Citibank queried over sale of bonds
About 8 per cent of 1,600 Citibank customers who bought high-risk Lehman Brothers-related financial products were elderly people aged 65 and above, legislative councillors heard yesterday.
The figures were revealed when Citibank's chief executive Weber Lo Wai-pak and wealth management director Fanny Lum So-fan gave evidence for the first time at a Legislative Council subcommittee, which was set up to investigate into the minibond debacle.
The bankers were asked why the bank did not stop selling Lehman-related financial products in June 2008, when the credit rating of the bank was cut from A-plus to A.
'In the whole Lehman Brothers incident, I think at that time no organisation could have predicted that the 100-year-old [bank]'s credit rating would plummet from single A to default. The possibility rate of that is lower than 0.08 per cent - which is very low,' Lo said. 'Based on the objective information available at that time, our bank tried our best to analyse all the information.'
But he said in June 2008, the bank discovered that the sales value of Lehman-related financial products sold through the bank was already 18.8 per cent of all the structural financial products it sold.
Since it almost hit the 20 per cent restriction the bank set, it decided to suspend the selling of Lehman-related equity-linked notes.
Hong Kong investors lost billions of dollars on structural financial products linked to Lehman when the Wall Street giant went bankrupt in September 2008. Many bought minibonds or equity-linked notes - debt instruments, usually a bond, that base their performance on the return of the underlying equity. The highly complex investment tools are only suitable for professional investors.
The subcommittee will summon the Citibank representatives again on Friday, followed by another hearing with the management from ABN Amro on July 6.
