May 5, 2020 / 2:57 PM / a month ago

Bank of China may compensate up to 20% of investments in oil products - sources

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

BEIJING/SHANGHAI (Reuters) - Bank of China (BoC) (601988.SS) (3988.HK) is considering compensating up to 20% of all investors’ original investments in crude oil-linked products, and shouldering all losses recorded in negative territory, two sources told Reuters on Tuesday.

The bank may shoulder a total of 6-7 billion yuan ($1.84 billion) in investors losses and compensation, said the sources, with investors’ losses recorded in negative territory alone amounting up to nearly 6 billion yuan.

The plan follows comments from China’s state council on Monday that the country would closely monitor risks in financial products brought on by turbulence in global commodity markets. The cabinet meeting, chaired by Premier Liu He, also urged financial institutions to manage products’ eligibility to protect investors’ legal interest.

BoC declined to comment.

BoC said in late April it had settled trades for its crude oil futures trading product, also known as crude oil “bao”, at a historic negative value of minus $37.63 per barrel, leaving mainly retail investors saying the bank should have done more to protect their interests.

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 to negative territory for the first time ever in April, many crude oil-linked products racked up major losses, including BoC’s crude oil “bao”.

Global oil prices have plunged so far this year due to the spreading economic impact of the coronavirus pandemic, a price war triggered by major producers Saudi Arabia and Russia, and a shortage of storage for excess oil.

BoC said in a statement earlier on Tuesday it would try to reach settlements with its investors on the losses, and would resolve the remaining disputes through litigation. The statement did not give any details on the compensation plan.

Reporting by Cheng Leng and Kevin Huang in Beijing, Emily Chow in Shanghai; editing by David Evans

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