Vincent Lingga , The Jakarta Post Wed, 10/15/2008 10:27 AM Headlines
Citbank Indonesia customers that lost a lot -- in my case, most of my savings -- after the collapse of American investment bank Lehman Brothers last month need not be ashamed of admitting how low and utterly poor their financial literacy turned out to be.
Many investors in Hong Kong vowed last week to fight for a full refund of their Lehman products, alleging that the banks who sold them the investment instruments had not fully explained the risks associated with the financial derivatives.
In the current era of globalized financial markets, it is almost impossible for us, including me, an economics reporter for the last three decades, to have the financial literacy necessary to understand complex investment securities like the Lehman's market-linked notes peddled by Citibank Indonesia.
Robert Reich, a former U.S. secretary of labor and now an economic advisor to presidential candidate Senator Barack Obama, recently wrote in the International Herald Tribune about the U.S. financial crisis "I once asked a hedge fund manager to describe the assets in his fund. He laughed and said he had no idea."
Financial markets trade in promises that assets have a certain value. With so many derivatives in world financial markets, there is virtually no limit to what can be promised.
I, along with other Citigold customers I talked to, painfully realized only recently we had no idea what we bought in mid-2007 through our Citigold executives.
In another shocking information sheet sent one week after Lehman went bankrupt, Citibank revealed that the holders of Lehman notes in Indonesia were unsecured creditors.
For many banks, private banking or wealth-management services have become a significant source of fee-based incomes. But as it now turns out, such services have become wealth-destruction centers for a number of Citigold clients due to the unprecedented pace in which the U.S. financial crisis turned into a crash.
Hence, the first lesson from the debacle of the Citigold customers is don't ever touch offshore, sophisticated investment securities. There are now so many derivatives, hedge funds, structured vehicles and swaps offered on the international market.
We are glad to know, though, that after several days of denial, both Bank Indonesia and the capital market watchdog (Bapepam) late last month said they were preparing regulations on the trading of offshore investment securities to protect consumers.
"We should have set up an oversight mechanism years ago," Bank Indonesia's Deputy Governor Muliaman Hadad said Sept. 26, as quoted by newspapers.
Singapore is doing the same.
According to the Straits Times on Oct 3., the Monetary Authority of Singapore will soon review the way structured investment products are marketed to retail investors as thousands of investors in Lehman Brothers products stand to lose most of their money.
Lacking adequate oversight of offshore investment securities sales in Indonesia puts many consumers, notably big depositors, at a high risk of big losses.
The second lesson is don't ever rely your investment decisions on the offers, recommendations or information given even by such highly reputed financial institutions as Citibank Indonesia and its Citigold wealth-management centers.
In so far as the risks of your investment are concerned Citigold executives mean nothing for you. They work primarily to massage the ego of big depositors to keep their accounts at the bank.
Relationship managers at Citigold could simply overlook their clients' risk profile, caring more about their annual sales bonuses.
The third lesson is read carefully each word of any investment contract documents given by Citigold staff with the assistance of a respected lawyer before you sign them.
It was stupid and careless of me (and many other victims) to only skim my investment subscription form, signing the 11-page document in good faith, trusting Citibank's competence and reputation.
Most of the clauses in my contract turned out to have been designed to protect Citibank as the seller and its employees, and for them to avoid any fiduciary responsibility for the investment products they peddled.
I, quite painfully, only discovered three weeks ago that one of the clauses states, "I/We (investors) did not obtain any legal, tax or accounting advice or advice in relation to the suitability or profitability of any Notes from Citibank N.A or Citigroup or any of their employees. I/We made My/Our own judgment and decision regarding the transaction independently."
Although I knew about Lehman market-linked notes only from the sales offer and the scant information provided to me by my Citigold relationship manager, I signed in the subscription document of never having obtained advice or information from Citibank or its employees regarding the notes.
Was this the way of selling financial products in good faith?
On Sept. 26, or around 15 months after I signed my investment order and ten days after Lehman went bankrupt, Citibank sent me the final terms on the Lehman notes dated July 4, 2007, contained in a 22-page English document.
The first page of this document, among others, states, "These notes are only suitable for highly sophisticated investors who are able to determine themselves the risk of an investment linked to an index."
I wondered why I was never given this document before.
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