Investors Rage After 3 Billion Yuan Vanish From China's Largest Private Bank

Tyler Durden's picture

Theoretical warnings about risks inherent in China's shadow banking system became all too for 150 customers of China's largest private bank, when Minsheng Banking Corp found itself involved in a 3 billion yuan (US$436 million) fraud case, after it emerged that a branch chief of the lender in Beijing allegedly issued false bank acceptance bills and later secured funds from individual investors to cover up the misdeed.

According to SCMP, an accidental inquiry from an investor exposed the fact that the WMPs sold by a Minsheng branch didn’t even exist. When shocked investors rushed to the bank, they found the head of the branch had been taken into police custody and the supposed due payment date had passed.

A little background: bank acceptance bills, one of the shadier funding pathways of China's shadow banking system, and a form of bank-backed IOU, are commonly used as a form of payment between Chinese companies. The holder of such bills is entitled to cash the bill at a bank under any circumstances... unless of course fraud is involved. It is different from commercial acceptance bills, which are issued by companies and do not guarantee repayment despite companies’ trustworthiness.

Well, in this case fraud was involved.

The branch head at the Beijing branch of Minsheng, Zhang Ying, allegedly helped a corporate client disguise commercial acceptance bills as bank acceptance bills by using a false seal of the bank. The bills were issued by the client to a number of companies, which later discovered the bills were fake, Caixin said.

Then, in order to cover up the fact that the fake bills were not able to be cashed by the bank, Zhang later sold 3 billion yuan of unauthorized wealth-management products to the bank’s private customers to get funds for the client to repay the bills. Caixin said a huge amount of funds may be transferred between the client and Zhang.

Zhang Ying, the branch head, has been detained by Beijing police, while Xiao Ye, vice head of the branch, is still missing, Caixin magazine reported on its website. Minsheng said it is assisting the police with an investigation into Zhang, according to its public announcement yesterday, and will “investigate thoroughly the incident and try to recover investors’ funds to the utmost.”

Meanwhile, the investors in the WMPs sold by Minsheng, realizing their money is now gone, are understandably furious.

“If we can’t even trust a big national bank, what other financial institutions can we trust?” Liu Min, who bought 12 million yuan worth of WMPs from Minsheng, said as he waited in the lobby of the Hangtianqiao branch of Minsheng Bank to hear news. Two million yuan of the WMP he invested in is was “due” April 17 but he can’t get the money back. Liu, 52, was one of 150 private banking customers of Minsheng who had bought the WMPs. In most cases, their ties with the lender go back 10 years when the Hangtianqiao branch joined them up in a “golf club”. Under the programme, they frequently invested in the products offered by the branch and in return, the bank paid for them to go on golfing trips domestically and overseas.

“We have bought the banks products for many years and none of the previous one had trouble,” said an investor surnamed Li. “Many other institutions peddle various products to me but I didn’t buy them because we trusted the [Minsheng] bank. We are not yield hunters.”

* * *

While there have been numerous allegations and warnings that China's entire shadow banking facade, dominated by WMPs and other "investment products", is nothing but a giant ponzi scheme in which  recoveries - should there be a bank run (a topic recently discussed on Bloomberg) - would be non-existant if there is ever a bank run, defaults of WMPs issued by big banks – and this case an unapproved WMP – are rare. For now.

The Minsheng case involved an “innovative” WMP in which yields were amplified by purchasing a secondhand WMP. For a rough analogy, think CDO-squared products sold to retail investors.

According to investor contracts seen by the South China Morning Post, Minsheng’s private banking customers purchased transferred WMPs from the original investors. Bank employees told the buyers that the original investors urgently needed cash and were willing to cash out of the WMPs, which at the time were not yet due, and forego the supposed yields. As a result, the original WMPs that guaranteed principle and at least 4.2 per cent annual return “turned into” a product with more than 8 per cent annual return. Bank employees said the products were exclusively for longstanding private banking customers who owned at least 10 million yuan in financial assets.

How the fraud was uncovered: last week an investor happened to ask a friend who works at a bigger branch of Minsheng about the WMP at Hangtianqiao, but was told it didn’t exist. Officials at the Beijing branch of Minsheng subsequently reported Zhang Ying to the police, who then arrested her. By Thursday night all investors had become aware of the situation.

The 150 members of the so-called “golf club”gathered at the Hangtianqiao branch the next day demanding an explanation. They also visited the China Banking Regulatory Commission and its Beijing subsidiary, as well as the headquarters of Minsheng Bank, and the China Securities Regulatory Commission. However, no clear answers have been given to them to date.

Unfortunately for the 150 members of the "golf club", their money is long gone, and without any backstop or guarantee, their hope of recovering their funds is zero.

* * *

Ironically. the Minsheng case comes at a time when the Chinese banking regulator, the CBRC, has launched a crackdown on banks’ transgressions, including bank employees’ colluding with clients to forge unapproved lending programmes and sell them to investors. Last Monday, the China Banking Regulatory Commission issued risk management guidelines for lenders that included a section on WMPs. The regulator said the products should be simple and transparent, avoid excessive leverage and invest in distinct assets - rather than pooling funds with other WMPs.

And yet this is precisely what happened. As a result, what the CBRC will find as part of its inquiry, is sure to shock it. Meanwhile, as Bloomberg recently wrote in "China Is Playing a $9 Trillion Game of Chicken With Savers" the biggest risk for China's financial system at this moment may be a wholesale run by investors on the "shadow banking" system, demanding their money back, as they would promptly find this money no longer exists. Indicatively, there is now over 30 trillion in total WMP assets in China, or over $4 trillion USD, nearly half of China's GDP.

A few more cases of big bank fraud such as this one at Mingsheng, and said bank run may be inevitable.

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Callz d Ballz's picture

aaaaaaaaaand it's gone!

Bastiat's picture

Who can you trust?  Not a bank.  The answer is in thousands of years of your history: gold & silver.

PrayingMantis's picture

... "Min sheng" means "People's livelihood" in the Chinese language ... I wonder if it means (((Red Shield))) in the banking language ...

jcaz's picture

I'm shocked, SHOCKED, I say...

The smart Chinese money is long gone, funneled into other bullshit around the world;

The music stopped, kids.

CorporateCongress's picture

They can find it in Vancouver, Sydney,.....  and many other places

Buck Johnson's picture

Your spot on, spot on.  The smart money has long gone along with their families and the ones that made the promises.  What you have left is the last ones out of the gate of con men who may make it or may not make it out of China.  Everybody on this forum lets truly think about this.  If there is ever a run on the Chinese system and the govt. knows they can't do anything about it, it will implode their economy and take down the govt. in power.  There's a reason chinese are leaving (ones with money) to Vancouver, Sydney, America, and other parts of the world.  They are on the run and got their money and others to be honest with you out. 

The last thing they want is to be arrested and executed for their crimes.

 

 

City_Of_Champyinz's picture

Not just any old bank, keep in mind it is a COMMUNIST bank.  Trusting Communists is a pretty stupid way to go through life...Keep stacking.

Peacefulwarrior's picture

Spent a good bit of time dealing in China. There favorite thing to do is drink too much and play "Liars Dice". Bluffing and Bull$hit is part of their mystique.

FireBrander's picture

The money isn't "Gone"; the bank executives have it securely invested in $500,000 crack houses in East LA, USA.

FireBrander's picture

So, is this going to delay the shift from the Dollar to the Yuan as the new reserve currency?

~~~~~

Every time I hear "warning" about China being the new reserve currency...get the fuck outa here...who in the fuck is going ship their wealth to China for "safe keeping"? No fucking way.

MalteseFalcon's picture

“If we can’t even trust a big national bank, what other financial institutions can we trust?”

Perhaps the  government.

The government can use violence to get compliance.

Peacefulwarrior's picture

I didn't say Chinese were stupid just gamblers. They will buy every asset worth owning with easy or stolen money! That's a fact.

The Management's picture

The Chinese have yet to appreciate a stockmarket-class ass raping them like 2007.

After that they too will live more in the (now). I highly doubt the lil guys will be so quick to invest in shady shit after whats coming.

Offthebeach's picture

Couldn't they get other kinds of wood pulp with dead politicos printed on it?  Or, if not that, hows about digital X's and O's.

OpenThePodBayDoorHAL's picture

Geez folks, even Marco Polo knew the Chinese were the kings of paper money fraud:

https://ebooks.adelaide.edu.au/p/polo/marco/travels/book2.24.html

How the Great Kaan Causeth the Bark of Trees, Made into Something Like Paper, to Pass for Money Over All His Country.

The Emperor’s Mint then is in this same City of Cambaluc, and the way it is wrought is such that you might say he hath the Secret of Alchemy in perfection, and you would be right! 

And the Kaan causes every year to be made such a vast quantity of this money, which costs him nothing, that it must equal in amount all the treasure in the world.

And indeed everybody takes them readily, for wheresoever a person may go throughout the Great Kaan’s dominions he shall find these pieces of paper current, and shall be able to transact all sales and purchases of goods by means of them just as well as if they were coins of pure gold. And all the while they are so light that ten bezants’ worth does not weigh one golden bezant.

BuckWild's picture

The Jooish banksters have been mocking the American Sheeple for a long time. Will they ever wake up?

Still Losing Money's picture

yo, adolph, there are NO jooooish bankers in china, dipshit

BlindMonkey's picture

Protip: liquidity doesn't mean flushing it like beer through an Irishman.

 

This will do wonders for trust in banks.  I hope you fellas at DB are paying attention.

junction's picture

Is this Chinese "golf club" anything like Trump's Mar-A-Lago golf club?

And, just in, Aaron Hernandez "suicided" himself to celebrate his recent courtroom win.  

insanelysane's picture

Hernadez did suicide himself to be a hero to his family.  His lawyer is already filing to have his murder conviction overturned which in Massachusetts is a slam dunk for people that die in prison waiting on appeal.  It is just too coincidental that he kills himself overnight and then the first thing his lawyer does in the morning is to file for revocation.  This way wife, daughter, lawyer all get paid because he was "never" guilty of anything.

Peacefulwarrior's picture

So somehow will "Hernandez" be spun into a MSM Martyr and have a statue erected at Foxboro? Hernandez is nothing more than a waste of talent and a self-indoctrinated morally corrupt thug that has left a little human behind to wonder WTF...

Yog Soggoth's picture

Translated to 'so solly, rots of ruck.' No different in the USA when someone steals something, you rarely get it back from the police before it goes to auction.

vulcanraven's picture

You can't always get what Yuan.

Arnold's picture

Another award (of some sort) winner comment.

Seldom does a groaner actually make me groan though.
Well done.

clade7's picture

Only 3 billion vanished?  Outraged?  Damn..Consider yourself lucky!  Catch up here Chang...

E.F. Mutton's picture

That's barely a blip on the Goldstein Scale.

 

logicalman's picture

Peanuts compared to what the Pentagram can lose.

zzzz88's picture

this is how next crisis start. chinese government tried to cover it, but they can not cover it forever. 

 

just in USA, the FED and goverment can not pretend and cover it for ever. it is the law of nature. no one can change it, they can only postpone it. 

bobdobolina's picture

Ummm how the heck does THIS happen? geeeeez guys

Bunga Bunga's picture

LOL, the money was gone at the time the customers deposited their money into the bank already. Banking is a music chair game by nature.

enosenose's picture

 

they are in Canada, NY & SF real estates.

GoldToDaMoon's picture

WMP = Weapon of Mass Poverty

smokintoad's picture

“If we can’t even trust a big national bank, what other financial institutions can we trust?” Liu Min, who bought 12 million yuan worth of WMPs

Looks like someone just took the red pill, involuntarily administered as a football-sized suppository.

 

LawsofPhysics's picture

We all knew that it would indeed come down to a global bank run OR GLOBAL WEIMAR!!!!

This isn't rocket science you stupid fucks, either all those paper/digital claims on real assets can be satisfied or they cannot and must be "dissappeared"...

Peacefulwarrior's picture

Disappeared is the new hip word for "Haircut"

darteaus's picture

MF Global - Chinese style

Bryan's picture

"Money" is a social construct, and is created and destroyed at the whim of whoever is in power at the time.

LawsofPhysics's picture

When it is uncertain who is in power, "money" is defined by the producer of REAL goods and services...

"Full faith and credit"...

now, fuck you, pay me!

clade7's picture

Right?  Fake News!!  Its not like somebody stole some guys actual water buffalo or fishing cormorants...No Big Deal!  Its Just paper!

Bill of Rights's picture

Funny, how its fraud when these clowns Rob from a Bank,  yet if you Rob a Bank with a gun its theft....funny stuff.

Fireman's picture

The only difference between Ponzi China and Ponzi USSA is that China slaughters its crooked bankers and gets to peddle, liver, kidneys, heart and any other bits that might still have "true market value". Now if only USSANS could dismantle their own bankster filth and trade their vittals on the organ circuit imagine the cash flow generated from their second hand body parts.

hooligan2009's picture

who would want disease ridden US banker organs? ;)

Peacefulwarrior's picture

Won't work here, Our bankers house too much Cocaine abuse in their fatty near failing livers