SBI Holdings Inc. and Monex Group Inc. are among the firms in Japan that have also sold Credit Suisse's riskiest bonds to retail investors, highlighting the widening impact of these products in the country.
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The operators of the nation s three major online brokerages offered the Swiss lender's additional Tier 1 notes for a minimum purchase amount of $200,000, according to copies of the firm's product explanatory materials seen by Bloomberg News. The documents also raised questions about whether information about the risks associated with the product was properly disclosed to investors.
In March, Switzerland's decision to write down the bonds as part of a government-led rescue of Credit Suisse struck investors in Japan, who bought around 1 billion yen of the debt. Clients of Mitsubishi UFJ Financial Group Inc.'s securities venture with Morgan Stanley took the lion's share of the hit. The scandal in a country that is trying to attract its citizens to invest more has prompted regulators to look into whether the firms properly explained the risks before selling the bonds.
In addition to the product characteristics of AT 1 bonds of Credit Suisse Group AG, we have sold those securities to customers to whom we thought the products would be suited, after having sales staff explain about them in person, an SBI spokeswoman said in response to questions about the documents.
Rakuten Securities Inc. sold the debt through its business partners called independent financial advisers, and is inspecting and inspecting its sales practices and explanatory materials, a spokeswoman said. The firm will continue to follow up with the buyers and respond appropriately should it decide to escalate the issue, she said.
Monex is not commenting on the sales, although a Monex spokeswoman declined to comment.
The three firms did not disclose the value of the bonds they sold. They also did not comment on whether they had explained so-called viability event provisions to clients verbally or in writing.
In the foreign securities information brochures, bond summaries, and pre-contract documents prepared in Japanese for buyers by SBI, Rakuten or Monex - obtained and examined by Bloomberg News - there is no mention that one of the debt s features is it would be fully written down if viability events happen. Those events include extraordinary support from the public sector, based on the bond's English prospectus. In the process of completing the wipeout, Swiss officials used that provision in proceeding with the wipeout on the Credit Suisse AT 1 bondholders, as they engineered a rescue by UBS Group AG.
Monex and Rakuten's foreign securities information and bond summaries state that the bond s principal would be reduced should Credit Suisse's common equity tier 1 ratio - a measure of financial stability - fall below 7%. SBI's documents say the ratio of the bank's shares to the value of the company would be lost if the ratio falls below 7% or if authorities determined Credit Suisse has no chance of surviving.
With help from Rie Morita, Nao Sano and Taiga Uranaka.