Credit Suisse AT1 Sales Probed by Japan’s Top Regulator

Japan’s top financial watchdog is probing how Credit Suisse’s riskiest debt was sold to investors as the fallout sends ripples through the nation’s financial sector.

(Bloomberg) — Japan’s top financial watchdog is probing how Credit Suisse’s riskiest debt was sold to investors as the fallout sends ripples through the nation’s financial sector. 

The Financial Services Agency is scrutinizing what kind of explanations brokerages gave about potential losses on the Swiss bank’s bonds and if customers were aware they could be written down to zero, new commissioner Teruhisa Kurita said in an interview. 

“If it was not properly explained that they could default, it would be a problem,” Kurita said, marking the strongest comments yet on the topic by an official in Japan.

Switzerland’s decision in March to write down the bonds as part of a government-led rescue of Credit Suisse shocked investors in the nation, who bought around 140 billion yen ($983 million) worth of the debt. 

Clients of Mitsubishi UFJ Financial Group Inc.’s securities venture with Morgan Stanley took the bulk of the losses. The firm has said it handled sales of Credit Suisse’s riskiest debt properly for the most part as it continues its own review.

“It’s important that customers understood well. It’s not ok to just have explanations written on the documents,” Kurita said. 

According to one complaint that Kurita is aware of, a customer made an inquiry around fall last year when there was market concern about the bank’s health, and was told that Credit Suisse AT1 bonds were safer than stock, he said. 

“If that is the case, then, there would be an issue of what kind of explanation had been given,” he said.


The aftermath is already being felt in Japan, which found itself at the centre of losses on the AT1 instruments in Asia. Online brokerages SBI Holdings Inc., Rakuten Group Inc. and Monex Group Inc. were among those that sold the debt to retail investors.

Monex was sued last month over the sale. Rakuten Securities has said it is reviewing sales of financial products after finding shortfalls in how it explained Credit Suisse’s riskiest debt to retail buyers.

Kurita, 59, is a career bureaucrat who started out at the Ministry of Finance. He became the chief of the FSA in July. 

He said the agency needs more time to learn exactly what took place at the time of sale and how brokerages followed up with customers after that. Any further action will depend on the situation, he said.

Coupled with the FSA’s crackdown on risky derivatives known as structured bonds that were sold to retirees and other mom-and-pop investors, the losses suffered by holders of the Credit Suisse debt have raised questions about the robustness of fiduciary duty in the financial sector.

The issue is gaining importance as Prime Minister Fumio Kishida designated asset management as strategically important for the country’s economic growth, seeking to put household financial assets to work.

Asked why Japanese households traditionally have kept more money in bank deposits than western peers, Kurita said few financial products have offered households a stable investment for the long term.

“Customers have not necessarily been explained well about risks, returns and costs, either,” he said. “So when the markets go south, there are many complaints and customers end up with the impression that investment is risky.”  

Insurance Scandal

Separately, Kurita said the regulator will examine what went wrong after the FSA issued a report order on a unit of Sompo Holdings Inc. and six other insurers in connection with alleged insurance fraud by used-car dealership Bigmotor Co.

“The insurers will submit reports and we will hear from them. We need to study more specific situations before we can make any comments,” he said.

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