Joseph Yam, chief executive of the Hong Kong Monetary Authority (HKMA), answers questions on the floor of the Legislative Council, in Hong Kong, China on May 15

Joseph Yam, who’s retiring as Hong Kong’s central banker, steered the city through the Asian financial crisis, a bank run and an epidemic – only to get burned by the collapse of Lehman Brothers Holdings Inc.

During a 16-year stint that made him Asia’s longest-serving central banker, Yam fended off an attack by speculators on Hong Kong’s currency peg and developed the city’s monetary system, which he steered through the British handover to China in 1997. The blot on his legacy may be failing as a regulator to prevent the sale to vulnerable investors, including the elderly and the mentally ill, of complex securities linked to Lehman.

“It’s a small blip on a remarkably long and tremendous service,” said Charles Goodhart, a former Bank of England policy maker who has known Yam since 1983 when Goodhart was an adviser on establishing Hong Kong’s dollar peg. “The Hong Kong financial system has remained stable while many around it have not. He’s been through some difficult patches and has managed them with great strength and purpose.”

Norman Chan, a former Yam deputy who is now an aide to Hong Kong Chief Executive Donald Tsang, is a possible replacement, the Hong Kong Standard reported May 15. Calls Tuesday night and Wednesday to Chan’s office and mobile telephone went unanswered and Thomas Chan, the HKMA spokesman, declined to comment on Wednesday. Yam declined an interview request last week.

‘Most effective’

“They’re going to miss him; he’s not going to be easy to replace,” former Federal Reserve Chairman Alan Greenspan said in an interview Tuesday. “He was one of the most effective central bankers in the world for a long period of time.”

Yam leaves unresolved for his successor the “inherent contradiction” of a role that spans both financial regulation and fund management, said Billy Mak, a finance professor at Baptist University in Hong Kong. The HKMA manages the US$193 billion pool of assets that backs the Hong Kong currency’s fixed exchange rate. Yam helped put together the US dollar-linked system in 1983.

He joined the civil service in 1971 as a statistician after graduating from the University of Hong Kong and became an economist in 1976. His departure follows eight months of almost daily protests by investors after the failure of Lehman threatened the savings of thousands who bought securities called minibonds.

Security buyers

Hong Kong banks sold the notes to older, poorly educated and mentally ill people, according to an HKMA report that legislators released last month. Individuals bought a total of HK$13.9 billion ($1.8 billion), according to the Securities and Futures Commission.

Yip Hau-wah, a 56-year-old hospital worker, said she lost half her HK$56,000 savings in minibonds that she purchased after getting cold-called from sales staff at a BOC Hong Kong Holdings Ltd. branch.

If Yam “has any intention to help us, he would’ve pressured the bank to refund us already,” she said during a May 15 protest.

Legislators including Chim Puichung, who represents the financial-services industry, have urged Yam to formally apologize to investors.

“This is a stain for Yambo,” he said. The nickname derives from the movie about the vengeful Vietnam veteran, “Rambo,” and was applied to Yam after his successful defense of the currency peg during the 1997-98 Asian financial crisis.

Compensation criticism

Yam’s compensation has also attracted criticism. In 2008, he received HK$11.9 million ($1.5 million), compared with Fed Chairman Ben S. Bernanke’s $191,300 and Bank of England Governor Mervyn King’s 283,564 pounds ($400,000) in 2007. Central Banking Publications described him last year as the highest-paid central banker in the world.

The criticisms contrast with his achievements.

“Under his guard, Hong Kong has emerged in good shape from the past few banking and financial crises; that includes the Asian financial crisis, the Internet bubble and the current global credit crunch,” Mak said.

Yam directed $15 billion of stock purchases to successfully defend Hong Kong’s dollar 11 years ago, standing up to Greenspan in the process. Greenspan slammed the move, telling members of the US House of Representatives Banking Committee that the step “won’t succeed” and would erode “some of the extraordinary credibility” of the HKMA. ‘Where it hurts’

Yam countered by saying his stock purchases would hit speculators “where it hurts” by causing losses on short positions on the city’s shares and currency. A short position profits from declines in a security.

“I hated having to intervene in the markets,” Yam told Bloomberg in an interview last September. “I’m a believer in free markets.”

In the interview Tuesday, Greenspan said his concern at the time was that “it’s very risky for a central bank to intervene in your domestic market, or you may end up with a very large share of the outstanding securities.”

In retrospect, Greenspan said, Yam’s timing “was exquisite. He picked the bottom of the market. Global stock prices rose very significantly over the next two or three years. I told him he was right, and I shouldn’t have been concerned.”

During his tenure, Yam also navigated Hong Kong’s financial system through the economic slump caused by severe acute respiratory syndrome, or SARS, in 2003, which killed almost 300 people in the city as tourists stayed away, leading to empty hotels and restaurants. He also offered assurances and extended deposit insurance to end a run last year on the Bank of East Asia Ltd.

Hong Kong’s lawmakers voted May 6 against a motion calling for Yam to step down.

“The Hong Kong Monetary Authority has done a good job in regulating banks,” David Li, Bank of East Asia’s chairman and the banking-sector representative in the city legislature, said during the debate. “Hong Kong banks have continued to function well in the current financial crisis, and this isn’t based on luck.”

Source: Bloomberg