Courtesy of Mish.
Interesting details have emerged regarding the Chinese trust fund that was on the verge of default a few days ago. In fitting irony, the name of the fund is Credit Equals Gold No.1.
On January 15, Reuters reported China’s ICBC says won’t compensate investors in troubled shadow bank product.
“Industrial and Commercial Bank of China, the world’s largest bank by assets, said on Thursday that it has no plans to use its own money to repay investors in a troubled off-balance-sheet investment product that it helped to market.”
Investors should have taken a hit. Certainly the promised 10% yield was too good to be true. Heck, the name of the product itself was a likely indication of trouble.
Tough Luck?
Yesterday morning, the South China Morning Post commented It’s tough, but China must let trust company products fail.
The 700 investors in China’s “Credit Equals Gold No1 Trust” are hoping that Industrial and Commercial Bank of China will bail them out.
Unfortunately, what would be good for individual investors would be very bad for China’s financial system as a whole. It’s harsh, but the troubled 3 billion yuan (HK$3.85 billion) investment scheme should be allowed to fail.
Come the end of the month, the Credit Equals Gold1 product was supposed to mature, returning investors their capital plus a 10 per cent yield.
That’s not now going to happen. China Credit Trust, which structured the product, has warned it will have difficulty making its payout.
Meanwhile, the coal miner whose loans underpinned the scheme has ceased production after its vice-chairman was arrested for taking deposits without a banking license.
Failed Trusts
Did you catch the error in the headline “China must let trust products fail”?
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