A Shandong court has sentenced Jiang Xiyun, the former chairman of the embattled Hengfeng Bank, to death with a two-year reprieve for taking bribes, destroying records, and illegally issuing financial notes. Jiang’s sentence is likely to be commuted to life in prison if he isn’t found to commit further crimes. Bloomberg News reports:
Jiang Xiyun was convicted for moving 754 million yuan ($108 million) worth of Hangfeng shares to his personal account between 2008 and 2013, according to the Yantai Intermediate People’s Court. He also took bribes of more than 60 million yuan together with another bank executive, according to the Thursday ruling. A reprieved death sentence may be commuted to a life sentence if the person shows good behavior within the allotted period.
The conclusion of the trial underscores the troubles faced by Shandong-based Hengfeng Bank, which earlier this month became the latest regional lender in need of a rescue. The bank sold new shares for about $14 billion to a group of investors including a unit of China’s sovereign wealth fund and a local government-backed asset management firm.
Jiang had ordered others to destroy records for over 600 million yuan of transactions, according to Thursday’s ruling. [Source]
More on Jiang’s case from Caixin’s Wu Hongyuran and Denise Jia, who note that others were sentenced in the case, and outline the other recent scandals facing Hengfeng:
Hengfeng Bank, which came into existence in 2003 and is one of 12 national joint-stock commercial banks, has been marred by scandals in recent years. Jiang’s successor has also been under investigation for alleged embezzlement. The bank is in the midst of a restructuring led by the government. Earlier this month, Hengfeng announced a private placement to raise 100 billion yuan from a group of state and foreign investors.
[…] The former chairman also directed his relative Sun Jinguang, another defendant in the case, to destroy accounting records related to 660 million yuan of illegal transactions, the court said. Sun was sentenced 33 months in prison and fined 20,000 yuan.
[…] Zhao Chunying, former financial head of Hengfeng Bank, was sentenced to 12 years in prison and fined 1 million yuan. Zhao’s family told Caixin that he has returned most of his embezzled money and will appeal the verdict.
Zhang Wenkai, a former assistant to the bank’s president, was found to have illegally issued under Jiang’s orders 3.7 billion yuan of guarantees to Jiang’s affiliates without charging related fees. Zhang was sentenced to 34 months in prison. [Source]
At Reuters, Judy Hua, Lusha Zhang and Ryan Woo report on Beijing’s ongoing restructuring of the bank:
The Shandong-based bank is in the midst of a restructuring led by the government.
The lender has not released its annual report since 2017 due to management and liquidity issues.
The banking and insurance regulatory watchdog appointed its staff to head the bank in 2017, but the restructuring process has dragged since then.
Concerns over Hengfeng were rekindled by the state seizure of Baoshang Bank earlier this year and the state rescue of Bank of Jinzhou, sharpening concerns about the health of hundreds of small lenders as economic growth slows to near 30-year lows. [Source]
Reuters earlier this month reported that Hengfeng would raise 100 billion yuan by selling shares to state and foreign investors. At the Financial Times, Tom Mitchell and Sherry Fei Ju report that the state rescue of Hengfeng and two other large regional banks this year have raised concerns about risks in China’s banking system:
Hengfeng was the largest of three regional banks rescued by Beijing authorities this year, with more than Rmb1.4tn ($200bn) in assets.
[…] Baoshang’s rescue, funded by the central bank, spooked the country’s financial markets because creditors above a certain size will not get all of their money back.
[…] The rescues of Hengfeng, Baoshang and Jinzhou banks have raised concerns about the potential frailty of China’s banking system, especially as Beijing continues to crack down on what it views as risky financing channels previously tapped by regional banks and private sector companies. [Source]
Jiang’s sentence is harsh but not without precedent, according to the South China Morning Post, which also reports on banking concerns amid China’s slow economic growth and comments from the central bank on the need for repercussions for corruption. He Huifeng reports:
Many banking institutions are struggling to repay debts and facing great pressure to attract new deposits amid the slowest economic growth in nearly three decades, raising concerns about the weak links in China’s banking system, particularly city commercial and rural banks.
Central bank governor Yi Gang said in late September that Beijing would follow “market oriented” and “rule of law” approaches in dealing with problematic banks, suggesting that the central bank was not willing to foot the bill to bail out regional lenders.
These [troubled] institutions must take the prime responsibility and their shareholders must be responsible for their actions, while large creditors must also have the ability to identify risks, according to Yi. [Source]