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Indian Government Nationalizes 4th Largest Bank As Shadow Banking Crisis Looms
Indian Government Nationalizes 4th Largest Bank As Shadow Banking Crisis Looms
Two years ago we first noted the building crisis in the Indian banking system, and now, as Bloomberg reports, the Indian government has stepped in to organize a rescue plan for the nation’s fourth largest private bank as a long-running crisis among shadow lenders threatened to spill over into the banking system.
“After 18 months of shadow banking crisis, the government did not want another major turmoil to hit the financial sector,” said Ravikant Anand Bhat, a senior analyst at Indianivesh Securities Ltd.
The government’s plan – to create a State Bank of India-led consortium to inject new capital into Yes Bank Ltd – would throw a lifeline to the embattled lender, which has been struggling to raise capital to offset a surge in bad loans.
Moody’s Investors Service cut the bank’s credit ratings in December and in January said its “standalone viability is getting increasingly challenged by its slowness in raising new capital.”
“Yes Bank is currently in the intensive care unit, and a State Bank capital injection will provide much needed oxygen,” said Kranthi Bathini, a director at WealthMills Securities Ltd.
Additionally, the finance ministry imposes a limit of 50,000 rupees on withdrawals (around US$650) from accounts held in Yes Bank, according to a gazette notification.
But the market does not seem reassured as India’s sovereign credit risk has recently spiked as virus fears and this banking system crisis comes to a head…
The RBI has superseded the board of Yes Bank for a period of 30 days “owing to serious deterioration in the financial position of the Bank,” the central bank says in a statement.
…click on the above link to read the rest of the article…
China Braces For December D-Day: The “Unprecedented” Default Of A Massive State-Owned Enterprise
China Braces For December D-Day: The “Unprecedented” Default Of A Massive State-Owned Enterprise
Something is seriously starting to break in China’s financial system.
Three days after we described the self-destructive doom loop that is tearing apart China’s smaller banks, where a second bank run took place in just two weeks – an unprecedented event for a country where until earlier this year not a single bank was allowed to fail publicly and has now had no less than five bank high profile nationalizations/bailouts/runs so far this year – the Chinese bond market is bracing itself for an unprecedented shock: a major, Fortune 500 Chinese commodity trader is poised to become the biggest and highest profile state-owned enterprise to default in the dollar bond market in over two decades.
In what Bloomberg dubbed the latest sign that Beijing is more willing to allow failures in the politically sensitive SOE sector – either that, or China is simply no longer able to control the spillovers from its cracking $40 trillion financial system – commodity trader Tewoo Group – the largest state-owned enterprise in China’s Tianjin province – has offered an “unprecedented” debt restructuring plan that entails deep losses for investors or a swap for new bonds with significantly lower returns.
Tewoo Group is a SOE conglomerate, owned by the local government and operates in a number of industries including infrastructure, logistics, mining, autos and ports, according to its website. It also operates in multiples countries including the U.S., Germany, Japan and Singapore. The company ranked 132 in 2018’s Fortune Global 500 list, higher than many other Chinese conglomerates including service carrier China Telecommunications and financial titan Citic Group. Even more notable are the company’s financials: it had an annual revenue of $66.6 billion, profits of about $122 million, assets worth $38.3 billion, and more than 17,000 employees as of 2017, according to Fortune’s website.
…click on the above link to read the rest of the article…
Chinese Banks No Longer Trust One Another As Repo Rates Skyrocket
Chinese Banks No Longer Trust One Another As Repo Rates Skyrocket
For those who have grown bored with the ongoing US-China trade war whose escalation was obvious to all but the dumbest BTFD algos, the biggest news of the past week was that yet another Chinese bank was bailed out by the Chinese government – the third in the past three months – and a substantial one at that: with over 1.4 trillion yuan in assets ($200BN), Hang Feng Bank’s nationalization was certainly large enough to make a dent on the Chinese financial system and on the Chinese Sovereign Wealth Fund, which drew the short straw and was told to bailout the troubled Chinese bank (more here).
Hang Feng’s bailout followed those of Baoshang and Bank of Jinzhou, which means that 3 of the top 4 most troubled banks have now been either nationalized by an SOE or seized by the government, which is effectively the same thing.
Of course, to regular readers this development was hardly surprising, especially after our post in mid-July when we saw the $40 trillion Chinese banking system approach its closest encounter with the proverbial “Lehman moment” yet, when inexplicably the four-day repo rate on China’s government bonds (i.e., the cost for investors to pledge their Chinese government bond holdings for short-term funding) on the Shanghai exchange briefly spiked to 1,000% in afternoon trading.
While some attributed the surge to a fat finger, far more ominous signs were already present, and in the aftermath of the Baoshang failure, which has sent Chinese banking stocks tumbling, one-day and seven-day weighted average borrowing rates had remained low thanks to huge central bank cash injections – such as the 250BN yuan we described back in May – longer tenors such as the 1 month repo have marched sharply higher.
…click on the above link to read the rest of the article…
