Credit Suisse AT1 Fallout Widens In Japan With More Lawsuits

In a suit filed Monday to the Tokyo District Court, two plaintiffs demanded around 42.7 million yen ($290,940) in compensation from SBI Securities Co., Japan’s biggest online brokerage, alleging it sold the notes while offering incorrect explanations about them.

Yamazaki Marunouchi Law Office, which led the filing, also brought claims on the same day against Rakuten Securities Inc. and Monex Securities Inc. for similar reasons.

Global investors lost everything when Switzerland wrote down about $17 billion of Credit Suisse’s Additional Tier 1 bonds as part of a forced merger with the bank’s biggest rival UBS Group AG. The debacle has sparked various lawsuits around the world. In Japan, investors three months ago filed a class action case against the securities unit of Mitsubishi UFJ Financial Group Inc., the nation’s biggest bank.

The crux of the debate in Tokyo hinges around whether sellers adequately explained to buyers the risks associated with the debt, including the conditions that trigger a write down. The latest suits allege that the three online brokerages failed to do so, according to copies of the complaints seen by Bloomberg News.

Read More: Credit Suisse AT1 Fallout Embroils More Japan Brokerages (1)

One of the debt’s features was that it could be fully written down in a “viability” event, which included extraordinary support from the public sector. A product brochure prepared by SBI fell short of fully explaining the characteristics of the notes, even though it had warned of certain conditions under which the entire principal could be lost, according to the suit against the brokerage.

Rakuten and Monex, which sold the products via their business partners, did not mention the viability provision in a brochure typically provided to buyers of foreign securities, the complaints separately filed against the two said.

Two plaintiffs are demanding about 52.6 million yen from Rakuten. One plaintiff is seeking 53.4 million yen from Monex, which was sued by a different law firm in July for similar matters. 

Spokespeople for Monex, Rakuten Securities and SBI Securities declined to comment. 

Criticism has been building in Japan over sales of risky products to retail clients, prompting a crackdown on structured notes underpinned by derivatives last year. The legal fight over the Credit Suisse debt is unfolding as Prime Minister Fumio Kishida tries to persuade households to invest rather than save to help the economy. 

Read More: Bond Investors Buy AT1s As If Credit Suisse Never Happened (1)

(Adds responses from spokespeople for SBI, Rakuten)

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