Bank of China Clients Said to Lose $1 Billion on Oil Bets

(Bloomberg) -- Bank of China Ltd.'s estimate for the carnage to retail investors from the collapse in a product linked to U.S. crude oil futures surged 11-fold to more than 7 billion yuan ($1 billion) as it consolidated reports from its nationwide network, according to people familiar with the matter.

The estimate of losses to customers across China increased from about 600 million yuan in the middle of last week as more information was gathered from its more than 10,000 outlets, said the people, asking not to be identified discussing a private matter. The number isn't final and subject to further change as more branch data are examined, one of the people said.

The losses stem from the bank settling May West Texas Intermediate contracts that underpinned its “Crude Oil Treasure” product on April 20 at minus $37.63 a barrel, leaving Bank of China customers caught in the middle of oil's unprecedented collapse below zero. Hundreds have taken to the Internet to protest the lender's handling of the contract rollover and to demand it shoulder some of the losses.

Bank of China declined to comment. It hasn't disclosed the size or performance of “Crude Oil Treasure” since launching the product in January 2018.

The investment vehicle had offered Chinese retail investors access to WTI oil futures without opening an offshore account and was pegged to the flat price of the front-month contract and settled in Chinese yuan. It requires 100% margin and doesn't allow any leverage.

Bank of China suspended trading in the product last week. China's biggest banks including China Construction Bank Corp. and Bank of Communications Co. also halted sales of similar vehicles that had become a popular way for individuals to speculate on swings in oil.

Bank of China said on Friday that about 46% of the investors had liquidated their positions on April 20, while the remaining chose to either roll over their positions or settle at the expiration, including both long and short positions. The bank also softened it stance by saying it will fully review its product design, risk control and related procedures and take responsibilities within the legal framework and make the best effort to safeguard their clients' interests.

More than 60,000 clients have invested in Bank of China's product, Caixin reported, adding that investors have lost their margins of 4.2 billion yuan and owed the bank a further 5.8 billion yuan. Some clients have received phone calls from the lender that it won't seek recourse for the money owed to it at the moment, the China Securities Journal reported on Sunday.

The turmoil risks drawing further attention to China's $3 trillion industry for bank wealth products, which invests in everything from bonds and stocks to foreign exchange and commodities. Over the past three years, regulators 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.

With assistance from Bloomberg