China regulator frets over confidence crisis after investment product fails

Chinese banking regulators are concerned that the failure of an investment product sold through a Hua Xia Bank Co Ltd <600015.SS> branch could shatter depositor confidence, three sources told Reuters after a heated, closed-door meeting late on Thursday.

The China Banking Regulatory Commission has decided to hold off on any ruling regarding the Hua Xia case, however, until the conclusion of a police investigation, the sources said.

In the meantime, representatives of every Chinese bank will be summoned in for "guidance" on risk management, they said.

"The Hua Xia and Zhongding case has made regulators furious. It has raised the risk of a crisis of confidence in the wealth management products issued by Chinese banks, and has exposed partial failures in the banks' internal risk controls," one of the sources told Reuters.

The CBRC did not immediately respond to a request for comment.

Investors rushed to Hua Xia's Jiading branch in a suburb of Shanghai after one of four wealth management products issued by the Zhongding Wealth Investment Center failed to pay out as scheduled on November 26.

Although the products clearly said that neither principal nor interest was guaranteed, the case is a test for regulators grappling with the widespread perception by depositors that banks stand by any wealth management or trust product they market.

Hua Xia, partly owned by Deutsche Bank AG , said an employee in the Jiading branch was selling the products without authorization. Her husband disputes that claim. The employee is in police custody.

(Reporting By Hongmei Zhao and Lucy Hornby; Editing by Edmund Klamann)