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:
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