People
&Markets
China limits
outbound
investment
China is suspending approvals for a niche
overseas investment product in Shanghai
KNOWNûASûTHEû1$,0ûSCHEMEûANDûURGINGû
licence holders, such as JPMorgan Asset
Management and Aberdeen Standard
)NVESTMENTS ûTOûBEûhLOWûPROlLEvûINû
marketing it, sources said.
The window guidance, targeting one of
a handful of overseas investment channels
for mainland investors, signals Beijing’s
RENEWEDûWORRIESûOVERûCAPITALûOUTmOWSûASûAû
rapidly escalating Sino-US trade war hurts
its economy and the renminbi.
China’s foreign exchange regulator has
also not issued fresh quotas during the
past three months under another overseas
INVESTMENTûSCHEME ûTHEû1UALIlEDû$OMESTICû
)NSTITUTIONALû)NVESTOR ûORû1$)) ûDATAûFROMû
the State Administration of Foreign
Exchange showed.
In recent weeks, the Shanghai Municipal
&INANCIALû3ERVICEû/FlCE ûWHICHûOVERSEESû
THEû1UALIlEDû$OMESTICû,IMITEDû0ARTNERSHIPû
programme, has asked licence holders to
be “tight-lipped” on the business in public,
and to the media, three executives at fundmanagement companies said.
New applicants for the businesses have
been told to wait, two sources said.
“That should be no surprise as the SAFE
quota to FSO is very limited,” due to the
pressures on the capital account, said one
executive.
Both the FSO and SAFE did not respond to
faxed questions seeking comment.
JPMorgan Asset Management declined to
comment when asked about the guidance,
and Aberdeen did not immediately respond.
4HEû1$,0ûANDû1$))ûSCHEMESûPERMITû
China-based local and foreign funds to raise
money from domestic investors for offshore
investments.
4HEûTIGHTENINGûGRIPûONû1$,0ûREPRESENTSû
a policy reversal by regulators, who
resumed the scheme in February after a
two-year hiatus against the backdrop of a
strengthening renminbi.
Global asset managers, including
JPMorgan AM, Allianz, BNP Paribas, AXA,
2OBECOûANDû-IRAEû!SSETûHAVEûBEENûAWARDEDû
1$,0ûLICENCESûTHISûYEARû3!&%ûSAIDûINû!PRILû
it would expand the total quota for the
1$,0ûPROGRAMME
&ROMûûTOû û3HANGHAIûAWARDEDû
1$,0ûQUOTASûWORTHûAûCOMBINEDû53BNû
to 15 asset managers.
#HINAûALSOûRESUMEDûTHEû1$))ûSCHEMEû
in April after a three-year suspension, but
it ground to a halt again in July, as therenminbi started to slide.
4HEûCURRENCYûHASûWEAKENEDûABOUTûû
against the dollar this year, far less than
currencies of some of the other large
emerging markets that have been hurt by
RISINGû53ûYIELDSûANDûOUTmOWSûOFûRISK
SEEKINGû
PORTFOLIOûmOWS
It is down nearly 10% since late March,
WHENûTHEûlRSTûOFûAûSERIESûOFû53ûTARIFFSûONû
Chinese imports were announced.
#HINASûATTEMPTSûTOûDEmECTûCAPITALû
OUTmOWûPRESSURESûCOULDûBEûPRECAUTIONARYû
The tightly managed renminbi is shielded
by a host of regulatory controls on retail
and institutional purchases of foreign
currency and China has seen few signs yet
OFûTHEûKINDûOFûCAPITALûmIGHTûEXPERIENCEDû
DURINGûTHEû
ûMARKETûTURMOIL
But with its FX reserves close to falling
BELOWûTHEûPSYCHOLOGICALû53TRNûMARKûANDû
having created numerous channels, such
as the Bond Connect and Stock Connect
schemes, to allow movement of portfolio
investments in and out of China, Beijing
is wary of giving investors a reason to sell
down renminbi assets.
+ENû#HEUNG ûAûSENIORû!SIANû&8ûSTRATEGISTû
at Mizuho Bank said: “the overshooting
OFû2-"ûDEPRECIATIONûANDûCAPITALûOUTmOWû
pressure will be lethal to China growth and
lNANCIALûSTABILITYv
SAMUEL SHEN, ANDREW GALBRAITHHSBC reaches
US$765m deal
with DOJ
HSBC has reached a settlement with the US
$EPARTMENTûOFû*USTICEûOVERûALLEGATIONSûTHATû
it missold mortgage-backed securities in the
RUN
UPûTOûTHEûGLOBALûlNANCIALûCRISIS
The Anglo-Asian lender will pay a
53MûCIVILûPENALTYûPURSUANTûTOûTHEû
&INANCIALû)NSTITUTIONSû2EFORM û2ECOVERYûANDû
Enforcement Act.
(3"#ûSAIDûITûHADûACCOUNTEDûFORûTHEûlNEû
already in its provisions. It did not admit
any wrongdoing as part of the agreement.
4HEû$/*ûALLEGEDûTHATûBETWEENûûANDû
2007 HSBC misled investors regarding the
quality of its residential mortgage-backed
securities and the due diligence process
it used to screen loans included in its
securities pools.
For one loan pool HSBC purchased in
ûTHEûBANKûLEARNEDûOFûWHATûEMPLOYEESû
referred to as an “abnormally large” and“alarmingly” high number of payment
defaults.
Some within HSBC’s risk management
group had queried whether they should
hold back on the securitisation launch
until further investigation was carried out,
but, the next day, the head of the whole
loan trading risk management group said
he was “comfortable that we need not
make any further disclosures to investors”
and the bank launched the deal a few days
later.
4HEû$/*ûALSOûSAIDûTHATûWHENû(3"#û
employees saw loans with low grades,
they sometimes waved them through or
recategorised them to make them appear
better. In one example in 2007, an HSBC
trader said in reference to an upcoming
issuance, that “it will suck”.
Bob Troyer, United States Attorney for
THEû$ISTRICTûOFû#OLORADO ûWHOSEûOFlCEû
investigated the case, criticised HSBC in a
statement.
“HSBC made choices that hurt people
and abused their trust,” he said. “HSBC
chose to use a due diligence process it knew
from the start didn’t work. It chose to putlots of defective mortgages into its deals.
When HSBC saw problems, it chose to rush
those deals out the door ... If you make
choices like this, beware. You will pay.”
Patrick Burke, president and CEO of
HSBC in the US, aimed to draw a line under
the matter.
“We are pleased to put this investigation
related to activity that occurred more
than a decade ago behind us,” he said.
h3INCEûTHEûlNANCIALûCRISIS û(3"#ûHASûBEENû
strengthening our culture, processes and
internal controls to ensure fair outcomes
for our clients.”
HSBC is one of multiple global lenders
that have settled or are being pursued by
THEû$/*ûOVERûMORTGAGE
RELATEDûALLEGATIONSû
The US banks have already paid out tens
of billions of dollars over allegations of
misleading investors over the quality of
mortgages underlying securities.
)Nû$ECEMBERû û$EUTSCHEû"ANKû
reached a US$7.2bn settlement over the
pooling of mortgage securities, which has
contributed to a lot of the bank’s recent
DIFlCULTIES
THOMAS BLOTT