May 13, 2020 / 6:38 AM / 12 days ago

BoC settles over half of cases in oil product losses, but disputes remain: sources

BEIJING/SHANGHAI (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, but disputes pressure remains.

FILE PHOTO: An exterior view of the Nanyou branch of the Bank of China in Shenzhen, China November 29, 2017. REUTERS/Staff

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 investments, Reuters reported. The deal will lead to a total 6 billion-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 retail investors, however, told Reuters they believed the bank should offer more.

“I want to push for a better deal,” said Stephanie Peng, a university student who invested more than 70,000 yuan in the bank’s product and said she was incapable of absorbing the losses.

“A 20% payback is too little for me. I’ll have no choice but to file a lawsuit in court.”

Another investor, Yang Guang, who invested in the product last year said: “I saw BoC’s advertisements for crude oil ‘bao’ on the internet, calling it low-risk and saying investment experience was not needed.”

He bought the “bao” easily via mobile phone, investing about 6 million yuan in the product. He said he had not heard from the bank despite multiple efforts to reach them since April 23.

“If offered, I am not willing to accept the 20% settlement agreement because firstly, it is not clear which party bears the responsibility,” he said.

“Secondly, if BoC wants to sign a settlement with investors, it should return the investors’ principal investment, plus interest and compensation for mental anguish. Compensation should be done in accordance with the laws and regulations. I don’t know how this 20% was calculated.”

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 this month and urged financial institutions to protect the legal interests of investors.

BoC said in a statement earlier that it would try to reach settlements with its investors on the losses, and would resolve remaining disputes through litigation.

Some law firms, however, have started to step back from formally representing investors who were still in dispute with BoC.

Two Beijing-based lawyers at large firms that Reuters spoke to were actively gathering materials online but said they could not be involved any more due to conflict of interests and other external pressures. They said that either they or their affiliates provided services to BoC so they could not be involved.

Reporting by Cheng Leng, Kevin Huang, Emily Chow, Ryan Woo and Shanghai newsroom; Editing by Shivani Singh and Richard Pullin

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