Citigroup Inc has about US$280 million in loans tied to commodities in two Chinese ports which are at the center of a probe into possible fraud, a senior executive said on Friday, becoming the first US bank to disclose its potential exposure.
The total is a large portion of the bank’s roughly US$400 million worth of so-called repo commodity financing deals in China. Short for repurchasing agreements, repo deals give customers access to short-term credit in exchange for goods.
“At this stage we believe the activities are isolated and just specific to those very specific locations,” chief financial officer John Gerspach said in a conference call with analysts.
The loans are to clients that are non-Chinese subsidiaries of large multinational corporations and the contracts are guaranteed by the parent companies, he said.
Citigroup is the latest bank to disclose the size of its financing business in Qingdao, China’s seventh-largest port, and nearby Penglai where since May authorities have been investigating suspected metals financing fraud.
The probe centers on a private metals trading firm, Decheng Mining (德誠礦業), and its related companies, which are alleged to have used fake warehouse receipts at the ports to obtain multiple loans secured against a single cargo of metal.
The company has not commented on the probe.
As the fallout of the scandal in the base metals market continues, other foreign banks including Standard Bank Group and trading and investment firms, such as China’s Citic Resources Holdings Ltd (中信資源控股), face hundreds of millions of US dollars in potential losses.
This week, Standard Chartered launched legal action to recoup its losses.
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