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Bank of China has told its clients that it would pick up the tab for part of the $1.4-billion total loss that its retail customers amassed from investing in a crude oil futures-linked product, several Chinese retail investors told Bloomberg on Tuesday.
Bank of China, one of the largest lenders in the country, has a paper investment structured product for retail investors linked to international futures contracts, including WTI Crude and Brent Crude.
The structured product linked to oil benchmarks burnt many Chinese investors in last month’s market carnage when WTI Crude prices plunged to a negative -$37 a barrel.
The consequences of the negative WTI Crude prices went far and wide, burning even retail Chinese investors who aren’t allowed to invest in the international crude oil futures markets directly.
Sources with knowledge of the matter told Caixin Global that Bank of China’s Yuan You Bao product alone burnt more than 60,000 Chinese retail investors with a total of US$1.4 billion (10 billion yuan).
Following the turmoil in international oil markets, Bank of China suspended the opening of new positions in its oil-linked product. Meanwhile, retail investors started complaining that they weren’t adequately informed of the actual risks of betting on crude oil price swings.
Last week, the China Banking and Insurance Regulatory Commission (CBIRC), the financial industry regulator of China, asked Bank of China to investigate problems regarding the oil-linked product. The regulator also called on all commercial banks to reassess the risk when offering and structuring products linked to crude oil price swings.
According to the Chinese retail investors who spoke to Bloomberg this week, Bank of China has told customers via the phone that apart from absorbing some of the losses on the oil-linked product, it would also return 20 percent of the initial investment to some of its clients.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.