BACHY - Bank of China Limited

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-0.10 (-1.10%)
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  • Short Term
    2W - 6W
  • Mid Term
    6W - 9M
  • Long Term
    9M+
Previous Close9.10
Open9.03
Bid0.00 x 0
Ask0.00 x 0
Day's Range9.00 - 9.05
52 Week Range8.57 - 10.89
Volume104,792
Avg. Volume175,869
Market Cap188.831B
Beta (5Y Monthly)0.83
PE Ratio (TTM)4.00
EPS (TTM)2.25
Earnings DateN/A
Forward Dividend & Yield0.68 (7.42%)
Ex-Dividend DateJul 06, 2020
1y Target EstN/A
Fair Value is the appropriate price for the shares of a company, based on its earnings and growth rate also interpreted as when P/E Ratio = Growth Rate. Estimated return represents the projected annual return you might expect after purchasing shares in the company and holding them over the default time horizon of 5 years, based on the EPS growth rate that we have projected.
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    • Moody's

      Bank of China Limited, Johannesburg Branch -- Moody's withdraws provisional ratings of the Medium Term Note programs for Bank of China's Hungarian and Johannesburg Branches

      Moody's Investors Service ("Moody's") today has withdrawn provisional ratings of the Medium Term Note (MTN) programs for Bank of China Limited, Hungarian Branch and Bank of China Limited, Johannesburg Branch. Moody's has withdrawn the provisional ratings of the MTN programs for business reasons. Bank of China Limited, Hungarian Branch is located in Hungary (Baa3 stable) and Bank of China Limited, Johannesburg Branch is located in South Africa (Ba1 negative).

    • Bloomberg

      Why This China Bull Run Isn’t a Repeat of 2015

      (Bloomberg Opinion) -- The animal spirits lifting China’s stock market can evaporate as mysteriously as they appear. Many discerning traders are now scratching their heads, and worry that we’re seeing a repeat of the spectacular boom and bust of 2015.There are certainly similarities. This rally is too fast, turnover has soared in tandem with margin debt, and online trading platforms are struggling to keep up. Looking at sector-level performance also feels like deja vu — with good reason. Investors are scouring through old trading patterns and buying the same set of stocks. The tech-heavy ChiNext Index is once again the big winner, along with brokers. China’s retail tigers don’t change their stripes. But there are key differences. If anything, we aren't mirroring 2015 at this point. Rather, it feels like 2014, when China’s bull was just waking up.Whereas the 2015 rally was engineered by the central bank, which started its rate cut cycle the previous November, this round of trading frenzy is a play on Beijing’s ambitious $1.4 trillion tech infrastructure build-out. In fact, the People’s Bank of China stepped back from open-market operations in June, wary that earlier rounds of easing had spurred speculative interest-rate arbitrage, as investors borrowed cheaply and sank money into higher-yielding wealth management products. This distinction is important, because often loose monetary conditions only make buying margin loans cheaper, without flowing into the real economy at all. Fiscal dollars, on the other hand, can directly boost company earnings. We’ve already seen this with many hard tech companies, such as chip foundry Semiconductor Manufacturing International Corp., which would still be in the red without government subsidies. So unlike 2015, the quality of helicopter money is better this time around. For now, there’s still plenty of market depth and appetite. In 2015, any initial public offering would drain liquidity, causing broader indexes to tumble. This time, while retail investors are still rushing to new shares and betting on big first-day pops, new supplies of stocks are welcome. This is a bullish sign. SMIC’s Shanghai IPO, the largest in a decade, only served as a catalyst to the tech rally. Rising markets that sink on new IPOs are bear rallies — we’re not there yet. And let’s not forget, the world has changed. In 2015, the rest of us watched the mainland stock drama with amazement and alarm. This time, China is just joining the global liquidity bandwagon — with its own idiosyncratic investor base and valuations, of course. The “Powell put” has propelled the Nasdaq Composite Index to record highs, even as the U.S. sets daily coronavirus case records. Meanwhile, retail investor participation, a major force in China, is picking up elsewhere, too. To be sure, China’s already got a lot of fluff. A rally in brokers, for instance, is unsustainable — especially if the government is ramping up competition by allowing giant commercial banks to enter the industry. But hey, there are anomalies everywhere, especially as the world’s central banks are printing money at a record pace. You can think about China’s stock market like a petulant toddler; you don’t know why she’s acting up, so just give her a big hug and hope for the best. With this bull run not even 10 days old, you’d better hold her tight. This is no time to talk about the 2015 crash.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

    • Exclusive: Chinese banks prepare contingency plans over threat of U.S. sanctions - sources
      Reuters

      Exclusive: Chinese banks prepare contingency plans over threat of U.S. sanctions - sources

      Chinese state lenders are revamping contingency plans in anticipation of U.S. legislation that could penalise banks for serving officials who implement the new national security law for Hong Kong, sources at five state financial institutions said. In worst-case scenarios under consideration by the Bank of China <601988.SS> <3988.HK> and Industrial and Commercial Bank of China (ICBC) <601398.SS> <1398.HK>, the lenders are looking at the possibility of being cut off from U.S. dollars or losing access to U.S. dollar settlements, two sources said.

    • China’s Digital Yuan Gets First Big Test Via Tech Giant Didi
      Bloomberg

      China’s Digital Yuan Gets First Big Test Via Tech Giant Didi

      (Bloomberg) -- Ride-hailing giant Didi Chuxing is testing China’s digital cash as a payment method on its platform, in what could be one of the first real-world applications of the electronic version of the yuan.The SoftBank Group Corp.-backed startup said on Wednesday it’s working with a research wing of the People’s Bank of China on uses for the virtual legal tender dubbed Digital Currency Electronic Payment, or DCEP. That includes testing the token on its ride-hailing platform, people familiar with the matter said. Specifics like when the feature will officially roll out aren’t clear yet, they said, asking not to be identified because the plan is private.Shares in Chinese financial software and information security companies including Feitian Technologies Co. and Julong Co. rose by their 10% daily limits on the news. Representatives from the PBOC had no comment when contacted.China’s government began a pilot program for its digital currency, which lives on a mobile wallet application and offers Beijing greater control of the country’s financial system, a few months ago. The initial testing was limited to four cities, with local media reporting that some of the money was distributed via transport subsidies to residents in Suzhou. However, implementation remains a question. China’s $27 trillion payments industry is already dominated by twin internet giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd.Adoption by Didi, which connects half a billion Chinese commuters, would drive acceptance of China’s digital coin and widen Beijing’s global lead in government-sanctioned virtual tokens. Didi currently employs payment tools from Tencent and Alibaba-backed Ant Group, so it would appear to be a good candidate for DCEP. Beyond its core ride-sharing business, Didi is luring grocers and merchants onto its platform -- and they could also become users of the national digital tokens.Why China’s Rushing to Mint Its Own Digital Currency: QuickTakeChina’s central bank has led global peers in development of digital legal tender, with research efforts started in at least 2014. The digital currency is intended to eventually replace coins and banknotes, and could offer an alternative to the dollar-based international payments systems.“DCEP will become a key infrastructure of digital economy,” Didi said in a Chinese statement. It will work with the government to “boost the integration of the digital economy with the real economy.”Read more: China’s Digital Currency Could Challenge Bitcoin and Even the Dollar(Updates with share action in the third paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

    • Moody's

      TCL Technology Investments Limited -- Moody's assigns (P)A1 to notes to be issued by TCL Technology Investments Limited, supported by SBLC from Bank of China Limited, Guangdong Branch

      Moody's Investors Service has assigned a provisional (P)A1 rating to the credit enhanced notes to be issued by TCL Technology Investments Limited. The notes will be supported by an irrevocable standby letter of credit (SBLC) from Bank of China Limited, Guangdong Branch (the LC bank). Bank of China Limited, head office of the LC bank has been assigned a long-term Counterparty Risk Assessment (CR Assessment) of A1(cr).

    • Moody's

      Moody's assigns (P)A1 to notes to be issued by TCL Technology Investments Limited, supported by SBLC from Bank of China Limited, Guangdong Branch

      Moody's Investors Service has assigned a provisional (P)A1 rating to the credit enhanced notes to be issued by TCL Technology Investments Limited. The notes will be supported by an irrevocable standby letter of credit (SBLC) from Bank of China Limited, Guangdong Branch (the LC bank). Bank of China Limited, head office of the LC bank has been assigned a long-term Counterparty Risk Assessment (CR Assessment) of A1(cr).

    • Hong Kong Brokers Are Already Reading From Beijing’s Script
      Bloomberg

      Hong Kong Brokers Are Already Reading From Beijing’s Script

      (Bloomberg Opinion) -- The national security law China imposed on Hong Kong this week will damage civil liberties with long jail sentences and grant  immunity to Chinese agents working in the territory. For investors who depend on the city as a financial center, though, there may be an extra sting in the tail.The law could increase self-censorship by Hong Kong’s analysts and economists, and damage the credibility of research reports, the Financial Times reported this week. The need to maintain relationships with mainland clients has influenced coverage in the past, but many fear the new law will exacerbate this trend.It’s a bit late to be worrying about that, though. Self-censorship isn’t just a matter of avoiding gratuitous digs and glib phrases. If you look at the ratings given by equity analysts in recent years, it seems to include portraying companies with strong mainland connections as better investments than they actually are.Take the 50 companies on the Hang Seng Index. You can easily break them into three groups: 15 Chinese state-owned enterprises, or SOEs, such as Bank of China Ltd. and PetroChina Ltd.; 13 civilian-controlled mainland Chinese businesses, or COEs, such as Tencent Ltd. and Sino Biopharmaceutical Ltd.; and 22 other, mostly locally controlled stocks, such as HSBC Holdings Plc, CK Hutchison Holdings Ltd. and AIA Group Ltd(1). Then look at the extent to which analysts’ consensus target prices have exceeded actual stock prices in recent years. SOEs get the most favorable treatment, with target prices exceeding actual prices by an average of 24% since the start of 2016, compared to 16% for the COEs and 13% for non-mainland companies.It’s not just in Hong Kong that brokers’ target prices tend to run higher than the actual market — there’s a reason they’re called sell-side analysts. China is still an emerging market, too, so it’s not impossible that its stocks simply have more upside than those operating out of a mature economy such as Hong Kong. So perhaps the reason state-owned enterprises get a target price premium over local companies is simply that they’re better investments that will deliver higher returns to investors?If only. Thanks to booming tech and biotech stocks and the huge run-up in prices during 2017, civilian-owned Chinese companies did achieve pretty stunning average total returns of 31% over the past four-and-a-half years. SOEs, however, averaged a measly 1.9%, far less than the 6.1% achieved by the non-mainland stocks.It’s not totally irrational that possessing a wealthy patron should be seen as an advantage for some investments. The Chinese state tends to put its thumb heavily on the scales in favor of its own organs, with diminishing benefits the further you get from the commanding heights of the economy, as my colleague Shuli Ren has written.In particular, it’s logical for credit analysts to give state-owned enterprises a better rating than those that can’t count on the backing of the Chinese government to bail them out. Even there, you’ve not been paying attention if you think the interests of private bondholders are going to be treated equally with those of better-connected investors.Still, when looking at the equity market, the proof should be in the pudding. If analysts predict a stock will consistently outperform — as they tend to do in relation to SOEs — then it should do that. If not, they’re either bad at their jobs or misleading their clients.There are many things to worry about in Hong Kong’s new national security law. The integrity of equity research is probably not one of them. Sell-side brokers themselves gave that away long ago.(1) We've equal-weighted each of these baskets of stocks so that a few stocks with huge market caps like Tencent, HSBC or China Construction Bank don't skew the overall result.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

    • China’s JPMorgan Isn’t Coming Anytime Soon
      Bloomberg

      China’s JPMorgan Isn’t Coming Anytime Soon

      (Bloomberg Opinion) -- China is attempting to create its own JPMorgan Chase & Co. The ambitions could prove hard to satisfy.Regulatory authorities may allow some of the largest commercial lenders into the brokerage industry to perform services that include investment banking, underwriting initial public offerings, retail brokering, and proprietary trading, local media outlet Caixin reported. With capital markets flailing and direct financing struggling to take hold as debt rises across the economy, what better way than to bring in its trillion-dollar whales to boost the financial sector?There is logic to this. Size matters, and the volumes could lead to success. China’s banks have more than $40 trillion in assets; the securities industry’s amount to around 3% of that. The largest lender, Industrial & Commercial Bank of China Ltd., had 32.1 trillion yuan ($4.5 trillion) in assets and 650 million retail customers as of March, according to Goldman Sachs Group Inc. The biggest broker, CITIC Securities Co., had 922 billion yuan and 8.7 million retail clients. Banks have thousands of branches with deeper distribution channels.But banks are the load-bearing pillars of China’s financial system. Regulators have asked lenders to show leniency with hard-up borrowers and to forego profits in the name of national service, in both tough and normal times. Granting brokerage licenses could help them create another channel of (small) profits.Banks stepping in where brokers have failed could help the broader capital markets. In theory, commercial lenders know how to deal with different types of risk, like with the ups and downs in the value of a security and market movements. They’re already big participants in bond markets and have access. Bringing banks into mainstream brokering could help reduce the intensity of risk associated with the trillions of dollars of credit being created in China every month. It may also help solve a persistent problem: the inefficient allocation of credit that has led to mispriced assets.All of this is contingent upon the banks pulling their weight. Going by past experiments, they haven’t brought the heft that Beijing had hoped. Consider China’s life insurance industry. It took bank-backed players in this sector a decade to build a foothold. Their market share grew to 9.2% last year from 2.5% in 2010. The brokerage arms of Chinese banks in Hong Kong have fared little better. Bank of China International Securities, set up in 2002 by Bank of China Ltd., remains a mid-size broker by assets and revenue, Goldman Sachs says. Top executives come from the bank; related-party transactions with the parent account for just about 14% for underwriting business and around 39% for income from asset management fees.Catapulting ICBC to the same stature as JPMorgan — a full service bank with a 200-year history — may take a while. The American financial giant has hired big, and opportunistically built out businesses. It bought and merged with firms like Banc One Corp. and Bear Stearns Cos. and is in consumer banking, prime brokerage and cash clearing. The services it offers run the gamut of credit cards, retail branches, investment banking, and asset management. Shareholders have mostly rewarded the efforts.For China’s biggest lenders, conflicting and competing priorities will make this challenging. They’re already being required to take on more balance sheet risk, lend to weak companies and roll over loans while maintaining capital buffers, keeping depositors happy and essentially martyring themselves. Now, they’ll be adding brokering at a time when traditional revenue sources are shrinking in that business. And it won’t happen overnight, or even in the next two years. As for brokers? Their stock prices dropped on the news that banks would be wading into their territory.Beijing’s efforts to shore up its capital markets may look OK on paper, but they’re increasingly muddled and interests aren’t aligned. As China attempts to make its financial sector more institutional and less fragmented while it’s also letting in foreign banks and brokers, allowing the big homegrown institutions to do more, with additional leeway, doesn’t necessarily make for a stronger system. As I’ve written, experiments like these can have unexpected results.Over time, it won’t be surprising to see China’s large brokers and banks start looking very similar; for instance, big securities firms becoming bank holding-type companies, as one investor suggested. That may be a laudable goal for Beijing, but is it realistic? And does it take into account the problems on the financing side, such as misallocation and transmission? Ultimately, none of this really gets at one big problem: unproductive credit.All the while, regulators are inviting in the likes of the actual JPMorgan Chase and Nomura Holdings Inc. and giving them bigger roles. China won’t be ready. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal. For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

    • Bloomberg

      MTA Can't Go Bankrupt. So How Does It Survive?

      (Bloomberg Opinion) -- New York’s Metropolitan Transportation Authority has a lot of problems, but bankruptcy isn’t one of them.That’s not because the MTA couldn’t use the debt relief. Far from it: The agency has more than $40 billion of municipal bonds outstanding, borrowed $1.1 billion in early May to pay down maturing notes, issued an additional $525 million two weeks later for infrastructure needs, secured a $950 million credit agreement with JPMorgan Chase & Co. and Bank of China, and won approval to tap the Federal Reserve’s emergency liquidity facility. Debt is as much a part of the lifeblood of the nation’s largest public transit system as the subway tunnels themselves.   Rather, the MTA is legally barred from filing for bankruptcy. This doesn’t get discussed much — perhaps to avoid evoking New York City’s own brush with insolvency in the 1970s. For instance, neither Moody’s Investors Service nor S&P Global Ratings mentioned the word “bankruptcy” in reports this year explaining why they downgraded the agency’s debt. Fitch Ratings, which gives the MTA a higher grade than its two competitors, also cut the MTA’s rating after the Covid-19 pandemic roiled the New York metropolitan area. But it specifically cites the lack of bankruptcy risk as a key strength. Here’s the provision in full, from a recent MTA bond sale:No Bankruptcy. State law specifically prohibits MTA, its Transit System affiliates, its Commuter System subsidiaries or MTA Bus from filing a bankruptcy petition under Chapter 9 of the U.S. Federal Bankruptcy Code. As long as any Transportation Revenue Bonds are outstanding, the State has covenanted not to change the law to permit MTA or its affiliates or subsidiaries to file such a petition. Chapter 9 does not provide authority for creditors to file involuntary bankruptcy proceedings against MTA or other Related Entities.“We’re very clear that their legal structure and their inability to file for bankruptcy protection is an important criteria,” Michael Rinaldi, Fitch’s lead analyst on the MTA, told me in a phone interview. “Absent that protection, it would have an adverse ramification for how we view the MTA’s financial leverage, which is quite substantial.”Or as I’d put it: If the MTA could file for bankruptcy, the move couldn’t be ruled out.To be clear, the MTA is hardly out of options, even though it faces a potential $10.3 billion deficit through 2021. As I wrote in April, the agency’s leaders know public transit is vital to moving people around the New York City area, which accounts for almost 10% of the nation’s gross domestic product, and have successfully used that as leverage to secure federal funds. However, it’s burning through that money fast: It has about $1 billion remaining of the $3.8 billion that Congress approved to help cover the sharp drop in ridership and the cost of extra cleaning and disinfecting. MTA officials say they need $3.9 billion more.There’s every reason to expect it’ll get those funds — Congress isn’t about to repeat Gerald Ford’s “drop dead” moment by denying federal aid. But digging deeper into the MTA’s operating framework, it’s clear that the coronavirus pandemic has set the agency back in such a way that it’ll have no choice but to rely on federal help and more debt for the foreseeable future. That’s probably enough to scrape by, but it raises doubts about whether the MTA will ever have enough cash to truly revitalize the system’s aging infrastructure.The MTA borrows under something known as the “Transportation Resolution,” which allows it to issue additional bonds without meeting any specific debt-service-coverage level as long as the securities are used to fund approved capital projects and the MTA certifies to meeting a “rate covenant” for the year the bonds are sold.This is the rate covenant:MTA must fix the transit and commuter fares and other charges and fees to be sufficient, together with other money legally available or expected to be available, including from government subsidies — to pay the debt service on all the Transportation Revenue Bonds; to pay any Parity Debt; to pay any Subordinated Indebtedness and amounts due on any Subordinated Contract Obligations; and to pay, when due, all operating and maintenance expenses and other obligations of its transit and commuter affiliates and subsidiaries. Take note of the “including government subsidies” clause. As the MTA eventually explains, it’s the entire game:The Transit, Commuter and MTA Bus Systems have depended, and are expected to continue to depend, upon government subsidies to meet capital and operating needs. Thus, although MTA is legally obligated by the Transportation Resolution’s rate covenant to raise fares sufficiently to cover all capital and operating costs, there can be no assurance that there is any level at which Transit, Commuter and MTA Bus Systems fares alone would produce revenues sufficient to comply with the rate covenant.That puts all the cards on the table. Notably, this language is based on the MTA’s adopted budget from February, before any Covid-19 impacts were even considered. In April, ridership compared with a year earlier fell 92% on MTA subways, 94% on the Metro-North Railroad and 97% on the Long Island Rail Road.Clearly, either the federal, state or city government (or all three) will have to pay up. The MTA alone has no chance of raising enough money itself to satisfy the rate covenant. If it doesn’t get aid, it can’t issue more bonds and would most likely have to slash operating expenses. And if the MTA can’t borrow, there’s no money to finance infrastructure projects. This is the domino effect that has halted the agency’s $51.5 billion five-year capital program.“This is a four-alarm fire,” Pat Foye, the MTA’s chief executive officer, said last week. “We are facing the most acute financial crisis in the history of the MTA.”Bloomberg News’s Michelle Kaske reported that the MTA was set to spend $13.5 billion this year for infrastructure upgrades, but the agency has awarded only $2.3 billion. Without federal aid, it may need to freeze wages, fire workers and divert more money from the capital budget. Foye said he would ask the U.S. government for more cash in 2021.To some extent, “every mass transit system needs to be subsidized,” says Howard Cure, head of municipal research at Evercore Wealth Management. For the MTA in particular, “it’s almost a thought of too big to fail. The New York metropolitan area cannot function without a strong transportation system. They need access to the capital markets — you cannot let the system deteriorate.”Yet the MTA will be hard pressed to squeeze more money out of the city, which itself is considering 22,000 layoffs and furloughs to cut $1 billion of expenses. At the state level, some studies suggest tax revenue could tumble by 40%, the most in the nation. In theory, both the state and city can require the MTA to redeem its bonds as long as they provide sufficient funds.(1) If that didn’t happen during good economic times, though, it’s not happening now. If push came to shove, Cure says, the state could move to backstop the MTA’s borrowing with its own credit rating, just one step below triple-A. That would presumably lower borrowing costs and provide some budgetary flexibility.All that is to say, the MTA will have to subsist on federal payments throughout the coronavirus crisis, with perhaps some short-term financing from the Fed sprinkled in. Without question, the U.S. government should do more to help support state and local governments, including public transit agencies, through this economic downturn. Congress will likely provide at least some aid in its next relief package, and the MTA will probably get what it wants again. Still, it’s tough to project the MTA’s financial situation over the next several years and come up with a scenario in which the agency does any better than muddle through. More than likely, it will continue to lean heavily on government assistance while maxing out its debt. Maybe that’s a better alternative than bankruptcy and the stigma that comes with it, or maybe not. Regardless, New Yorkers can only hope there’s some money for much-needed infrastructure improvements without huge fare hikes.(1) See Article IV: Redemption at Demand of the State or the City. Except as otherwise provided pursuant to a Supplemental Resolution, either the State or the City may, upon furnishing sufficient funds therefor, require the Issuer to redeem all or any portion of the Obligations as provided in the Issuer Act.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

    • Bank of China Weighs Ending Wirecard’s Credit Line
      Bloomberg

      Bank of China Weighs Ending Wirecard’s Credit Line

      (Bloomberg) -- Bank of China Ltd. is discussing ending a credit facility to Germany’s Wirecard AG, a move that would complicate the beleaguered company’s fight for survival after it was engulfed by a multi-billion-dollar accounting scandal.China’s fourth-largest lender may write off most of the 80 million euros ($90 million) it’s owed and not extend the credit line, said people familiar with the matter, asking not to be identified as the discussions are private. Bank of China -- one of a group of at least 15 commercial banks behind $2 billion in financing to Wirecard -- plans to engage an external legal team to look into how it can minimize losses, they said.When a borrower breaches the terms of an revolving credit facility, the lenders may decide to renew the agreement, but the decision usually needs unanimity, meaning the borrower may need to repay the entire loan if one bank refuses to sign the deal. Banks which refuse to extend the agreement can also try to sell the loan to another party -- usually loan traders, thereby transferring the decision making power to a new party.Most of the banks are leaning toward an extension of the repayment obligation in order to better assess the potential impact of a default on their balance sheets, Bloomberg reported earlier. Negotiations between Wirecard and its creditors are ongoing and the Chinese lender hasn’t made a final decision, the people said.Bank of China didn’t immediately respond to request seeking comment. Wirecard didn’t immediately return calls seeking comment.Missing CashGermany’s top financial regulator called the scandal ensnaring Wirecard a “complete disaster” after the firm on Monday withdrew recent financial results and said 1.9 billion euros of cash previously reported on its balance sheet probably doesn’t exist. The deepening crisis has seen Wirecard’s shares and bonds collapse, its chief executive depart and trained a spotlight on Bafin’s handling of persistent allegations of accounting irregularities at the fintech firm.Bank of China is part of a revolving credit facility of about 1.75 billion euros, Bloomberg reported earlier. Under the current lending agreement, banks can call in loans before the maturity or take legal action if terms are breached, or if conditions attached to the facility aren’t met.The German payments company had warned that loans of as much as 2 billion euros could be terminated if its audited annual report weren’t published on Friday. Wirecard’s other lenders include Commerzbank AG and ABN Amro.Wirecard is working with investment bank Houlihan Lokey on a sustainable financing strategy, while also considering a broad restructuring to keep its business operations going, the company said on Monday.Concerns over the missing money have wiped more than 80% off Wirecard’s market value and prompted the resignation of CEO Markus Braun, who was replaced on an interim basis by James Freis. In an indication of the company’s worsening outlook, Moody’s Investors Service withdrew Wirecard’s credit ratings after last week cutting it six levels.A group of investors in Wirecard’s 500 million euro notes due 2024 mandated advisers to coordinate bondholders interests amid “potential restructuring talks or a possible impending solvency,” according to an emailed statement by One Square Advisors on Monday.(Updates with bondholders mandated advisers in the last paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

    • Wirecard Fights for Survival as Billions May Not Exist
      Bloomberg

      Wirecard Fights for Survival as Billions May Not Exist

      (Bloomberg) -- Wirecard AG was left fighting for survival after acknowledging that 1.9 billion euros ($2.1 billion) that it had reported as assets probably don’t exist, deepening an accounting scandal that has rattled Germany’s financial industry.The payments processor said it’s in discussions with creditors and considering a full-scale restructuring after pulling its financial results for fiscal 2019 and the first quarter of 2020. Previous descriptions of its business with third parties, which process transactions on Wirecard’s behalf, were “not correct.”Even before the early Monday statement, the unfolding scandal had seen Wirecard’s shares and bonds collapse, its chief executive depart, and left the company renegotiating debt terms with its lenders. In less than a week, the fintech once hyped as the future of German finance has lost almost 90% of its market value, with the shares slumping for a third trading day on Monday.“It’s a complete disaster we’re looking at,” said Felix Hufeld, head of BaFin, Germany’s top financial regulator, at a panel discussion Monday. “It’s a shame that something like that happened.”Wirecard said it was in “constructive discussions” with its lending banks, including the extension of lines coming due at the end of June. It is working with investment bank Houlihan Lokey on a sustainable financing strategy. Also under consideration are cost reductions, a restructuring, and disposal or termination of business units and product segments, according to the statement.“There is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion euros do not exist,” Wirecard said. The firm had repeatedly delayed announcing its financial statements, and last week warned that loans of as much as 2 billion euros could be terminated if its audited annual report wasn’t published by June 19.Cracks are already appearing among Wirecard’s lenders. Bank of China Ltd. may write off most of the 80 million euros ($90 million) it’s owed and not extend its credit line, according to people familiar with the situation.Moody’s Investors Service decided on Monday to withdraw Wirecard’s credit ratings because it “believes it has insufficient or otherwise inadequate information to support the maintenance of the ratings.” It had already cut the ratings six levels on Friday, putting it one step from the lowest tier of junk.Read more on how Wirecard became an embarrassment for GermanyWirecard fell as much as 50% and traded 38% lower at 12:35 p.m. in Frankfurt. The stock has lost 85% since Wednesday, the day before it revealed that the funds were missing.Wirecard’s lenders are demanding more clarity from the company in return for the extension of almost $2 billion in financing after it breached terms on the loan, people familiar with the matter said earlier. At least 15 commercial lenders, including Commerzbank AG and ABN Amro, are in hectic negotiations about the steps to take, they said.The missing cash “could trigger an event of default and allow creditors to withdraw lines of credit,” said Justin Tang, head of Asian research at United First Partners in Singapore.Wirecard has an outstanding revolving credit facility of 1.75 billion euros, according to data compiled by Bloomberg. About 90% of the RCF has been drawn by the company, according to people familiar with the matter and a list detailing the facility’s participation that was seen by Bloomberg:It’s unclear how the latest admissions will affect discussions with the banks. Most are leaning toward an extension of the repayment obligation in order to better assess the potential impact of a default on their balance sheets, one of the people said. However, a prolonged extension could be seen as delaying an insolvency, which is illegal under German law.The scandal has prompted the resignation of Markus Braun after almost two decades as CEO. He was replaced on an interim basis by James Freis. Braun is unwinding a large portion of the shares he owns in the company, a stake he financed by borrowing against the stock’s value, Bloomberg has reported.Read more on how Braun has to unwind pledged sharesThe deepening mystery over the lost money centered on two Philippine lenders, after Wirecard said a couple of unnamed Asian banks had been unable to find accounts with the cash.Both the Bank of the Philippine Islands and BDO Unibank Inc. said Wirecard wasn’t a client and they hadn’t seen the money. None of the missing cash entered the Philippine financial system, according to the nation’s central bank, which is conducting its own investigation.A document purporting to show a link between Wirecard and BPI was “bogus” and may be part of an attempted fraud, the bank’s President Cezar Consing said Friday. BDO Unibank CEO Nestor Tan said it was a matter of “document fraud which was subsequently clarified by the bank as spurious.”Wirecard is continuing to investigate the matter and can’t rule out potential effects on the financial accounts of previous years, it said in Monday’s statement.(Updated with ninth paragraph, new table.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

    • China Pledges Faster Credit Growth as Economy Faces Virus Return
      Bloomberg

      China Pledges Faster Credit Growth as Economy Faces Virus Return

      (Bloomberg) -- China’s central bank wants the total flow of credit to rise by almost a fifth this year, as part of efforts to push the economy out of the coronavirus-induced slump.That’s to be achieved through record special-purpose bond issuance as well as a 19% increase in bank loans, according to People’s Bank of China Governor Yi Gang. In all, total social financing flow should rise to at least 30 trillion yuan ($4.2 trillion) this year, Yi said during a speech in Shanghai Thursday.That would represent a 17% expansion from 2019’s 25.6 trillion yuan in new credit including government bond issuance, according to Bloomberg calculations. Even so, the depth of China’s first-quarter contraction and the chance that the virus shutdowns will return in earnest imply that the increase may not be enough.The expansion is “very modest considering the need of stimulus for recovery after the damage from Covid-19,” said Iris Pang, an economist at ING Bank NV in Hong Kong. “It is like a credit growth after a small crisis. We are now in a deep recession.”China’s top bank regulator, Guo Shuqing, also reiterated Thursday that officials “won’t flood” the economy with cash. Nevertheless, Chinese equities erased losses Thursday after the comments on optimism over the stimulus outlook.Yi repeated an earlier statement from Premier Li Keqiang that banks will need to sacrifice 1.5 trillion yuan in profits this year. That will happen in three ways-- lowering interest rates, using monetary policy tools to directly finance the real economy, and reducing banks’ charges, Yi said.“In the second half of the year, we expect monetary policy to keep ensuring reasonable and ample liquidity,” Yi said. “We need to pay attention to the side effects of the policies, keep the total amount appropriate and consider in advance good timing for an exit from the policy tools.”China Asks Banks to Forgo $211 Billion to Help Boost EconomyThe comments came after China’s cabinet signaled that the central bank will act to make more liquidity available to banks so they can lend more, including by cutting the amount of money they have to keep in reserve. China will reduce the reserve requirement ratio and use its relending policy to keep liquidity ample, state television reported Wednesday, citing a State Council meeting chaired by Premier Li.Negative RatesSheng Songcheng, a former PBOC official and an influential commentator on policy, said on the sidelines of the Lujiazui Forum in Shanghai Thursday that he doesn’t think the central bank should take the further step of cutting the rate that anchors what banks pay depositors for their savings. That had been floated by a state-owned newspaper earlier this week.“China is in de-facto negative rates as the 1-year deposit rate is lower than inflation,” he said. Cutting that would hurt the interests of ordinary people, and it’s almost impossible to spur consumption through that route, he said.Overall, markets have not responded positively to the PBOC’s recent policy signals.While the country’s central bank injected short-term funds into the financial system Thursday and cut the cost on the loans, the moves were insufficient to calm a bond market that’s getting increasingly concerned about liquidity. China’s benchmark repo rate rose for a third session signaling tighter liquidity, and the yield on 10-year government bonds rose to 2.9%, set for the highest since Jan. 23.“The People’s Bank of China needs to start using some policies to guide market expectations and to show investors that the easing cycle will be in place for the coming six months,” said Larry Hu, head of China economics at Macquarie Securities Ltd.(Adds former official comments)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

    • Moody's

      Agricultural Bank of China Limited, Macao Br. -- Moody's assigns (P)A1/(P)P-1 ratings to Certificate of Deposit Programme of Agricultural Bank of China Macao Branch

      Moody's Investors Service, ("Moody's") has assigned (P)A1/(P)P-1 local and foreign currency ratings to the US$5 billion Certificate of Deposit Programme (CD Programme) of Agricultural Bank of China Limited, Macao Branch (ABC Macao Branch). The outlook on Agricultural Bank of China Limited, Macao Branch is stable.

    • Bond Traders Love the Fed. The PBOC? Not So Much
      Bloomberg

      Bond Traders Love the Fed. The PBOC? Not So Much

      (Bloomberg Opinion) -- Traders are getting grumpy. Just when the Federal Reserve is buying U.S. corporate bonds and stabilizing markets, the People’s Bank of China appears to be engineering money market chaos without a clear policy agenda. Even amid a global market meltdown this spring, investors kept their faith in China. While a quarter of U.S. junk bonds got downgraded by Moody’s Investors Service in April, that figure was just 13% in Asia, data compiled by Bank of America Merrill Lynch show.You’ve got to give China some credit for getting money flowing. Property developers, which account for over half of Asia’s high-yield universe, started seeing easier financing back home. After all, the arch of any debt curve bends toward central bank policies. In time of distress, Beijing could keep a steady hand, many hoped. But now traders are sitting at their desks, staring into thin air. It’s no longer clear what the PBOC is up to. They wonder if the two-year onshore bond-market bull run is coming to an end. Just take a look at how volatile China’s equivalent of the Fed funds rate has been lately. In just one month, the 7-day repurchase rate, or the short-term rate that banks use to lend to each other, jumped 50 basis points to 1.8%. This is partly the result of a crackdown on interest rate arbitrage. Since the virus outbreak, billions of dollars of easy money have stayed in the financial system, rather than flowing to the real economy, the central bank discovered. Much of it wound up in so-called structured deposits, a form of high-yielding wealth management product, which have ballooned by over 2 trillion yuan ($282.1 billion) in the first four months of the year. Instead of paying salaries or shoring up working capital, large corporations have been taking out cheap bank loans and issuing low-yielding bonds to get juicy returns instead.  While bond yields fell amid the pandemic, those offered by wealth management products held up. Regional banks and other financial institutions were borrowing heavily in the easy-money repo market, which means those steady yields were only achieved through high leverage. By guiding repo rates back up to make such borrowing more costly, the PBOC can stamp out this carry trade, the thinking goes. Consider, too, that China operates with a loose interest rate corridor. The ceiling is the rate at which banks can borrow from the PBOC through its standing lending facilities, and the floor is the rate paid on lenders’ excess reserves held at the central bank. Officials aim to keep the 7-day repo rate, which is managed via open-market operations, at the middle of the range. But lately, the corridor has collapsed. Perhaps it’s time to bring the repo line back up, the PBOC reasons.In the first two weeks of June, the central bank has been tightening its fist, pulling a net 250 billion yuan from the banking system. On Monday, the interest rate offered on its medium-term lending facility remained unchanged, signaling the PBOC had no intent of easing, even as a second wave of the coronavirus hit Beijing over the weekend.  While it’s commendable that the central bank wants to send its money to Main Street, is this sudden policy flip-flop a good idea? Why should anyone invest in a market where basic funding costs take a roller-coaster ride on a daily basis? Ultimately, the problem is that China has too many interest rates. On the wholesale banking side, borrowing costs have come down, thanks to cuts in the MLF and reverse repo rate. But on the consumer banking side, the one-year benchmark deposit rate hasn’t changed since 2015, because much-hyped reform never happened. As a result, retail investors expect the yield on wealth management products to remain high. Hence, the levered-up carry trade.  But with all these rates, it’s hard to gauge the real stance of monetary policy. The PBOC  now comes across as clueless, unaware that its shifting stance has serious knock-on effects. Even with the best of intentions, such an inconsistent framework derails China’s resolve to open its financial markets to foreigners. A market with too much interest rate volatility is a scary proposition. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

    • China Is Killing Its Bond Bull to Save Main Street
      Bloomberg

      China Is Killing Its Bond Bull to Save Main Street

      (Bloomberg Opinion) -- You’ve got to feel for central bankers. Their hearts are in the right place, with all these efforts to help Main Street businesses weather a bad economy. But their largesse often ends up on Wall Street, in the pockets of traders and big corporate treasurers. The People’s Bank of China sure knows how that goes. Since the beginning of June, the central bank has refrained from easy cash injections, which send liquidity to all the wrong places. Instead, they’ve chosen an even more targeted approach, beefing up programs that offer complex special-lending vehicles to small businesses. Last week, via open-market operations, the PBOC net drained 450 billion yuan ($63.7 billion) from the banking system, the most since mid-February. Traders moaned. Markets are now dialing back expectations for a cut to the benchmark bank-lending rate, while corporate bond yields jumped. In the first week of June, China Inc. net raised only 45 billion yuan from new issues, less than half the amount from a week earlier. No one’s going to rush out and buy new bonds if the two-year secular bull run is coming to an end. The PBOC has good reason to hit the pause button. Billions of dollars of easy money hasn’t left the financial system, data compiled by the central bank show. Those with access to liquidity have been playing interest-rate arbitrage instead.Take so-called structured deposits, a form of high-yielding wealth management product. Rather than paying salaries or shoring up working capital, large companies that took out cheap bank loans and issued low-yielding bonds have been putting their proceeds into such investments, where yields remain elevated. The outstanding volume of structured deposits ballooned to 12 trillion yuan as of April, up more than 2 trillion yuan from the end of 2019. That is no small number. For reference, Chinese businesses net financed 2.7 trillion yuan from bond issues in the first four months of the year. Meanwhile, tech startups in Shenzhen are funneling the proceeds from their small business loans into real estate. In the January to April period, secondary sales volume rose 38% from a year earlier. That compares with declines of 30% to 60% in Beijing, Shanghai and Guangzhou. It appears Shenzhen’s entrepreneurs were busy visiting (sometimes virtually) their realtors when they should have been building prototypes. So while China’s credit growth may look impressive, how much of that money actually went into the real economy remains an open question. Monetary easing has merely turned entrepreneurs into day traders and portfolio managers.  There’s also the overwhelming sense among the Chinese that looser policy will only benefit the rich. Since cash is trash, as Ray Dalio — who’s worshiped in China — famously said, the middle class is rushing into residential property to protect their wealth. The sector has already bounced back. In the first week of June, sales volume across 33 major cities rose 14% from a year earlier, making home ownership even more unaffordable than before.To its credit, Beijing has taken action. The banking regulator has told some mid-size banks to limit their structured deposits offerings, thereby cutting off an important carry trade that big companies have been playing. It has also instructed banks to watch closely what businesses are doing with their subsidized loans. But window guidance can go only so far. When the business outlook is grim, and the purchasing power of the cash sitting in your bank account is constantly getting diluted by soaring stock and bond prices, the only rational thing to do is jump on the bandwagon and day trade. The PBOC is wise to pull back.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

    • China Tackles the Dirty Work of Finance
      Bloomberg

      China Tackles the Dirty Work of Finance

      (Bloomberg Opinion) -- Beijing is scrubbing up. Late last week, the central bank excluded so-called clean coal from a draft list of projects eligible for green bonds. It’s a significant move that puts the world’s number-two issuer on the path toward consistency with international norms, making it easier to attract the foreign capital required to finance hundreds of billions of dollars of environmental fixes. The next logical step will be to tackle what companies are allowed to do with the cash they raise. So-called transition bonds that aim to help sellers switch to a cleaner way of doing business could help soften the blow.The world’s top emitter of carbon dioxide has been something of a trailblazer in environmental finance. From its first green bond in 2015, it jumped to well over $50 billion issued in 2019, up by a third from the previous year, according to a soon-to-be-released report from Climate Bonds Initiative, a U.K.-headquartered non-profit. Yet only a portion of that sum met international standards. In 2018, CBI excluded about a quarter of the total for failing to align with those rules. The compliant percentage has shrunk, to closer to $30 billion last year, according to both CBI and BloombergNEF —  in part because of an increase in non-financial issuers.If confirmed after public consultation, the list published last Friday tackles the most glaring discrepancy with global standards: a permissive stance on fossil fuels. Until now, more efficient coal-fired power projects might qualify, say, or an oil refiner improving its energy efficiency. The importance of the move goes beyond that, though, given Beijing’s top-down approach to going green. China has chosen to signal that it can align fragmented regulatory standards and, after months of discussions, has brought the whole structure closer to international rules. It has made the reduction of greenhouse gases a priority, above simply tackling air pollution. This is especially true if the rules make it harder for China to fund coal projects overseas. Importantly, officials have done all of this as climate finance moves forward, with the European Union standardizing its own definition of green, and when China’s own bond market is already opening up. That increases the potential reward. It matters that the harmonization can go both ways, given Beijing’s record of innovation. The People’s Bank of China was one of the first central banks to allow green bonds as collateral, and has been a pioneer when it comes to reporting requirements. The country has also experimented with the use of pilot zones for green debt tools. Reducing discrepancies will, at a basic level, cut the cost for foreign investors wanting to put capital into China’s onshore green offerings, because it obviates the need for extra checks to ensure there is no hidden ugly stuff. And that matters, for a domestic bond market that remains relatively unexplored by outsiders, and insufficiently deep to wean the country off bank lending. It matters more in a post-pandemic recovery, when green issuance is faltering.It also suggests the next step in seeking further alignment will be tackling the use of proceeds. The National Development and Reform Commission allows state-owned enterprises issuing green bonds to use up to half for general working capital. The more accepted limit for non-green activities is usually 5%. Yet Mervyn Tang, global head of ESG research, sustainable finance, at Fitch Ratings, points out that shift will be less challenging than the tussle over what makes the list at all. After all, companies targeting overseas investors will align spending plans with international thresholds even without explicit changes.Certainly, there are pricing incentives to do so, and to accept even tighter rules, like increased verification and tougher assessment of actual impact. Chinese green bonds had an average coupon rate 15 basis points lower than regular offerings in 2019, according to BloombergNEF.The only question is what happens, as will increasingly be the case, when it isn’t possible to move straight from brown to green. Or when brown is no longer just discouraged, but penalized. One way to keep moving in a climate-friendly direction without turning off the taps — or, worse, encouraging inertia — may be to consider a role for transition bonds, as issued by France’s Credit Agricole SA late last year. The bank raised 100 million euros ($112 million) to be used for loans to companies that are making the shift. Purists will recoil, but with the cost of China’s environmental overhaul adding up, the perfect can’t be the enemy of the good.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

    • Reuters

      China banks' HK arms try to rally staff support for security law

      As Beijing moved ahead with a national security law for Hong Kong, some of the hundreds of thousands of professionals working at the local units of Chinese financial firms could find themselves stuck in the crosshairs. Staff at BOC Hong Kong, the local arm of Bank of China, CEB International, a unit of China Everbright Bank, and a local unit of China Construction Bank said they had been asked by managers in the last few days to put in signatures in support of the law.

    • China Isn’t Using Its Currency as a Cold War Weapon
      Bloomberg

      China Isn’t Using Its Currency as a Cold War Weapon

      (Bloomberg Opinion) -- The deterioration of U.S.-China relations is fast and furious, with Washington throwing out accusations of unfair trade practices, unlawful technology transfer and an early cover-up of the coronavirus outbreak, which has claimed over 100,000 American lives. The Chinese yuan, this year’s beacon of stability, is now is now at risk of tumbling like other emerging markets currencies.On Wednesday, the offshore yuan, which trades freely, flirted with its weakest level on record, dropping as much as 0.7% to 7.1965. While Thursday morning’s yuan fix came in stronger than expected, the overall sentiment is downbeat.It’s tempting to theorize that a weaker yuan could become a powerful weapon in the new Cold War, yet there’s little evidence of foul play from the People’s Bank of China. Since mid-2017, the central bank has based its fixing on the previous day’s close, dollar movement overnight against a currency basket, and what it calls the “countercyclical factor," a catch-all metric that grants wiggle room to deviate from market fundamentals. The yuan can move in a 2% trading range around the PBOC’s daily target.Take a look at Goldman Sachs Group Inc.'s estimate of the countercyclical factor. Over the last year, the PBOC has been consistently guiding its yuan stronger, not weaker, to artificially track the dollar. For all the theatrics of getting labeled a currency manipulator, Beijing wasn’t making its exports any cheaper.What’s new this year is the PBOC’s Zen-like attitude. Rather than playing the heroic fireman, handling one crisis after another, the central bank has been largely hands-off. It has used the countercyclical factor in a meaningful way only twice since January, on Feb. 4 when China emerged from the Lunar New Year holiday to face a national lockdown, and at the end of March when the outbreak was shaking up global markets.And why should the PBOC adhere to the dollar anyway? The coronavirus downturn has only showcased America’s exceptionalism — it prints the world’s reserve currency. Haven demand for the dollar has surged, evidenced by soaring currency swap rates from the euro zone to South Korea, and the Federal Reserve’s scramble to re-establish swap lines with other central banks. Looking back to 2008, the greenback only started to weaken two months after demand for “emergency dollars” peaked, data provided by Deutsche Bank AG show.So it makes sense for China to adopt a more enlightened approach, allowing the yuan to weaken during periods of dollar strength, and catch up when global tensions recede. From the PBOC’s view, the trade-weighted yuan is certainly stronger now than it was last fall, when the central bank was in fire-fighting mode. China doesn’t want to spend another $1 trillion of its foreign reserves defending its currency. The rapid drawdown in 2015 and 2016 traumatized the Chinese for good.To be sure, the pressure of capital outflows is still there. Just look at the consistent negative value of the “net error and omissions” figures in China’s balance of payment data. However, here’s the beauty of the virus: The Chinese can’t go anywhere. They can’t come to Hong Kong to buy insurance products, and unless you’re ultra-rich (with private bankers around the world apartment-hunting for you), Manhattan real estate is off-limits. The PBOC has less to worry about than before.So now the market can test the true value of the yuan. It could easily drop below 7.30 if the phase one trade deal breaks down and the Trump administration imposes some of the tariffs it had previously threatened, estimates HSBC Holdings Plc.Long-time China bear Kyle Bass abandoned his yuan short in early 2019 for the greenback-pegged Hong Kong dollar. He didn’t profit from his yuan trade because the PBOC established powerful tools, such as selling yuan-denominated bills in the offshore market, to kill anyone betting against the currency. Now that their interests are becoming aligned, it’s time for the bears to wake up.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

    • Bloomberg

      Jack Ma’s Open Banking Strategy Gets a Boost From Lockdown

      (Bloomberg) -- Billionaire Jack Ma’s Ant Financial Services Group saw a surge in Chinese banks seeking out its digital technology to keep business flowing after the coronavirus outbreak shuttered branches across the world’s most populous nation.The number of customers paying for Ant to help them build mobile apps and provide cloud computing power jumped by 175% in the two months through April, and it’s now working with more than 200 lenders, according to the company. Inquiries to collaborate with the tech giant increased by 400% over the period.Ant entered the banking arena as a disruptor, raising alarm bells for many of the nation’s 4,500 lenders. But about two years ago, it also expanded its strategy to sell services to banks. While that had so far met a tepid response, the virus outbreak is now providing Ant momentum, at least among the nation’s smaller, regional lenders.“The bigger banks might want to build their own private cloud, but we’re targeting the smaller lenders who might not have the budget to build their entire online infrastructure from scratch,” Liu Xin, who oversees Ant Group’s cloud unit, said in an interview.For Ant, the open banking push is crucial. Besides selling technology to banks, it includes a consumer lending platform and also backs MYbank, an online lender that has embarked on a spree to dole out 2 trillion yuan ($280 billion) in loans this year. Ant is on track to generate 65% of its revenue from these services by 2021, up from about 35% in 2017, according to a person familiar with the matter.The virus outbreak came as a shock for China’s beleaguered smaller banks, who were already struggling with rising loan losses over the past years. More than 800 bank branches have been permanently shuttered as of May 4 this year, according to China’s banking watchdog.One lender turning to Ant’s help this year is Shenzhen Rural Commercial Bank Co. Working with Ant, the bank was able to cut the loading time on its app by four, to less than half a second, at a time when its 15 million retail customers flooded online to transfer funds, check on their investments and buy wealth products. Close to all of its transactions were done online during the height of the outbreak, according to the bank.“While we’ve always prioritized mobile development, the growing demands from our customers made us realize our existing infrastructure wasn’t enough,” said Zhan Bin, head of the Network Finance Department at the lender, based in China’s tech hub of Shenzhen.The community lender still has most of its data on its own private cloud, but it uses Ant’s public cloud to facilitate express payments. It’s also planning to incorporate the mini program infrastructure of Ant’s Alipay, which allows users to access entertainment, dining, movie tickets and traveling services without leaving the app. In return, the bank’s users can win discounts and accumulate reward points.The lender pays a one-time license fee to Ant for its cloud products such as mPaaS and SOFAStack and also an annual fee for software support and maintenance. Shenzhen Rural declined to disclose how much it is paying to Ant“The key to convincing more banks to use our technology is to prove that we can help them solve their problems,” said Liu.Ant Financial has made inroads with bigger banks as well. It convinced China’s largest lender, Industrial & Commercial Bank of China Ltd. to agree on working together on developing fintech services in December.Alibaba, which owns a 33% stake in Ant Financial, is expected to report earnings next week.(Adds ICBC in next to last paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

    • Bank of China oversteps regulations in passing derivatives off as wealth management. And it's not alone
      South China Morning Post

      Bank of China oversteps regulations in passing derivatives off as wealth management. And it's not alone

      China's commercial banks have sold financial derivatives packaged as wealth management products that slipped through regulatory cracks, giving individual investors access to risky foreign commodity futures contracts, according to several bank officials familiar with the matter.One such product is Bank of China's Crude Oil Treasure product that burned a 7 billion yuan (US$987 million) financial hole through the bank's books and among customers. Other banks too offer similar products but their clients have avoided the fate of Bank of China customers because of earlier redemption dates or rollover before crude prices crashed into negative territory.Several bank officials with China Construction Bank, Bank of Communications, Shanghai Pudong Development and Industrial and Commercial Bank of China, all of whom spoke on condition of anonymity, said the Crude Oil Treasure product, allowed customers to build up positions based on the West Texas Intermediate (WTI) or Brent International contracts and effectively overstepping regulations that bar the country's lenders from operating as commodities futures brokerages.Crude Oil Treasure was catapulted into national limelight on April 21 when May WTI contracts crashed to minus US$40.32 a barrel, causing mainland investors losses to the tune of about 7 billion yuan, according to media reports. Those clients who built buy positions on that day lost all their margins and owed Bank of China a massive amount of money.Bank of China's Crude Oil Treasure product has burned a 7 billion yuan financial hole through the bank's books and among customers. Photo: EPA-EFELawyers have cast doubts on the legality of the product as they help investors seek compensation from Bank of China for their losses.Yang Zhaoquan, a partner at Beijing Weinuo Law Firm, who says he is representing more than 100 investors against Bank of China, said the wealth management obscured its role as a brokerage service offered to the clients, which is barred on the mainland. Bank of China's US$1 billion hole from plunging oil"By buying the product derived from commodity futures, investors are indeed making investment in futures contracts," said Yang. "The service has gone beyond the banks' business scope."Huang Lei, an independent futures market analyst, said the product was akin to a brokerage service as it paved the way for individuals to directly trade on overseas futures markets.No mainland institution is allowed to offer brokerage services for individual investors in China to trade futures abroad.Under the Crude Oil Treasure scheme, banks act as market maker on a virtual trading platform to trade against the clients when they build either long or short positions in oil contracts. The banks then build up a position on the global market based on the clients' bets. By doing this, banks actually close their own position on the trading platform while taking no risks arising from the price volatility. It is the individual investors who are exposed to the risks of fluctuating oil prices that will generate either returns or cause losses to them.Huang Mengqi, a lawyer and co-executive director at Beijing DHH (Shanghai) Law Firm, who claims to represent more than 600 investors with a combined loss of 100 million yuan in a class-action lawsuit against Bank of China, said the lender was never entitled to do commodity futures businesses or offer financial derivatives based on futures contracts.A China Construction Bank official said that commercial lenders were confident that the derivative, after being designed as a wealth management product, had fully complied with the banking regulator's rules. Customers were actually chasing the swings in global crude oil prices on the virtual trading platform, and they were not buying or selling contracts on the overseas exchanges, he added.The product was endorsed by the China Banking and Insurance Regulatory Commission (CBIRC). The CBIRC did not respond to queries about the product's legality. The regulator said in a statement last weekend that it had requested Bank of China to iron out the problem by negotiating with the victims in a caring and prompt manner.Screenshot of a short message sent by Bank of China on April 16, 2020, warning customers of its Crude Oil Treasure financial product of the impending expiry of WTI futures contracts. Photo: HandoutBank of China said in a statement on Tuesday evening that it has studied and responded to clients' demands. If the clients do not resolve the dispute through its proposal, then it would have to resort to the legal process.Several investors told the Post they have received proposals from the bank that it would compensate 20 per cent of their original investments and shoulder all losses in negative territory.Zhao Changyi, a leading financial risk management expert in China, said the crisis showed that risk control remains the weakest link in China's banking and insurance sectors after three decades of rapid development."China's banks still lack risk awareness and risk control capabilities to avert sharp losses when they grapple with black swan events," said Zhao, head of China's training programme for financial risk professionals at the State Administration of Foreign Experts Affairs. "There is a bunch of loopholes in China's financial system that need to be mended by qualified and talented risk management professionals."China's individual investors however have access to global crude oil contracts. There are currently a handful of exchange traded funds on both Shanghai and Shenzhen stock exchanges which track indices linked to the WTI futures contracts. These funds are sold under the qualified domestic institutional investor scheme, which allows asset managers to invest in offshore securities.The sun sets behind a crude oil pump in Loving County, Texas. Crude prices have been battered in recent weeks. Photo: ReutersWith assets totalling 3.8 billion yuan, some ETF fund managers had in early April warned investors in public disclosures about potential losses from volatility of the WTI futures and their capital invested.There are always options for a manager of these products to either sell the futures contracts on the secondary market, or roll the front month contracts to those of the following months well ahead of the settlement date, said Patrick Heusser, senior trader at Crypto Broker based in Zurich."If you are a risk averse and experienced commodity trader you will definitely take that approach. There is no need to hold a futures contract till settlement," said Heusser.In the case of Bank of China, the product was not designed to roll over the futures contracts earlier than the settlement date. According to the bank's disclosure on its website, it would only roll the contracts or close out the positions in the global market on the settlement date.This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved. Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.

    • Bank of China's US$1 billion hole from plunging oil shows how investors and banks alike are ill-prepared for risks of chasing after high returns
      South China Morning Post

      Bank of China's US$1 billion hole from plunging oil shows how investors and banks alike are ill-prepared for risks of chasing after high returns

      Every day since April 15, David Wang's smartphone would buzz with a message from Bank of China. May contracts for Crude Oil Treasure, a structured financial product that gives the layperson an easy entry into the complex world of oil trading, was expiring in a week, and investors must close or roll over their positions, said the automated message.Wang dismissed the warnings, and kept going long with 400,000 yuan (US$56,500) of his money at stake, believing that record-low oil prices offered him the chance of a lifetime to get into the market on the cheap.On April 21, May contracts of West Texas Intermediate futures " the US benchmark for crude oil " plunged to an unprecedented minus US$40.32, as desperate traders jostled to unload their positions to avoid a rarely used, and little-noticed detail: anyone holding the contracts after their expiry on April 22 could be forced to take delivery of the crude oil in Cushing, Oklahoma. For Wang, living half a world away in central China, the chaos in Chicago's oil market was a rude shock when he awoke, with the value of his investment " tied to WTI futures " plummeting 280 per cent to minus 266.12 yuan per contract, from 147.47 yuan at the end of March."This is utterly disheartening and beyond any normal person's comprehension," Wang said in the Shaanxi provincial capital of Xi'an by telephone, rueing a 1.4 million yuan loss from just two weeks of holding the investment, plus margin credit from the bank.Screenshot of a short message sent by Bank of China on Thursday, April 16, 2020, warning investors of its Crude Oil Treasure financial product of the impending expiry in futures contracts of the West Texas Intermediate. SCMP Pictures (UNDATED HANDOUT) alt=Screenshot of a short message sent by Bank of China on Thursday, April 16, 2020, warning investors of its Crude Oil Treasure financial product of the impending expiry in futures contracts of the West Texas Intermediate. SCMP Pictures (UNDATED HANDOUT)Crude Oil Treasure would ultimately burn holes in the pockets of Bank of China's customers, estimated to total 7 billion yuan (US$1 billion), according to Bloomberg, citing people familiar with the matter. That would make China's oldest bank the biggest known victim of April's melee in the global oil market, surpassing the collapse of Singapore's Hin Leong oil-trading empire.The brutal loss has far-reaching repercussions across China's banking industry, as several of the country's biggest state-owned lenders " Industrial and Commercial Bank of China, China Construction Bank, Communication Bank of China, Shanghai Pudong Development Bank " have all hit the pause button on variations of the same structured financial product for their retail customers. The episode exposes the deficiencies in China's 22.2 trillion yuan wealth management products offered by banks, where regulations and investor protection measures fail to keep up with an industry whose rapid growth had been amplified by technology."The incident has exposed the shortcomings of risk disclosures to retail clients and potentially insufficient or improper risk tolerance and products suitability assessments among Chinese banks," said Lance Yau Tat-cheung, a dealing department manager of China Xin Yongan Futures.For China's banking industry, the fracas with oil futures is also its latest brush with risk in the nation's journey toward market liberalisation and financial reforms.Two decades since becoming a World Trade Organisation member, Chinese households " with US$10 trillion in total savings " are still limited by a dearth of investible options, forcing many adventurous investors to pursue high-yielding speculations often without proper appreciation of the associated risks. Over the years, these have veered from real estate to fine art and Bordeaux wine, to speculations in such exotic products as Pu'er tea and even the hoarding of garlic.As part of China's banking reforms, commercial lenders had been prodded and pushed to wean themselves off the fat margins between state-controlled lending and deposit rates that had sustained their growth and prosperity for decades.A consequence of that reform was for banks to earn more income from fees and financial products. Over the past five years, China's banks have launched, and cancelled, futures and options on precious metals and rare metals, high-yield wealth management products disguised as insurance, and even flirted with bitcoin and cryptocurrencies before the People's Bank of China banned financial institutions from dealing in them.Police vehicles outside the China Banking Regulatory Commission (CBRC), the industry's watchdog agency on the Financial Street in Beijing's Fuchengmeng district on 6 August 2018. Speculators who lost money through peer-to-peer schemes were staging protests outside the regulator's office. Photo: Simon Song alt=Police vehicles outside the China Banking Regulatory Commission (CBRC), the industry's watchdog agency on the Financial Street in Beijing's Fuchengmeng district on 6 August 2018. Speculators who lost money through peer-to-peer schemes were staging protests outside the regulator's office. Photo: Simon SongThe implosion of Crude Oil Treasure and products like it may even become a potential source of social unrest, as investors caught in get-rich-quick scams such as peer-to-peer lending platforms and Ponzi schemes around rare metal trading have tended to stage noisy petitions around bank and regulatory offices. More than 60,000 customers are estimated to have invested in Crude Oil Treasure alone, Caixin reported.For China's government, the potential public grievance comes at a time when the nation is just emerging from three months of quarantines and work-at-home orders to contain the coronavirus outbreak. China's legislature is scheduled to commence its annual meetings on May 22, after postponing the proceedings in March. The Great Hall of the People at Tiananmen Square, where the pomp and splendour of the meetings typically go on full display, is a mere subway stop away from Bank of China's headquarters in Xidan.Concerned about the public backlash, the Chinese bank regulator ordered Bank of China to negotiate with customers and respond to their concerns, strengthen its risk control and product management, according to a report by state news agency Xinhua. The China Banking and Insurance Regulatory Commission (CBIRC) would strengthen its scrutiny over such products, Xinhua said.Bank of China's head office in Xidan in the Chinese capital on 14 August 2005. Photo: SCMP alt=Bank of China's head office in Xidan in the Chinese capital on 14 August 2005. Photo: SCMPLaunched in January 2018, Crude Oil Treasure allowed customers to hold either long or short positions in oil contracts denominated in US dollars or yuan, where they can bet that the prices of WTI or Brent International would go up or down, all through a simple savings account at the Bank of China.To make investments more accessible, the product subdivided the 1,000 barrels of oil associated with every WTI futures contract into units of barrels.Investors must close their open positions before their contracts expire by buying or selling the same amount of contracts they sold or bought earlier. Alternatively, they can roll their positions to the next month by letting the trading system conduct the rollover based on the month's settlement price.The bank acts as the market maker, responsible for managing risks and generating prices based on factors including global oil prices, the renminbi's exchange rate and market liquidity, it said in a product introduction on its website.The product is for individuals with "a certain understanding" of the oil market, and have a "commensurate" level of risk tolerance, Bank of China said. It warned investors that they should understand the volatility in oil prices, as well as risks arising from various political and economic factors and global events.Employees closing a valve at a PetroChina refinery in Lanzhou in Gansu province on January 7, 2011. Photo: Reuters alt=Employees closing a valve at a PetroChina refinery in Lanzhou in Gansu province on January 7, 2011. Photo: ReutersStill, the warnings and disclaimers were insufficient, Wang said in Xi'an, calling Crude Oil Treasure a "flawed product" with extremely high risks that was mislabelled as a medium-risk investment. Bank of China failed to notify investors that prices could turn negative, even after the Chicago Mercantile Exchange (CME), where the WTI contracts are traded, warned on April 15 that energy futures contracts could trade at negative or zero, he said.Bank of China is "deeply disturbed" by its customers' investment losses, according to an April 24 statement. Warnings about volatility and the impending expiry of contracts were sent every day since April 15 via text messages, phone calls, social media posts on WeChat and Weibo, the bank said.SCMP Graphics alt=SCMP GraphicsThe bank is reviewing the design of its financial products as well as its risk management process, and will shoulder its due responsibilities under Chinese law to protect clients' lawful interests the best it could, Bank of China said. The bank has barred customers from taking new positions on all financial products related to the price of crude oil, including those linked to Brent International " the benchmark used in the UK " from April 22."Had Bank of China acted faster, like one or two days before the WTI contract's expiry, the losses would not have ballooned to this magnitude," said Lin Boqiang, director of Xiamen University's Centre for China Energy Economics Research. "Other banks have not had the same degree of problem as they have forced settlement of the products earlier.""Through products packaging and marketing, the futures nature of the underlying product has been downplayed," said Yau of China Xin Yongan.Different from standard investment products where investors entrust their money with a professional manager to invest, the Crude Oil Treasure is actually a platform on which investors can make buy and sell orders on their own, said Yang Zhaoquan, partner of Beijing Weinuo Lawfirm, retained by nearly 100 customers of Crude Oil Treasure with 40 million yuan in combined losses to sue on their behalf."It's against the law for the Bank of China to issue a product like Crude Oil Treasure," said Yang, who has yet to file their suit.Crude Oil Treasure is in fact a futures product even if it is being marketed as a tool for wealth management. Bank of China, despite being China's largest global bank, is not licensed to provide futures products, he said.SCMP Graphics alt=SCMP GraphicsAnt Financial Services, the affiliate of this newspaper's owner Alibaba Group Holding, distributes a financial product on its Alipay platform by Southern Asset Management that tracks the price of crude oil and exchange-traded funds.Customers applying to trade futures products at equity or futures brokerages would be subjected to more rigorous risk assessment questionnaires, and higher entry barriers, before they are allowed anywhere near their first transactions, said Yau of China Xin Yongan, the Hong Kong unit of mainland brokerage Yongan Futures.May futures contracts settled on April 21 at negative US$37.63, the result of lower demand for fuel amid the economic recessions wrought by the global coronavirus pandemic, as well as a break down in talks between the world's largest oil producers to stem the industry's glut.Wang has allied himself with a dozen investors in representing about 200 Crude Oil Treasure customers in Shaanxi province to seek compensation from Bank of China.They have visited the provincial offices of the bank, as well as the banking regulator, to demand for a revaluation of their holdings based on the April 15 settlement price, when they believe the bank should have informed them about the potential risks. Bank of China said it "handled the May futures contracts according to previous agreements," in its statement.Workers cleaning the logo of Bank of China in Beijing. Photo: AP alt=Workers cleaning the logo of Bank of China in Beijing. Photo: AP"Given the nature of the market at the moment, it is clearly risky to leave it so close to the end, given some of the pretty well-flagged risk that storage capacities were approaching their limits globally," said Sanford Bernstein's senior oil and gas analyst Neil Beveridge. "Traders are squeezed when it approaches the contract's expiry date."Emily Liu, a 35-year-old mechanical design engineer in Hangzhou, is among the hundreds of investors in Zhejiang province who are petitioning the regulators to bail out their losses. With 160,000 yuan in losses, Liu joined six chat groups on WeChat, each with about 200 members, with as much as 7 million yuan in individual losses.For Wang, though, lessons have been learned the hard way."All hope is gone," Wang said. "I hadn't been able to sleep and I have no appetite to eat since this happened."This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved. Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.

    • South China Morning Post

      Bank of China may absorb part of US$1 billion in client losses on product linked to oil price collapse

      Bank of China, facing a public outcry and regulatory scrutiny over the collapse of an investment product linked to oil futures, may shoulder part of US$1 billion in losses suffered by its retail clients, according to people familiar with the matter.The nation's fourth-largest bank by market value is talking to regulators about not seeking recourse on losses in excess of investors' margins, said the people, who asked not to be identified discussing a private matter. Regulators are leaning toward having the bank take some losses, they said. The plan is not final and subject to change.Thousand of retail investors across China are facing combined losses topping 7 billion yuan (US$1 billion) after the bank's "Crude Oil Treasure" product was settled at prices far below zero, mirroring the collapse in West Texas Intermediate crude on April 20 to minus US$37.63 a barrel.Hundreds have taken to the internet to protest the lender's handling of the contract rollover and to demand it assume some of the shortfall.Investors who do not make good on losses that exceed their total investment should not have that reflected in the nation's credit scoring system, the people said. The central bank and the banking regulator did not immediately reply to requests seeking comments.Bank of China said in a statement late Wednesday that it is "actively" working on a solution to address clients' "reasonable" complaints and demands, and will try its best to protect their rights and take social responsibility.Meanwhile, the lender has sent CME Group an official request, urging the exchange to investigate reasons behind "abnormal" price volatility in crude futures seen on April 21, according to the statement.Jefferies Financial Group estimated that the bank's losses could end up being 4 billion yuan to 10 billion yuan, when also taking into account potential legal costs. That represents about 1.6 per cent to 4 per cent of the bank's pre-tax profit, analyst Chen Shujin wrote in a note on Tuesday.The turmoil is drawing further attention to China's US$3 trillion industry for bank wealth products, which invest in everything from bonds and stocks to foreign exchange and commodities. They have become key building blocks of a shadow-banking system that exists largely off banks' balance sheets. Asian banking system creaks under pressure of companies struggling to survive coronavirus pandemicThe partial bailout also underscores the challenge to regulators, who have been trying to do away with the implicit guarantees often offered by banks and to instil more risk awareness among millions of retail investors. When wealth products struggle to meet their return targets in China, lenders that distribute them often make up the shortfall to protect their reputation and maintain social stability.Bank of China has not disclosed the size or performance of "Crude Oil Treasure" since launching the product in January 2018.The unprecedented price slump below zero, however, wiped out many investors' margins and left them with further debt owed to the bank.The implosion has also forced other banks to suspend sales of similar products that allowed investors to speculate on swings in commodities.Industrial and Commercial Bank of China temporarily halted opening of new positions in products linked not only to oil, but also to natural gas, and soybeans from April 28. China Construction Bank and Bank of Communications are among lenders that have also suspended opening of new positions on their WTI-linked products for individuals.The oil price shock hammered retail investors beyond China. In South Korea, mom-and-pop investors exposed to about 1.45 trillion won (US$1.2 billion) worth of structured notes tied to Brent or WTI futures faced losses. In India, at least three brokerages have petitioned the courts to challenge the settlement of contracts after their clients faced millions of dollars in losses from the negative prices.This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved. Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.

    • What Opening Up a Bank Account Taught Me About Oil Futures
      Bloomberg

      What Opening Up a Bank Account Taught Me About Oil Futures

      (Bloomberg Opinion) -- With a quarter of its interest-bearing assets overseas, Bank of China Ltd. is by far the most international and outward-looking of China’s largest lenders. But have you tried banking with them lately? I have. In mid-January, I was eager to open an account in Shanghai. With China vowing to increase access to its financial services industry, this process has become a lot easier for people like me, overseas Chinese with a foreign passport — or so I heard. I also desperately needed a mainland account to top up mobile payments on AliPay and WeChat Pay. These apps have become so ubiquitous that the sorry few without them are practically walking down the streets of Shanghai naked. At first, I went to China Merchants Bank Co., because it boasts a strong retail franchise and has a well-designed app. But the process would take up to 10 business days. Only Bank of China has the regulatory clearance to do the paperwork within 24 hours, a friendly branch manager told me.Entering the Bank of China building in Shanghai’s financial hub of Lujiazui felt like going into a courthouse. It was grand, stern and silent. Forty minutes into the extensive know-your-customer paperwork, the teller informed me that I needed a local mobile number; it would cost the bank too much to send text messages to my Hong Kong line. Sensing a lot of legwork and stressed about meeting a deadline, I fled. This kind of bureaucratic inflexibility is costing the bank dearly, and not just my small pile of deposits. Retail investors have lost more than $1 billion from a synthetic WTI futures product that was enthusiastically sold in the spring. The lender sat on its hands until the last day to roll over its May futures and got caught selling at negative $37.63 a barrel, making it the world’s biggest (known) loser amid last week’s oil tumult. It’s not like this volatility came out of nowhere — there had been plenty of warnings. Even U.S. President Donald Trump knew the world was running out of oil storage, which is terrible news for WTI futures because they require physical delivery. Fearful of volatility, global banks from Citigroup Inc. to UBS Group AG in late March liquidated leveraged exchange-traded notes. On April 16, United States Oil Fund, the world’s largest oil ETF, said it would allocate about 20% of its portfolio to a longer-dated contract, from nil previously. Bank of China was either asleep at the switch during those weeks or too caught up in red tape to tweak its exposure.Since the bank is so keen on know-your-customer, let’s examine this practice a little more closely. How synthetic oil futures are a suitable investment for moms-and-pops is beyond my understanding. Each WTI contract consists of 1,000 barrels of oil for a reason — they’re intended for professionals. But to lure retail money, Bank of China diced these up, allowing investors to buy in units of barrels. More than 60,000 clients invested, Caixin reported. In a tone-deaf post last week, which was promptly deleted after a media firestorm, the lender disclosed how this product works in detail, with financial jargon ranging from rollover pricing to margin selling. What’s unexplained, however, is why Bank of China, with over $3 trillion in assets, bothered with this complex retail experiment at all. The answer is the banking system. The same factors that have long benefited China’s megabanks are now working against them. For years, the biggest lenders lived comfortably off household savings, paying deposit rates that were capped by the People’s Bank of China. Smaller regional banks, meanwhile, had to scramble for short-term, unstable and expensive interbank funding.Now the tide is turning. The PBOC is offering more liquidity, which has caused a sharp drop in money market rates. These days, funding costs can be even lower at less creditworthy regional banks. Meanwhile, a 30 basis point fall in the loan prime rate — the benchmark interest charged for banks’ best corporate clients — means that large lenders will see more compression in their loan books’ profit margins. Money has to be made somewhere, which is how we wound up with these enthusiastic sales of exotic futures products.Back in January, all the talk in Lujiazui was of the future of China’s wealth management industry. As part of Beijing’s financial reform, big banks are marching in and setting up separate asset management arms. Registered capital of these new subsidiaries often reaches more than $1 billion, surpassing the size of mutual funds many times over. Would these megabanks become the new BlackRocks of China? Not to worry. Bank of China’s spectacular tumble makes a fine example of these whales and their slow-moving money. In reality, such lenders have little incentive to be nimbler. From 2013 to 2018, state-owned banks sent more than 2 trillion yuan ($282.3 billion) in taxes and dividends to Beijing’s coffers, versus only 135 billion yuan from their non-financial counterparts, data provided by UBS show. Coddled state darlings don’t feel much pressure to study up and improve their trade. As for all the grand ambitions of cross-border portfolio diversification, some whales are ending up at the Chicago slaughterhouse to be butchered by savvy billionaire raiders like Carl Icahn. As for me, the next time I’m in Shanghai — whenever that is — I’ll have to hold my nose and try Bank of China again, because I have only 473 yuan left on my WeChat Pay account. Its building is just a stone’s throw from International Finance Center, where many global banks have their offices. But it feels so distant. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

    • Reuters

      China asks banks to halt new sales of products that may lead to unlimited losses - sources

      The Chinese regulator has asked commercial banks to halt new sales of a wide range of wealth management products that might lead to unlimited losses for investors, two sources told Reuters. At the weekend, China Banking and Insurance Regulatory Commission (CBIRC) gave verbal instructions to banks to halt new sales of products that could trigger open-ended losses for investors, and requested reports on the outstanding size of related products, according to two direct sources who are familiar with the matter. CBIRC's move came nearly a week after heavy losses were recorded in a crude oil futures trading product sold by the country's fourth-largest lender, Bank of China (BoC).