May 13, 2020 / 6:33 AM / 20 days ago

BoC settles over half of cases in oil product losses - sources

* BoC settles over half of cases over oil product losses - sources

* Govt, regulators behind bank’s compensation deal - sources

BEIJING, May 13 (Reuters) - Bank of China (BoC) has settled with more than half of customers hurt by losses in a crude oil-linked product after a historic oil price slide into negative territory, two sources with direct knowledge of the matter said.

China’s fourth-largest bank last week offered to shoulder all losses from the fall into negative territory and compensate up to 20% of investors’ original investment, Reuters reported. The deal will lead to a total 6-7 billion yuan ($1.84 billion) hit for BoC if all loss-recording investors settle.

The offer came after the bank said in late April it had settled trades for its crude oil futures trading product, also known as crude oil “bao”, at minus $37.63 per barrel, leaving mainly retail investors deep in the red.

Bank of China declined to comment.

“A 50% or higher settlement rate so far is relatively quick for settling financial disputes,” said Wang Hongying, a director with the Institution of Financial Derivatives of China, a Hong Kong-based think tank.

“(BoC) had to come up with a reasonable deal to soften the pressure of massive legal disputes, and turn around the financial stability concerns it brings,” Wang added.

Some individual investors told Reuters they believed the bank should still offer an improved compensation deal.

The crude oil “bao” is a structured product made up of a bundle of futures contracts, and linked to global commodity prices. When West Texas intermediate (WTI) oil futures fell into negative territory for the first time ever in April, BoC’s “bao” was one of many products to rack up major losses.

BoC’s offer to investors was supported by regulators and its major shareholders, including the government, amid public anger at the losses, the two sources said.

The Financial Stability and Development Committee, a cabinet-level body headed by Vice Premier Liu He, highlighted the risks of commodity-linked financial products earlier this month and urged financial institutions to protect the legal interests of investors.

$1 = 7.0816 Chinese yuan renminbi Reporting by Cheng Leng, Kevin Huang and Ryan Woo; Editing by Shivani Singh and Richard Pullin

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