Guarantor repays principal on failed Huaxia product

PUBLISHED : Wednesday, 23 January, 2013, 12:00am
UPDATED : Wednesday, 23 January, 2013, 3:55am

Bankers are breathing easier after more than 90 investors in a failed wealth management product sold at a Huaxia Bank branch in Shanghai were repaid by the product's guarantor.

Two investors who bought the product said Zhongfa Investment Guarantee recently paid them back the principal amounts they had invested after the borrower, Zhongding Wealth Investment Centre, collapsed.

A total of 91 investors were reimbursed, one of them said.

"We are satisfied with the solution, although not a single coin of interest income was paid to us," he said. "After all, the principal is a large sum, and it's good the money has been returned."

It had been speculated that the mainland's banking regulator would force Beijing-based Huaxia Bank to repay investors so as to avert social chaos, since the scandal had tainted the reputation of banks nationwide.

A senior banker said nearly all mainland banks opposed that proposal, as they were concerned that they would have to follow suit if any of their products were to collapse in the future.

"The [eventual] solution to the Huaxia problem will ease the pressure on other banks," the banker said. "It was a victory for all Chinese banks."

The product's default led to protests by dozens of investors last month. The buyers of the Zhongding product were told by Huaxia Bank's branch in Jiading district that their investments had been wiped out.

The bank said the product, sold by a customer manager named Pu Tingting, had not been authorised by its head office.

At that time, Zhongfa, the guarantor, refused to cover the losses, saying that it, too, had been defrauded by Zhongding.

Mainland banks have sold 12 trillion yuan (HK$14.82 trillion) worth of such products. The banks act as middlemen to issue them to investors on behalf of borrowers who need the funds.

Anecdotal evidence shows some of the products were sold illegally by bosses or employees of banking outlets and are likely to spawn further defaults.

Bankers and analysts predicted that products worth billions of yuan would fail in the coming months.

A spokesman for Huaxia Bank in Shanghai could not be reached for comment yesterday.