ANZ-backed bank in China hit by fraud
April 12 2016
Lisa Murray
http://www.smh.com.au/it-pro/anzbacked-bank-in-china-hit-by-fraud-20160411-go3zf6
A guy walks into a bank and steals 780 million yuan ($159 million) worth of bank bills. No, this is not a joke. It actually happened in a Shanghai branch of the Bank of Tianjin, which is 11.9 per cent owned by ANZ. Bank of Tianjin announced what it called the "risk incident" last Friday, just 10 days after it raised more than $1.2 billion from investors in its Hong Kong float. The Chinese bank gave few details about the incident but investigative magazine Caixin has dug up some more information.
It said the bills of exchange had been stored in the bank's vaults but went missing. Some employees, who handled the bills, turned themselves in to police, Caixin reported, citing a person close to the investigation. Shares in the Bank of Tianjin were priced at $HK7.38, the bottom of the prospectus range, and have since dropped to $HK7.32. Under the "risk factors" section in its prospectus, the bank did warn "we may not be able to detect and prevent fraud or other misconduct committed by our employees or third parties" including "potential fraud in relation to mismanagement of bills held for resale that we stored in our inventory".
However, there is no doubt investors who bought into the float will be raising questions about the timing of the announcement. Bank of Tianjin is not the only Chinese lender to be hit by this type of fraud. Earlier this year, the Agricultural Bank of China, the country's third-biggest lender, announced it lost almost 4 billion yuan worth of bills. And another 969 million yuan in bills recently disappeared from the Lanzhou branch of China Citic Bank in Gansu province.
Bills of exchange are used in China as short-term financing tools and can be traded among banks. However, the growing business is loosely regulated and the recent scandals have prompted the China Banking Regulatory Commission to warn lenders about rising fraud risks. Trade in the bills is highly susceptible to fraud because they are usually stored in branches rather than transacted on a digital platform.
ANZ signalled it was keen to exit its Bank of Tianjin investment by reducing its stake in the float. Prior to the listing it had owned 14.2 per cent of the city commercial lender, which is headquartered in China's northern city of Tianjin. ANZ initially paid $159 million for a fifth of the bank in July 2006 but has gradually allowed its stake to be diluted as the introduction of tough capital rules for overseas equity investments made the holding less attractive. Hopes the Chinese government would lift ownership restrictions on foreign banks have also dimmed. Foreign banks are limited to holding stakes of up to 20 per cent in local players.
Apart from allowing its stake to be diluted, ANZ has also ended a business co-operation and technical assistance agreement with the Bank of Tianjin, suggesting it may be cutting off ties and will look to reduce its stake further. The latest scandal only adds weight to the case for selling down. However, at this stage ANZ is still a major shareholder and senior executive Alistair Bulloch sits on the Bank of Tianjin board. The board said in Friday's statement it was "proactively" working with the public security authority on the investigation.