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Bloomberg
Bank of China Ltd., (BoC) facing a public outcry and regulatory scrutiny over the collapse of an investment product linked to oil futures, may shoulder part of $1 billion in losses suffered by its retail clients, according to people familiar with the matter.
China’s fourth-largest bank by market value is talking to regulators about not seeking recourse on losses in excess of investors’ margins, said the people, who asked not to be identified discussing a private matter. Regulators are leaning toward having the bank take some losses, they said. The plan isn’t final and subject to change.
Thousand of retail investors across China are facing combined losses topping 7 billion yuan ($1 billion) after the bank’s “Crude Oil Treasure†product was settled at prices far below zero, mirroring the collapse in West Texas Intermediate crude on April 20 to minus $37.63 a barrel. Hundreds have taken to the internet to protest the lender’s handling of the contract rollover and to demand it assume some of the shortfall.
Investors who don’t make good on losses that exceed their total investment shouldn’t have that reflected in the nation’s credit scoring
system, the people said.
The central bank and the banking regulator didn’t immediately reply to requests seeking comments.
Bank of China said in a statement late Wednesday that it is “actively†working on a solution to address clients’ “reasonable†complaints and demands, and will try its best to protect their rights and take social responsibility. Meanwhile, the lender has sent CME Group Inc. an official request, urging the exchange to investigate reasons behind “abnormal†price volatility in crude futures seen on April 21, according to the statement.
Jefferies Financial Group Inc. estimated that the bank’s losses could end up being 4 billion to 10 billion yuan, when also taking into account potential legal costs. That represents about 1.6% to 4% of the bank’s pretax profit, analyst Chen Shujin wrote in a note on Tuesday.
The turmoil is drawing further attention to China’s $3 trillion industry for bank wealth products, which invest in everything from bonds and stocks to foreign exchange and commodities. They have become key building blocks of a shadow-banking system that exists largely off banks’ balance sheets.
The partial bailout also underscores the challenge to regulators, who have been trying to do away with the implicit guarantees often offered by banks and to instill more risk awareness among millions of retail investors. When wealth products struggle to meet their return targets in China, lenders that distribute them often make up the shortfall to protect their reputation and maintain social stability.