Banks Cash Out Ahead of Clampdown on Fund Managers

(Shanghai) — China’s banks are rethinking deals with fund managers and reclaiming cash in anticipation of tougher government financial controls.

China Construction Bank on April 14 took back 5 billion yuan ($726 million) entrusted to a Shenzhen-based fund manager while re-evaluating deals with several other firms managing about 100 billion yuan in bank funds, a knowledgeable source who asked not to be named told Caixin.

The nation’s banks have outsourced management of 3 trillion to 5 trillion yuan to third-party financial firms that invest in stocks, bonds and other instruments, according to a February report by Guotai Junan Securities Co. Ltd.

But outsourcing programs may be in trouble. Several bank industry analysts told Caixin on condition of anonymity that banks were pulling out of deals with fund managers because they expect the government to issue new regulations aimed at controlling investment risk. Other analysts, though, said banks were merely profit-taking.

In recent weeks, the China Banking Regulatory Commission (CBRC) has issued new rules targeting wealth management products and interbank transactions.

CBRC also issued a directive calling for firms to reduce arbitrage and ordering banks to give regulators detailed information about outsourced wealth management funds.

Some analysts have attributed downturns on China’s bond and stock markets in recent weeks to the cashing out of fund management contracts by banks. The markets are popular investment destinations for fund managers.

But not all banks are reclaiming their cash. For example, China Merchants Bank plans to continue outsourcing fund management as a way to supplement other investment programs, a bank employee told Caixin.

Contact Liu Xiao (liuxiao@caixin.com)