Who Will Buy Bank of China's Toxic Assets? Bank of China

Update: I missed this WSJ article last month. The main point is the same, but the WSJ goes into more detail, and its not Google Translated from Chinese.

Bank of China Is Selling Bad Loans to Investment-Bank Unit

Bank of China Ltd., one of the country's big four state-owned banks, has started a new strategy of unloading soured loans to its investment-banking unit, which then would try to restructure the debt with the hope of recovering more than it paid for the loans, according to bank officials.

With the investment-banking unit expected to pay more than an outside investor, the bank would be able to record lower loan losses. Meanwhile, the problem loan would no longer stay on the bank's balance sheet after the sale under Chinese accounting rules. By comparison, such intracompany transactions usually aren't treated as sales under Western accounting standards.

Originally Posted April 2: Just a snip out of this article. Banks in China often sold non-performing loans to Cinda Asset Management (1359.HK), private equity and other players in the bad debt space. Bank of China thinks it can earn more money by restructuring the debts themselves in their investment banking division, rather than selling them off. The chief benefit though, may be that the subsidiary pays a higher price for the debt, reducing the reported loan losses.

谁在收购中国银行业“有毒资产”？

Chinese banks dispose of such "toxic assets" which are usually sold to outside investors in the past, these outside investors is China's large state-owned major asset management companies. In recent years, including China Cinda Asset Management Corporation, including asset management company to achieve such a huge profit.

The company's basic operations logic is to acquire a large discount from the bank in the hands of non-performing loans, and to recover more than the cost of acquisition funds. This business model by many people optimistic, with the increase in lending banks, asset management companies in the business of disposing of bad loans will increase, as the letter of the future profitability of these companies is very high.

But a growing number of subjects involved in this business started since last year, Zhejiang, Jiangsu provincial asset management companies have been established, mainly because the local banking sector non-performing loans increased rapidly in recent years, while taking into account the provincial asset management integration have the advantage of local resources and other areas, may be able to improve the efficiency of the stock of non-performing loans disposal.

In addition, local property trading platform, PE, trust companies and other organizations have been involved in this field with the past, the transfer of assets to the bad bank will be several large state-owned asset management company, to as low as 1-2 fold compared to the cheap sale, increased and diversified body of market competition will increase the sale price of non-performing assets.

In addition, even subsidiaries of commercial banks are involved in this industry.

Bank of China began to sell its investment banking subsidiary of non-performing loans, after this subsidiary will restructure these loans, with a view to recovering the loan is higher than its acquisition price of capital. Since the purchase price under the investment bank subsidiary of the non-performing loans is expected to be higher than outside investors, the Bank of China can be included relatively few loan losses.