Thunderstorms, trusteeship, bankruptcy, why are there so many risks in the trust industry?

Risks in the trust industry are still spreading. The product overdue turmoil has spread from Zhongrong Trust, Cedar Trust, Minsheng Trust, Sichuan Trust, Wanxiang Trust, and recently to Ping An Trust and Minmetals Trust.

The reporter learned that the specific risk situation of Ping An Trust is that some real estate equity investment products are overdue, and Minmetals Trust is overdue for some political and credit products. Ping An Trust and Minmetals Capital, the controlling shareholder of Minmetals Trust, both said that "the extension of the trust plan will not affect the normal operation of the company".

From the perspective of trust institutions that have been out of danger, institutions with large risk exposure are moving towards the situation of "being trusteeship" or even bankruptcy. The reporter noted that after Zhongrong Trust, Minsheng Trust was also "trusteeship", while Sichuan Trust declared bankruptcy. On April 23, the court formally ruled to accept the bankruptcy reorganization application of Sichuan Trust and appointed the liquidation team of Sichuan Trust as the administrator.

According to the interviewed experts, marketization and legalization may be the mainstream trend of dealing with risks in the future. "The deterioration of trust asset quality is not only due to the internal reasons of the sinking credit risk of the financiers themselves (especially in the real estate industry), but also to the external help of the slowdown in domestic economic growth and the increasing strict regulatory constraints. In addition, there are a small number of trust companies that have deficiencies in corporate governance, which makes risk management out of control."

Intensive exposure to overdue risk

In August 2023, the overdue storm of the trust industry was intensively presented to the public.

At that time, a number of listed companies announced that the purchase of Zhongrong Trust products failed to recover the principal and income on time. Everbright, Minmetals and AVIC Trust have urgently refuted the rumors about the false remarks about the payment of the products, "all of which are managed and distributed in accordance with the trust contract, and the right to pursue legal responsibility for the untrue remarks and rumors will be reserved in accordance with the law".

The reporter combed and found that not only Zhongrong Trust, but also Cedar Trust, Minsheng Trust, Sichuan Trust, Wanxiang Trust and many other trust companies have successively overdue products, and recently affected Ping An Trust and Minmetals Trust. Following the extension of Ping An Trust's Funing No. 615 trust plan, a number of Kunming political credit projects of Minmetals Trust have also been overdue.

Minmetals Capital, the controlling shareholder of Minmetals Trust, issued an announcement on the morning of April 12 in response, saying that Minmetals Trust will continue to maintain communication and negotiation with the financier, continue to work hard to promote the collection work, urge the relevant parties to raise funds as soon as possible to repay the outstanding payments as agreed, and urge the guarantor to fulfill the corresponding guarantee obligations as soon as possible. The overdue payment of the three trust products will not have a material adverse impact on the company's financial data, and the company is currently operating normally and well.

On April 19, Ping An Trust again explained the extension of the Funing No. 615 trust plan, saying that it filed a lawsuit against Zhengrong Company, the project party, as soon as the project was abnormal. At present, Ping An Trust has won the first-instance judgment in the equity repurchase case against Zhenro's repurchasers. Ping An Trust has achieved strict supervision of the underlying project licenses and bank accounts, and continues to follow up the development and operation, sales and profit distribution of the underlying projects, ensure the construction of the project, strengthen marketing and promotion, accelerate project sales, improve the efficiency of capital return, and accelerate the realization of cash recovery. The extension of the Funing No. 615 Trust Plan will not affect the normal operation of the company.

From the perspective of trust institutions that have been out of danger, institutions with large risk exposure are moving towards the situation of "being trusteeship" or even bankruptcy. In September 2023, Zhongrong Trust announced that due to multiple internal and external factors, some of the company's trust products could not be redeemed on time. In order to improve the efficiency of the Company's operation and management, the Company signed the Entrusted Management Service Agreement with CCB Trust Co., Ltd. and CITIC Trust Co., Ltd. with the authorization of the shareholders' meeting and the deliberation and approval of the Board of Directors, and hired the above two companies to provide professional services for the Company's operation and management.

After Zhongrong Trust, Minsheng Trust was also "trusteeship". On April 11, Minsheng Trust announced that in order to improve the efficiency of the company's operation and management, it signed the "Entrusted Service Agreement" with CITIC Trust Co., Ltd. and Huarong International Trust Co., Ltd. after deliberation and approval by the shareholders' meeting and the board of directors, and hired the above two companies to provide services for the daily operation and management of Minsheng Trust. The creditor's rights and debts relationship and the trust legal relationship related to Minsheng Trust will not be changed as a result. The entrusted service will start on April 11, 2024, and the end time will be negotiated by both parties.

If the trusteeship is not able to cover the risk, then the trust will go into bankruptcy proceedings. The Sichuan Supervision Bureau of the State Administration of Financial Supervision and Administration previously approved and agreed that Sichuan Trust would enter bankruptcy proceedings in accordance with the law. On April 7, Sichuan Trust applied to the Intermediate People's Court of Chengdu City, Sichuan Province for reorganization on the grounds that it could not pay off its debts due and its assets were no longer sufficient to pay off all its debts. On April 23, the court formally ruled to accept the bankruptcy reorganization application of Sichuan Trust and appointed the liquidation team of Sichuan Trust as the administrator.

Why trust risks are so common

Why have the risks of the trust industry become more frequent in recent years? This can be seen from the announcements of institutions.

Ping An Trust said that Funing No. 615 is a real estate equity investment product, and the trust funds are invested in a residential project in Xiamen in the form of equity investment. The failure of the project to be withdrawn on March 29, 2024 was mainly due to the default of the project party Zhengrong Company in the context of the continuous downturn in the real estate market.

Huang Dazhi, a researcher at the Xingtu Financial Research Institute, pointed out to reporters that in recent years, the trust companies that have taken out of risk can be simply divided into two categories: one is the risk of business, and there are individual trust companies with a large pool of non-standard funds in the underlying assets. The other type involves serious corporate governance issues, where major shareholders use the trust company as an ATM, resulting in financial fraud and business fraud, which in turn leads to the company's insurance.

Li Nan, an associate professor at the Advanced School of Finance of Shanghai Jiao Tong University, told reporters that there are three reasons for the frequent overdue occurrence of trust products: first, some trust institutions have made crazy moves that do not conform to financial logic, including various channel businesses on the asset use side; second, the real estate industry has fallen into a trough in an all-round way, and products with real estate projects as the underlying assets have been affected; third, the stock market is in a downturn and the asset side is exposed to risks.

Li Nan believes that the asset side of Zhongrong Trust is mainly real estate and pre-IPO (pre-IPO financing) projects, and the biggest feature behind it is that there is no value creation, and it simply relies on the gold exchange to play "money makes money". Minsheng Trust is the "ATM" of the Oceanwide system, and it is also an enterprise that plays "money makes money", and Minsheng Trust, as the "ATM" of the Oceanwide system, has purchased a large number of Oceanwide bonds. The background of these two trusts is complex, the related-party transactions are complex, and the asset quality is poor. The purpose of the custody is to control the assets of the two institutions as early as possible, avoid being stripped of assets before the bankruptcy of the enterprise, and protect investors from losses as much as possible.

Huang Dazhi said that in recent years, Minsheng Trust has had a series of overdue trusts, and the ultra-high non-performing rate of inherent assets has had a significant impact on the sustainability of the company's operations. Zhongrong Trust was also implicated by the explosion of the planting system, and there was a major business crisis. By providing custody services for these risk-taking trust companies, the leading companies can improve their operating efficiency to a certain extent, provide professional operation and management services, and prevent the further spread of risks and the expansion of risk exposure.

According to the Measures for the Regulatory Rating of Trust Companies, trust companies with good regulatory ratings should actively assume the social responsibility of leading the transformation and development of the industry and helping the industry resolve risks.

Shuai Guorang, a researcher at the usufruct trust, told reporters that the main reason for "being trusteeship" is that the overall risk of the trust company is relatively high, and it has lost its ability to repair itself and cannot operate normally. Under the guidance of the regulatory authorities, the custody can comprehensively identify and control risks, and minimize the losses of investors. For the risk management methods of financial institutions, marketization, legalization or the mainstream trend in the future.