Muddy Waters Bets Against Chinese Banks Citing High Level of Toxic Assets05-20 14:05 Caijing
Muddy Waters, the renowned short-seller, is betting against China again as its relatively low-profiled founder expressed his concerns over the country’s banks which he said hold more toxic assets now than their western peers did prior to the 2008 financial crisis.
Carson Block, founder of the Muddy Water Research, said the risks within China's banking system are more severe than those in Western financial institutions before the crisis, according to the Telegraph.
The problems of China’s lenders are greater than those of the Western banks on the eve of the financial crisis, but because they are state-owned, the government will most likely print money and prop them up, Block told the British paper, warning this will have dire consequences for China’s economy.
Block warned that China as a massive asset bubble could put resource-based emerging market economies and Australia, Canada and New Zealand at direct risk.
A China unwind will also have significant knock-on effects in other developed markets too, likely implicating liquidity and asset prices and the severity of the effects in the rest of the developed world of course partly depend on the timing of the unwind, Block said.
The Muddy Waters made a splash earlier this month by saying Standard Chartered loans are deteriorating and investors are underestimating the risks, sending its shares down almost 5% last Monday.
Block noted that Standard Chartered has been growing its loan book by leaps and bounds, but it may not have enough money set aside to protect itself from a cascade of bad loans.
Impaired loans in consumer banking increased by a double digit percentage in
the first quarter compared to the same period in 2012, according to the latest
Standard Chartered quarterly statement.
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