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Japan bank’s clients lost over $700 million in Credit Suisse CoCo bond wipeout

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Clients at Mitsubishi UFJ Financial Group Inc (MUFG) lost more than $700 million on Credit Suisse Group AG’s contingent convertible bond wipeout, according to people familiar with the matter, first reported by Bloomberg on Friday.

Sources say senior officials are reportedly reaching out to around 1,500 clients who lost a total 95 billion yen ($717 million) when Swiss regulators wrote down the value of Credit Suisse’s
CS,
+1.05%

contingent convertible bonds –– also known as CoCo bonds or Additional Tier 1 (AT1) bonds –– last month.

American depositary receipts of Mitsubishi UFJ Financial Group
MUFG,
+0.78%

were up almost 1% in Monday premarket trading.

The bonds were purchased through MUFG’s brokerage venture with Morgan Stanley
MS,
+1.19%
,
Mitsubishi UFJ Morgan Stanley Securities.

Of those 1,500 client accounts, 1,300 were held by individual investors and the rest were owned by corporations, according to a spokeswoman from Mitsubishi UFJ Morgan Stanley Securities on Monday.

A spokesperson for the bank told Bloomberg that it is looking into whether wealth managers operating within the venture properly explained the risks of AT1 bonds.

Those bonds were designed to be risky and could be written down if a bank needs capital in an emergency. But when the Switzerland’s government wiped out the debt at Credit Suisse as part of a planned deal for the Swiss bank to be taken over by UBS
UBS,
+1.29%
,
some bondholders lashed out against the move and sought legal advice.

The move rocked the bond market and put the health of some European banks into the spotlight, with similar bonds at Deutsche Bank dropping in value after the event.

“We are very sorry that we are causing our clients concern,” Mitsubishi UFJ Morgan Stanley told Bloomberg. “We will continue to offer thorough explanations to the customers who have been affected.”

MarketWatch reached out to Mitsubishi UFJ Morgan Stanley for comment.

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