Via Financial Times

The former head of a regional bank rescued by Chinese authorities this year is set to spend the rest of his life behind bars after a court convicted him of corruption and other crimes on Thursday.

Jiang Xiyun, former chairman of Hengfeng Bank, was sentenced to death with a two-year reprieve — a punishment usually commuted to life in prison after the reprieve — by a court in eastern Shandong province, where the troubled financial institution is based.

Jiang, who had been accused of embezzling about $110m, was also convicted of illegal destruction of financial documents, according to the Yantai Intermediate People’s Court. 

Hengfeng was the largest of three regional banks rescued by Beijing authorities this year, with more than Rmb1.4tn ($200bn) in assets. 

The first to fall, Baoshang Bank in Inner Mongolia, was controlled by Xiao Jianhua, a billionaire who was abducted from Hong Kong three years ago by Chinese authorities and smuggled back to the mainland. Officials are yet to comment officially on the charges Mr Xiao will face.

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 Chinese government forced larger state-controlled financial institutions to come to the rescue of Bank of Jinzhou in Liaoning province and Hengfeng. 

China’s largest lender, Industrial and Commercial Bank of China, and two state-owned asset management companies, Cinda and Great Wall, took large stakes in Bank of Jinzhou. 

Hengfeng’s rescue was led by Central Huijin Investment, a unit under China Investment Corp, Beijing’s sovereign wealth fund. Last week Hengfeng announced it would raise Rmb100bn ($14.3bn) in new capital, about 60 per cent of it from Central Huijin. 

READ ALSO  Bruised investors ask if Big Hit has more than one star turn

Singapore’s Union Overseas Bank, which previously had a 13 per cent stake in Hengfeng according to Reuters, took less than 2 per cent of the new placement, diluting its shareholding. 

Yi Gang, China’s central bank governor, warned in September that shareholders in institutions such as Hengfeng, which undertook huge expansions at the beginning of the decade, “must be responsible for the actions of their banks . . . and need to have the ability to identify risks”. 

Despite such warnings and the seemingly harsh sentence for Jiang, Chen Long, partner at Beijing-based research firm Plenum, said death sentences with two-year reprieves were typical in corruption cases involving similar amounts of money. “It is unusual to see death penalties [carried out] these days,” he added 

The rescues of Hengfeng, Baoshang and Bank of Jinzhou 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.