World’s worst-performing bank lent billions to China Evergrande

Bloomberg

It was once hailed as the future of Chinese banking, a privately run lender that would mint money by outmaneuvering its state-owned rivals.
An ill-fated push into property lending has instead turned China Minsheng Banking Corp into one of the biggest casualties of the real estate debt crisis that’s roiling Asia’s largest economy.
Battered by mounting losses on loans to developers including China Evergrande Group, Minsheng’s stock tumbled 31% in the 12 months through last week — the worst performance in the 155-member Bloomberg World Banks Index. Hedge funds and other short sellers are more bearish on the lender than any of its global peers.
People familiar with Minsheng’s operations say the bank, founded in 1996 as China’s first non-state controlled lender, is now in damage control mode. It has restructured its real estate finance group to give more power to local branch managers, made reducing holdings of property debt a top priority for 2022 and plans to cut salaries for some staff by half.
Minsheng’s plight underscores the widening fallout from Chinese President Xi Jinping’s crackdown on the property industry and other parts of the country’s capital-hungry private sector. It also offers a warning to global financial firms that are investing billions of dollars to expand in China: Bets that seem like sure things can quickly sour when the nation’s policy makers decide to change course.
Minsheng has about 130 billion yuan ($20 billion) of exposure to high-risk developers, amounting to 27% of its so-called tier-1 capital, the most among big Chinese lenders, Citigroup Inc. analysts estimated in a September research report. The bank will need years to work through its bad debt problem and a capital injection from a stronger rival can’t be ruled out, said Shen Meng, director at Chanson & Co, a Beijing-based boutique investment bank.
“The pursuit of high growth and returns to its private shareholders pushed the bank to take on lots of high-risk investments,” Shen said.
Minsheng said in a response to questions from Bloomberg that it completed a restructuring of its real estate finance unit at the end of 2020, transferring some functions to local branches. Employee compensation is largely stable, the bank added.
Chairman Gao Yingxin, who joined Minsheng from Bank of China Ltd. in 2020, pledged to address the lender’s challenges at a shareholders’ meeting in June. “Ten years ago we were the pearl on the crown, but now our gap with peers is widening,” Gao said. “Corporate governance will switch from short-sightedness to long-termism.”
This isn’t the first time Minsheng has faced a reckoning after a period of rapid growth. In 2009, Dong Wenbiao, who helped found Minsheng alongside other wealthy Chinese businessmen including pig-feed tycoon Liu Yonghao and property mogul Lu Zhiqiang, orchestrated the bank’s push into steel-industry lending as part of a goal to become the most profitable bank in China. While Minsheng’s earnings surged at an annual rate of nearly 50% over the next five years, a steel sector downturn ultimately led to a pileup of bad loans and Dong left the bank in 2014.