A $240 Billion Lending Binge Threatens to Burn China Brokers
- Writedowns seen eroding 11% of the industry’s net capital
- Brokers may struggle to mitigate losses amid government curbs
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Chinese brokerages are sitting on more than $240 billion of loans that grow riskier by the day as the country’s equity market tumbles.
Extended to company founders and other major investors who pledged their shareholdings as collateral, the loans amount to 103 percent of Chinese brokerages’ net capital, up from 16 percent in 2013, according to Morgan Stanley. Losses on the debt could wipe out 11 percent of the industry’s net capital, analysts at the U.S. bank wrote in a report this month.