from Bob Wenzel . . .
SUNDAY, JANUARY 19, 2014
Breaking: Chinese Financial Firm Warns Shadow Bank May Not Repay Its Debt
Reuters reports:
"The trust firm responsible for a troubled high-yield investment
product sold through China's largest banks has warned investors
they may not be repaid when the 3 billion-yuan ($496 million)
product matures on Jan. 31, state media reported on Friday.
Investors are closely watching the case to see if it will shatter
assumptions that the government and state-owned banks will
always protect investors from losses on risky off-balance-sheet
investment products sold through a murky shadow banking system.
Based on a loan to an unlisted coal company, the now distressed
product was created by China Credit Trust Co Ltd, while Industrial
and Commercial Bank of China , the world's largest bank by assets,
helped to market it to wealthy investors in central Shanxi province.
On Friday, the official China Securities Journal reported that the
trust company is considering legal action to press related parties
for repayment to protect investors' interests.
The newspaper went on to quote trust industry sources saying an
outright default was likely to be avoided simply by delaying
repayment until arrangements were made to repay investors by
other means."
I have been reporting at the EPJ Daily Alert that China is on the
verge of a huge collapse. Indeed, in recent weeks I have been
advising that Chinese financial sector ETFs be shorted.
China may be able to bail out one deal, but the problem is developing
nationwide across the capital goods sector, and a nationwide bailout
would mean massive inflation. Eventually, China is going to have to
either allow a massive crash or print incredible amounts of money
that risks major unrest from the general public who will have to deal
with the price inflation consequences.
"The trust firm responsible for a troubled high-yield investment
product sold through China's largest banks has warned investors
they may not be repaid when the 3 billion-yuan ($496 million)
product matures on Jan. 31, state media reported on Friday.
Investors are closely watching the case to see if it will shatter
assumptions that the government and state-owned banks will
always protect investors from losses on risky off-balance-sheet
investment products sold through a murky shadow banking system.
Based on a loan to an unlisted coal company, the now distressed
product was created by China Credit Trust Co Ltd, while Industrial
and Commercial Bank of China , the world's largest bank by assets,
helped to market it to wealthy investors in central Shanxi province.
On Friday, the official China Securities Journal reported that the
trust company is considering legal action to press related parties
for repayment to protect investors' interests.
The newspaper went on to quote trust industry sources saying an
outright default was likely to be avoided simply by delaying
repayment until arrangements were made to repay investors by
other means."
I have been reporting at the EPJ Daily Alert that China is on the
verge of a huge collapse. Indeed, in recent weeks I have been
advising that Chinese financial sector ETFs be shorted.
China may be able to bail out one deal, but the problem is developing
nationwide across the capital goods sector, and a nationwide bailout
would mean massive inflation. Eventually, China is going to have to
either allow a massive crash or print incredible amounts of money
that risks major unrest from the general public who will have to deal
with the price inflation consequences.
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