More Japanese Brokers Entangled in Credit Suisse’s AT1 Bond Fallout

<p>Three more brokerages
might be facing Japan’s financial
regulator’s scrutiny into how
Additional Tier 1 (AT1) bonds of Swiss lender Credit Suisse were sold.
According to product explanatory materials seen by Bloomberg, SBI Holdings,
Rakuten and Monex, three of the country’s largest online brokerages in
Japan, sold the bonds to
investors. </p><p>Japanese
Investors Lost $1B to AT1 Bond Wipe Out </p><p>In early March, rival Swiss bank UBS <a href="https://www.financemagnates.com/institutional-forex/ubsagreed-to-buy-troubled-rival-credit-suisse/" target="_blank" rel="follow">agreed to acquire
Credit Suisse</a>, which
nearly crumbled in the wake of the recent banking crisis in the United States, <a href="https://www.financemagnates.com/" target="_blank" rel="follow">Finance Magnates</a> reported. As part of the deal, which was arranged by the Swiss government, the
Swiss Financial Markets Supervisory Authority (FINMA) ordered <a href="https://www.financemagnates.com/institutional-forex/ubs-credit-suisse-deal-brings-havoc-to-global-markets/" target="_blank" rel="follow">the complete wipeout</a> of about $17 billion of Credit
Suisse’s AT1 bonds to increase the troubled bank's core capital. </p><p>The move
<a href="https://www.financemagnates.com/institutional-forex/ubs-credit-suisse-deal-brings-havoc-to-global-markets/" target="_blank" rel="follow">sent shivers</a> across the global financial markets, causing Credit Suisse’s AT1
holders in Japan to lose about 140 billion yen ($1 billion). Clients of
Mitsubishi UFJ Morgan Stanley Securities accounted for the biggest losses.</p><p>In
response, the Japan Securities Dealers Association said it was querying its
members about the sale of the AT1 bonds to Japanese
investors. However,
new documents obtained by Bloomberg show that the
three leading brokerages also offered the bonds to their clients at a minimum purchase amount of $200,000.</p><p>The revelation raises questions
about whether the brokerages properly informed their clients about the risks
associated with the debt instrument. An SBI spokesperson told the outlet that
it considered the product characteristics of the Credit Suisse convertible
securities before offering them for sale. Additionally, the brokerage said it
offered the bonds only to
customers it deemed suitable, and only after its sales team had
engaged such an investor about the facility. Furthermore, while Rakuten told Bloomberg that it is reviewing and inspecting
its sales activities and explanatory materials, Monex declined to comment on
the matter.</p><p>Meanwhile,
Bloomberg reported that its review of the relevant documents prepared for buyers of the bond revealed that none of
them mentioned that the AT1 bond will be completely written down if certain
‘viability’ events such as strong public sector support, occurred. However, Monex
and Rakuten in details shared with investors indicated that investors’ funds will be ‘reduced’ should Credit Suisse’s common equity tier 1(CET1) drops below 7%. Conversely, SBI told its investors that the entire amount will be lost in such a situation.</p><p>The CET1
ratio is a calculation that shows the financial strength of a banking
institution. A higher ratio indicates that a lender is more likely to be able
to endure financial
shocks and remain solvent.

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This article was written by Solomon Oladipupo at www.financemagnates.com.