HK SFC: Buyers Of Credit Suisse Bonds Knew The Risks

Hong Kong’s Securities and Futures Commission on Monday played down the likely impact of a decision by Swiss regulators not to compensate the holders of Credit Suisse's riskiest tier of bonds, adding that recent turmoil in the international banking sector had not caused serious fallout for markets in the SAR.

Local regulators said earlier that the banking sector's exposure to Credit Suisse was "insignificant" after the bank was taken over by UBS in a deal that wiped out US$17 billion worth of contingent convertible bonds, also known as CoCo bonds or Additional Tier One bonds.

Julia Leung, the commission’s chief executive officer, said the bonds were only available to those defined as professional investors, who were aware of the risks.

"The CoCo bond is one of the tools [introduced] after the global crisis in order to shore up the capital of any particularly systemically important financial group," Leung said.

She added that the local authorities had always made it clear that private banks must set out the risks to anyone buying such bonds.

"We've always treated the bonds as a complex product, so in selling to the Hong Kong market, it's mainly sold through private banks' channel, and it's only sold to professional investors," She said.

"The selling of complex products needs a lot of risk disclosure. The customer [has] to understand the risk before buying. We have quite well guided private banks in selling the products [in which] care must be provided to explain the product [and] the risk before the selling," she added.

Unlike holders of the CoCo bonds, Credit Suisse shareholders will get some money back. This reverses the usual situation in which shareholders of a distressed company are last in line for a payout.

Leung also said the impact of the recent collapse of Silicon Valley Bank and some regional banks in the United States was "pretty contained", and there was no sign at present of another global financial crisis.

"At least in Hong Kong, when we look at the exposures, certainly we have funds which might have put their deposits at one of these banks, but the measures taken by the US authorities have protected these deposits as well," Leung said, adding that the Credit Suisse situation had also had a limited impact on financial markets here.

"Being a very open market, of course, the share prices would be subject to the sentiments as well. But we do not really see any serious fallouts on our market," Leung said.