be circumspect about banks. But now, as an IT company boss, Jin has begun engaging in a ‘battle’ with a bank."