Investors Meet ICBC Officials on Concern of Trust Default

Investors Meet ICBC Officials on Concern of Trust Default

Investors in a troubled trust product distributed by Industrial & Commercial Bank of China Ltd. met with the lender’s officials at a private-banking branch in Shanghai, demanding their money amid concern of a default.

Individuals were asked to sink at least 3 million yuan ($496,000) in the 3 billion-yuan Credit Equals Gold No. 1 product amid guarantees that it was “100 percent safe,” said Fang Ping, one of 20 investors who went into the branch. The product, which comes due on Jan. 31, raised funds for a coal mining company that collapsed after its owner was arrested.

“ICBC is taking advantage of their private banking customers,” said Alex Ke, 45, before joining his fellow investors in the meeting. “We’re victims in this. This is a shocking scam.”

ICBC, the trust’s issuer and the government may bail out the product, Time-Weekly reported today. A default would shake investors’ faith in the implicit guarantees offered by trust companies to draw funds from wealthy investors. Assets managed by China’s 67 trusts soared 60 percent to $1.67 trillion in the 12 months ended September even as policy makers sought to curb money flows outside the formal banking system.

China Credit Trust Co., based in Beijing, created the product, which raised funds for Shanxi Zhenfu Energy Group. Wang Zhenning, an ICBC spokesman, declined to comment when contacted by telephone today. Two phone calls to the office of China Credit Trust Board Secretary Wei Qing went unanswered.

Raised Voices

Raised voices were heard periodically from inside the ICBC branch where Fang, Ke and the other investors had been meeting bank officials since around 11:15 a.m. Shanghai time. Credit Equals Goal No. 1, which has a tenure of three years, promised an expected annual return of 10 percent, according to information on China Credit’s website.

“If they don’t settle this by Jan. 31, we’ll meet in Beijing,” Chen, a Shanghai investor aged about 50 who declined to give his full name, said before the meeting. “In Beijing, there’ll be more people. We know that investors from Guangzhou will also gather there for this.”

ICBC and China Credit may each take responsibility for 25 percent of payments for the product, while the government of Shanxi province, where the failed coal miner was based, may take responsibility for the remainder, Guangzhou city-based Time-Weekly reported on its website today.

Bailout Plan

The final version of the bailout plan may only be known next week, according to Guangzhou city-based Time-Weekly, which is owned by Guangdong Provincial Publishing Group.

ICBC had rejected calls to bail out the product it distributed for China Credit, a bank official with knowledge of the matter said Jan. 17. Shanxi Zhenfu’s owner, Wang Pingyan, was arrested in 2012 for taking deposits illegally, according to the Shanghai Securities News.

ICBC won’t assume primary responsibility for the product, according to the executive, who asked not be identified while negotiations continue.

“It’s a problem with the sales and marketing of these products,” Liu Mingkang, former head of the China Banking Regulatory Commission, said in an interview from the World Economic Forum in Davos, Switzerland. “They should have made clear that the return rate is not guaranteed and what kind of risks are involved. There shouldn’t be an ironclad guarantee at all.” China’s banking watchdog regulates trusts.

A project backed by the product obtained a new mining license, the Securities Times reported yesterday, citing a statement from China Credit. Another coal mine project has won support from local authorities and the community, it said. Obtaining licenses will permit the mines to start operating and produce coal for sale.

Biggest Shareholder

State-owned People’s Insurance Company (Group) of China Ltd. is China Credit’s largest shareholder with a 32.9 percent stake, according to the credit firm’s website.

China should allow defaults of some wealth-management and trust products to reduce incentives for financial institutions to sell risky products and maintain stability in the financial system, Ma Jun, Deutsche Bank AG’s chief China economist, wrote in a report this week.

Trusts, along with banks’ wealth-management products and private lending among individuals, make up China’s shadow-banking system, which JPMorgan Chase & Co. estimated in May to be worth $6 trillion. The figure is equivalent to 69 percent of the nation’s 2012 gross domestic product.

Shadow Banking

China’s trust industry is now larger than the insurance and mutual fund sectors, McKinsey & Co. and Ping An Trust Co. wrote in a report in November.

The State Council, China’s Cabinet, has taken steps to rein in shadow lending, National Development and Reform Commission spokesman Li Pumin said Jan. 22, according to a briefing transcript posted on China.com.cn, a government-run website. The commission will actively participate and promote the measures, Li said, without elaborating.

The State Council imposed new controls on shadow banking that include a ban on using third parties to evade restrictions on lending directly to certain borrowers, three people familiar with the matter said this month.

To contact Bloomberg News staff for this story: Aipeng Soo in Beijing at asoo4@bloomberg.net; Alexandra Ho in Shanghai at aho113@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: