China's premier banks: Less than meets the eye

[Dari]

Can't say much since the information I'm looking at is confidential. However, what I am going to say is already public knowledge.

1) China's 4 largest banks have a boom-bust cycle of 10 years.

2) One such bust, dating back to 1989-1993 saw NPLs transferred to a bad bank at full value. What's also strange is that the vast majority of money to fund these bad banks came from the banks themselves. This essentially changes nothing. The bonds raised for the bad banks are to last until 2028, I believe. Hence, they are kicking the cans down the road.

3) The money raised from the IPOs of China's 4 largest banks is exactly equal to dividends paid out from 2004-2008. Since the largest shareholders are the state, money raised by international investors just went to state coffers. Makes no sense.

4) The 4 largest banks are one big Ponzi scheme.

 

[nine9s]

Are the banks state owned and are the obligations/liabilities and money in Chinese Yuans? If so, then there is no funding problem, as the state is the issuer of the Chinese Yuan and can never not pay the obligations.

If the Chinese Yuan is pegged to a currency then it is a little more complicated but I think the Chinese government sets the peg (so it can be anything, they want it to be, or completely taken away for that matter - it is not contractual to another party) in which case it is no different functionally than the US's obligations being in US currency (a free floating currency, it issues) - i.e. no possible insolvency issue.

 

[Dari]

Are the banks state owned and are the obligations/liabilities and money in Chinese Yuans? If so, then there is no funding problem, as the state is the issuer of the Chinese Yuan and can never not pay the obligations.

If the Chinese Yuan is pegged to a currency then it is a little more complicated but I think the Chinese government sets the peg (so it can be anything, they want it to be, or completely taken away for that matter - it is not contractual to another party) in which case it is no different functionally than the US's obligations being in US currency (a free floating currency, it issues) - i.e. no possible insolvency issue.

They are partly state owned...

 

[nine9s]

They are partly state owned...

It could be a problem then, unless the state fully funds them.

 

[PokerGuy]

Surely there's a point you're trying to make? Are you going to make it anytime soon?

 

[Pr0d1gy]

4) The 4 largest banks are one big Ponzi scheme.

Seems like we taught them well. It's sad that this is what the world is.

 

[Dari]

Surely there's a point you're trying to make? Are you going to make it anytime soon?

If you don't know much about banking all you have to do is ask. It's only the most important sector in the entire economy and, in the case of China, these retail banks are basically the only way to channel money to companies. Their reform over the past 20 years has been retarded, switching between their central bank (good) and ministry of finance (bad). Having these banks go through a boom-bust cycle every decade while pretending everything is fine and kicking the proverbial can down the road in the world's 2nd largest economy is extremely serious.