Today marks the anniversary of the collapse of Lehman Brothers which set off the global financial markets. Nearly every investor has suffered significant losses in the past 12 months, but very few American investors, apart from Lehman employees, lost their life savings by investing in Lehman-issued securities. On the other hand, thousand of German retail investors, primarily pensioners, lost their entire savings by buying Lehman 'Zertificate' – certificates – which are now worthless. Why would German citizens buy securities tied to an American investment bank that was leveraged 30 to 1 and playing roulette with $$billions in subprime mortgages? The answer is found in the German "Zertifikate" market.
Zertifikate are derivative financial products whose value is often tied to various stock indexes. The retail investor does not own the underlying stock or index fund
directly, which belongs to the issuing bank. Certificates take the form
of a bearer bond — a slice of the instruments engineered by the bank —
and depend on the creditworthiness of the issuer. In the US, these types of investments are usually reserved for investors in hedge funds – high net worth individuals who can afford to put a portion of their portfolio in riskier instruments. In Germany, these products have been packaged for retail investors and are distributed through local banks. Using high-pressure sales tactics, these Certificates were foisted on unsuspecting retirees with catastrophic results:
Commerzbank verschmolzene Dresdner Bank waren besonders aktiv beim
Vertrieb von Lehman-Zertifikaten. Insgesamt 50 000 Anleger kauften über
ihre Bankberater die vermeintlich sicheren Lehman–Zertifikate und haben
jetzt statt hochprozentiger Rendite eine nüchterne Null im Depot
stehen. (Citibank, the Frankfurst Savings Bank and Dresdner Bank – now part of Commerzbank – were especially active in selling Lehman Certificates. A total of 50,000 investors purchased these supposedly "safe" Certificates and now instead of double-digit return have a big zero in their accounts.)
Most of the investors didn't have a clue about what they were investing in. One 73-year old woman thought that she was buying a German investment because her advisor kept saying "Lehmann" instead of "Lehman". She simply trusted "her" bank: "Ich war schon viele Jahre dort." (I've been with them for many years). Others were simply lied to by their bank, or were told that their principal was "100% guranteed."
I've been reading some of the sad stories that people have posted on the site www.lehman-zertifikateschaden.biz . This one is typical:
kaufen. da hieß es: sie bekommen 100% des Geldes auf jeden Fall zurück.
Sie haben kein Verlust.Habe bis dato noch nie von Emittenten noch von
Lehman Brothers in Amerika gehört.Nun ist das Geld wohl weg oder kann
man noch Hoffnung haben? (My wife and I thought we were buying a Certificate of Suedwestbank, and we were told we would get back 100% of our money. There would be no loss. Up to then, I had never heard of the issuer Lehman Brothers. Now the money is gone, is there any hope?)
These type of derivative investments are totally unsuitable for the average retail investor. When will the regulators in Germany interevene?
