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China’s Collateral Rehypothecation Fraud Is Systemic

China’s Collateral Rehypothecation Fraud Is Systemic

Tyler Durden on 06/14/2014 14:57 -0400

It’s official – everyone’s involved! According to the 21st Century Business Herald, at least 17 financial institutions involved in copper, aluminum and other nonferrous metals financing business face losses of almost 15 billion Yuan (not including the contagious rehypothecated collateral chains involved) due to the over-invoicing of the Qingdao port. Crucially, it appears that the evaporation of collateral (i.e. multiple loans secured by the same collateral) has been confirmed officially and banks such as Standard Chartered have already ceased any new business via this supposedly secured channel.

Via Caijing (via Google Translate),

According to the 21st Century Business Herald, Qingdao, where at least 17 banks involved in copper, aluminum and other nonferrous metals financing business, which 17 banks, including China Eximbank, the establishment of diplomatic five rows of workers and peasants, China, Minsheng, Industrial, Investment, CITIC five medium-sized banks, also includes Prudential, Qilu, Rizhao, Weihai, Weifang, Shandong and other local financial institutions, coupled with a remote city in Hebei banking firm.

Informed sources said 17 financial institutions involved in the financing amount Qingdao Port trade finance business in non-ferrous metals 14.8 billion yuan from top to bottom, including single-family Eximbank in 4 billion and down, accusing him of involving an amount of more than 1 billion are down.

At the end of the first quarter of 2014, the outstanding loans in foreign currencies, Qingdao 998.46 billion, of which the balance of the manufacturing sector was 228.53 billion; 15 billion equivalent to 1.5% of total outstanding loans to local financial institutions, manufacturing 6.5% of the loan balance .

Qingdao Port nonferrous metals repercussions in the financial institutions financing fraud also caused the divergence. Next, the bank is bound to tighten credit financing, a thorough investigation of existing financing facilities of collateral, which will further exacerbate the bad debt exposure process.

As early as the end of April, the CBRC supervision quarterly meeting, the China Banking Regulatory Commission had warning, “the steel industry trade violations financing model has been copied to sign the copper, coal, iron ore, soybeans and other commodities trade finance field.”

Commodity trade finance risks for the first time and industries with excess capacity, and real estate financing platform tied to become the focus of regulatory agencies in the field of credit risk prevention.

For a number of foreign banks involved in financing scam Qingdao Port nonferrous metals foreign banks, includingStandard Chartered Bank, had previously announced a halt for some Chinese metal financing business from new customers.

The effects are already clear in Copper and Iron Ore prices.. next we see if the physical gold bid re-appears as CCFD unwinds continue and crediot contracts for all but the most creditworthy names in China (and there’s not many of them left).

 

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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