Status: 04.10.2021 4:01 p.m.
The problems of the real estate giant Evergrande have been troubling Europe’s stock exchanges for weeks. The consequences of the impending bankruptcy could hit Swiss banks particularly hard.
The hoped-for growth plans from UBS, Credit Suisse and Julius Baer could vanish into thin air because of the Evergrande crisis. The three banks are much more active in Asia than their European competitors. Above all, the prices of these three banks had fallen in the meantime due to the impending bankruptcy of the Chinese group.
The problem is private customers
Andreas Venditti, banking analyst at Vontobel, sees several reasons for this. Above all, UBS and Credit Suisse are positioned much more internationally and are not only relying on Europe or the USA: “Both have established a large presence in Asia and are among the leaders of the non-Asian banks there. Asia is a region with great growth, from which the banks benefit. ”
According to Venditti, her core business was high net worth clients. “UBS is considered to be the largest asset manager for private individuals in Asia – many of the wealthy investors are active in the Chinese market with investment businesses and equity funds and have done their business in real estate.” Exactly these investors are now involved in the Evergrande crisis.
In addition, according to a report by the British business newspaper “Financial Times”, Credit Suisse is said to have rejected Evergrande President Hui Ka Yuan’s request for a billion dollar loan at the end of 2018. Hui wanted to use the loan to buy new Evergrande bonds – for security. However, the bank’s risk management assessed this as “circular financing” and rejected it. Apparently Hui is said to have remained a private customer at the bank. This makes Hui – at that time the third richest man in China – exactly the kind of super-rich clients that Credit Suisse wants to serve with its wealth management portfolio – and that is now getting them into the downward spiral of the crisis.
“There is too much debt in the system”
The share of the real estate sector in the Chinese economic output is large, it is estimated at almost 30 percent. The Evergrande crisis is thus also affecting the Swiss banks. The nervousness also came about because the government initially held back completely from communicating further plans, said Venditti. In the meantime, prices have stabilized again.
For Marc Chesney, professor at the Institute for Banking and Finance at the University of Zurich, the Evergrande case is just one example and represents a much bigger problem. “The danger is general: there is far too much debt in the system. That is the problem for companies and for countries,” says Chesney. “Today, private and public debt worldwide corresponds to around 365 percent of global GDP. Debt is growing faster than GDP, which is dangerous. We work with a paradigm in the economy: more debt in the hope of promoting growth. And it will Promoted growth in the hope of paying off some of the debt. ” Unfortunately, according to Chesney, that doesn’t work – that is a fact. “Evergrande’s growth is based on debt that eventually explodes. That was the case before with Lehman Brothers and is the case for many countries.”
A nightmare that repeats itself?
The fall of Evergrande brings back memories of the financial crisis of 2008. Not without good reason: Lehman Brothers had accumulated significantly higher debts of over 600 billion and was more integrated into the global financial system than Evergrande. A bankruptcy of the group would be one of the biggest in history after the Lehman bankruptcy. “Even if the bankruptcy of this Chinese group has no immediate impact on the Swiss banks, the chain reaction it could trigger is making the banks nervous,” said Venditti.
The Chinese government is now looking for ways to avert the bankruptcy of the People’s Republic’s second-largest real estate developer in order to avoid major turbulence in the Chinese financial sector and the real estate market: Last Wednesday, the Chinese central bank instructed commercial banks to continue to grant loans to real estate developers and home buyers in order to protect the to curb falling share price. In the meantime, that also succeeded. Nevertheless: Since the beginning of the year, the price loss of the group’s securities has been more than 78 percent.