China's Huaxia Bank says rogue employee sold troubled wealth product

China's Huaxia Bank Co Ltd <600015.SS> has blamed an employee at a Shanghai branch for selling a wealth management product without permission, after Chinese media said the product could not repay investors.

The deposit products, issued by the Zhongding Wealth Investment Center, were sold by an employee at Huaxia's Jiading branch, in a Shanghai suburb, Huaxia said in a statement late on Sunday.

Huaxia did not say what position was held by the employee, who has left the bank, nor did it say whether the employee had been dismissed or had left voluntarily.

The bank also did not say how much money might be involved. It said only that it was "aware" of reports that the investments could not be repaid when the product matured, but Huaxia did not confirm those reports.

In a separate statement on Monday, Huaxia said the products the employee sold were four Zhongding-issued instruments, available since 2011, which were backed by returns from a pawn shop and a car sales company in the poor but populous inland province of Henan.

Chinese banks offer proprietary and third-party wealth management products that offer higher investment returns than regular savings accounts to attract and retain wealthy depositors.

Typically, each bank generally sells a number of financial instruments it has approved. In most cases, the small print reminds investors that the bank does not guarantee performance.

Investment products packaged by private equity firms, like the one issued by Zhongding, are not routinely offered by bank branches.

Critics worry that the wealth management products are poorly regulated and might potentially conceal overlapping obligations that the distributing banks would be required to honor if an economic slowdown led to widespread default.

Huaxia, which distributes other third-party wealth management products, said those products are operating normally and are up to date in their payments.

It said police are investigating.

Huaxia Bank was one the top five most active Chinese banks in issuing wealth management products in the first half of 2012, according to a July report by CN Benefit, a wealth management consultancy based in the city of Chengdu.

(Reporting By Zhao Hongmei, Lucy Hornby and Aileen Wang; Editing by Daniel Magnowski)