Stock Market Related Debt Blowups Start Showing Up

When the tide goes out, you not only see who is swimming naked, but who has engaged in fraud and corruption.

Bloomberg: China Citic Bank Uncovers $147 Million Bill 'Risk Incident'
China Citic Bank Corp. recently uncovered a “risk incident” involving 969 million yuan ($147 million) in relation to its notes business, the unit of the nation’s largest investment conglomerate said late Thursday.

...Earlier, people familiar with the matter said that an employee at the bank’s branch in Lanzhou city allegedly conspired with other people between May and July to fake documents that were used as collateral to obtain a bankers’ acceptance. That was later sold several times at discounted prices, said the people, asking not to be identified as they aren’t authorized to speak publicly on the matter. The proceeds were invested in stocks, and the fraud was uncovered after Chinese equities slumped, one of the people said.
iFeng: 中信银行爆9亿元票据案 因股市下跌暴露出来

Another case is in Shanghai. ZH: China's 3 Trillion Yuan Margin Call Time Bomb Is About To Explode
We cite a recently reported example involving the controlling shareholder of Guangxi Future Technology. According to articles by Securities Times (Jan 19) and 21st Century Business Herald (Jan 20), in December 2015 Pudong Development Bank set up a WMP called Tebon Huijin No.1 Asset Management Plan to fund the shareholder's purchase of its own company's shares. Essentially, the WMP buyers, as the senior tranche investors, lent money for the shareholder to buy their own stock. Similar to other structured WMPs, this product has a stop-loss clause, and the company's share price dropped below the stop-loss level on Jan 18. As the controlling shareholder did not put up additional margin, Pudong Development Bank liquidated all stock in the plan (equivalent to 2.13% of the company's outstanding shares). This is the first case of forced liquidation by such products but in our view there could be additional cases given how sharply the market has declined in recent weeks.
Yesterday the estimate on bad debts backing zombie industries was estimated at 5.4 trillion yuan. Compared to bad debts in the late 1990s, the situation didn't look as bad, but as the above news shows, there's plenty more types of bad debt to uncover in 2016.

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