Citi investors lose up to $15m on Lehman notes in Poland

Citigroup’s Polish bank, Citi Handlowy, sold Lehman Brothers structured notes to around 200 Polish clients amounting to just under US$15m, according to local newspaper, Gazeta Wyborcza.

An earlier review of investors affected by the collapsed US bank by Komisja Nadzoru Finansowego (the Financial Supervisory Commission), found only two Polish banks with a small amount of 'toxic' bonds in their portfolios, but with no significant effects on their balance sheet. Although, individual investor were not hit directly, the press published a story of a private client, who invested PLN100,000 (€27,000) out of a PLN700,000 (€192,000) portfolio in Lehman Brothers bonds advised by Citi’s wealth management advisers.

This week City Handlowy Bank chairman Sławomir Sikora confirmed at a morning press conference presenting the bank’s financial results, that the bank is in close conversation with clients that invested in Lehman Brother’s structured notes.

In the afternoon, the bank published an official announcement admitting it has around 200 private customers invested in Lehman Brothers structured notes for total sales of $15m. According to the bank, during the subscription period in April this year Lehman Brothers was rated as a very secure bank with an investment rating of A, which was higher than Poland itself. The bank is now providing legal advice to its clients.

Gazeta also published a statement of an anonymous investment banking source, which confirmed that Lehman issuance in all emerging markets is worth around $1bn. He added that despite the bankruptcy of Lehman Brothers, a secondary market will continue to exist. The notes are now traded at 5-7 % of their nominal value. The buyers are risk takers, such as investment banks that expect to get around 10% as a creditor in the administration process.

Citi Handlowy’s semi-annual results reports that the bank was offering around 60 structured notes to its private clients in the first half of 2008. In the last quarter, Citi’s private investors were able to choose from around 30 structured notes.