China’s First Bank Seizure in 20 Years Sets Investors on Edge
- Regulators on Friday took over Baoshang Bank for one year
- Shares of small banks have underformed the benchmark in 2019
The Chinese government’s first seizure of a bank in more than two decades reverberated through markets for a second day, driving up funding costs for smaller lenders and adding pressure to shares that already trade at rock-bottom valuations.
A Bloomberg index of Hong Kong-listed Chinese banks is set for its biggest monthly loss this year after regulators assumed control of Baoshang Bank Co. on Friday citing “serious” credit risks. With the interbank repurchase rate jumping to the highest in a month and loss-absorbing bonds, known at AT1s, slumping across several small lenders, policy makers on Tuesday injected more cash into the banking system. Baoshang was part of the investment conglomerate led by financier Xiao Jianhua, known as the Tomorrow Group, which is being probed by Chinese officials, according to people familiar with the investigation.