HONG KONG--Africa's biggest bank has joined China's largest
securities firm in suing to get control of stocks of metals in
Chinese warehouses that lenders believe may have been fraudulently
used as collateral for loans.
The latest suit, by Standard Bank Group Ltd., Africa's largest
lender by assets, shows the global dimensions of a suspected
lending fraud at Qingdao port on China's eastern seaboard. It
follows a lawsuit filed this week by Citic Resources Holdings Ltd.,
whose parent company is Citic Group, one of China's largest
state-owned companies and a big financial concern.
Lenders are increasingly frustrated that they can't get access
to warehouses at the port that are at the center of the suspected
fraud.
Banks have lent hundreds of millions of dollars to Chinese
commodities traders in recent years, using metals such as copper,
iron ore and aluminum as collateral. These lenders are worried that
in some cases, the same collateral has been promised for loans
multiple times.
Standard Bank said its exposure to possibly missing aluminum at
Qingdao is $170 million, and that it is moving to secure an
additional $40 million also held in Shandong province. That adds to
$250 million in exposure disclosed by Standard Chartered PLC, and
about $50 million disclosed by Citic Resources to push the tally of
exposure above $500 million.
Industry executives believe Chinese banks could be on the hook
for more if loans backed by metals stored at the port of Qingdao go
bad. Estimates of the losses they could face run into the billions
of dollars.
"These legal proceedings are part of a process undertaken by the
group to take all available steps to protect its position in
respect of these stocks," Standard Bank said in a statement. "The
group's gross exposure in respect of this aluminum is equivalent to
US$170 million."
The action in Shandong province is being taken by Standard Bank
PLC, the London-based unit of Standard Bank Group, which is also
starting legal proceedings to secure an additional $40 million of
aluminum stocks at other warehouses in Shandong.
The lender declined to say whom its legal proceedings in China
were targeting. Qingdao Port International Ltd. which operates the
port, on June 6 said Chinese authorities were conducting a probe
into metals stored there. Chinese authorities haven't publicly
commented on the probe.
A spokesman for the port authority said it hadn't received any
notice of a lawsuit, and that it is cooperating with the local
public-security bureau as it investigates.
Standard Bank has close ties to China. It is 20% owned by
Industrial & Commercial Bank of China Ltd., China's largest
bank by assets. In January, ICBC said it would buy a controlling
stake in the business that filed the suit, Standard Bank Group
Ltd.'s U.K. commodities and foreign-exchange-trading business. That
deal has yet to close.
"China remains a key market for Standard Bank and it will
continue to provide commodity financing. Standard Bank is committed
to this business and to its clients in this sector," the bank said
in a release.
Western banks have been shut out of warehouses in both Qingdao
and Penglai, a second port, also in Shandong province, where
concern about fraud has also arisen.
The estimates of exposures cover all of the warehouses at
Qingdao port, but so far the probe has focused on Dagang, a smaller
unit at the port. The worry for bankers is that the potential fraud
may be found to be more widespread at Qingdao, or elsewhere,
according to banking executives familiar with the matter.
Other foreign banks that have exposure to Qingdao are the
Netherlands' ABN Amro Bank NV, France's BNP Paribas SA and Natixis,
and Citigroup Inc. in the U.S., people familiar with the matter
have said.
BNP, Citigroup, Natixis and Standard Chartered declined to
comment. ABN Amro didn't respond to a request for comment.
The lawsuit is the second to be announced in recent days. Citic
Resources has entered a claim against the warehouse operator at
Qingdao port, the mining and trading company said in a filing
released Tuesday. It didn't identify the warehouse operator.
Their claim, filed in Qingdao Maritime Court, requires the
operator to confirm Citic Resources' ownership of the $50 million
in aluminum it had stored at Qingdao port and either deliver those
metals to Citic Resources or compensate the company for them, the
filing said.
Write to Enda Curran at enda.curran@wsj.com
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