(Adds Fitch report details in paragraphs 14-17)
By Samuel Shen and Kazunori Takada
SHANGHAI Dec 5 The husband of the employee
sacked by China's Hua Xia Bank Ltd for allegedly
selling wealth management products without authorisation said
his wife had been made a scapegoat to deflect the bank's
responsibility for the failed products, local media reported on
Hua Xia Bank said on Monday that an employee at the bank's
Jiading branch in a Shanghai suburb sold products issued by the
Zhongding Wealth Investment Center without permission, and a
police investigation was under way.
Hua Xia's statement followed media reports that the products
had stopped making payments to investors upon maturity.
In the last few years, sales of so-called wealth management
products have soared in China, as banks compete for deposits in
higher interest rate products than those offered on savings
Sales of the products grew to 12.14 trillion yuan ($1.95
trillion) in the first half of 2012, according to a July report
by consultancy CN Benefit. Hua Xia Bank was one of the five most
active issuers cited in the report.
On Wednesday, the news portal of Chinese firm Netease Inc
quoted the employee's husband as saying the bank should
bear responsibility. The man, identified only by his surname Xu,
has hired lawyers to defend his wife, who has been arrested and
is in police custody, the news portal reported.
"As a customer manager, Tingting (his wife) had no authority
to transfer money over the counter or examine product risks,"
the husband told Netease.
"The products had been on sale for half a year, and now the
bank is pushing the responsibility on her. Why is the bank
sacking her now, when the products failed, rather than six
Hua Xia reiterated its stance on Wednesday, saying the bank
had no direct relations with the product.
"Hua Xia has never been a distributor of the scheme," the
bank, partly owned by Deutsche Bank, said in a
statement to Reuters.
"The scheme is a suspected crime and the public security
bureau has stepped in to investigate," it said, adding the bank
will fully cooperate with the investigation and will communicate
Attempts to reach Xu were unsuccessful.
It was not clear how many of the wealth management products
had been sold, but a spokesman for Hua Xia's Shanghai operations
said on Tuesday the bank may face some liability over the issue,
Fitch Ratings said in a report on Wednesday that the
increasing issuance of wealth management products (WMP) by
Chinese banks presents a growing risk to the sector, notably to
smaller banks, which have been the main drivers recently.
"Managing WMP issuance and payouts is becoming a growing
logistical challenge," Charlene Chu, head of Chinese banks'
ratings at Fitch, said in a statement.
"Add to this poor disclosure plus the fact that many of the
assets and liabilities spend much of their life off-balance
sheet and there is clearly cause for concern."
The report said the Hua Xia case highlights the reputational
risk incurred by banks in selling some investment products to
investors, including those issued by a third-party.
So far, there has not been a high-profile case of default by
a Chinese wealth management product, many of which are marketed
by banks and highly sought by retail depositors attracted by
their higher interest rates. Banks' liability for the
performance of third-party instruments is untested.
Many of the products essentially channel money to the
so-called shadow banking system, where they help fund real
estate and other projects at very high interest rates.
(Editing by Ken Wills and Jonathan Thatcher)