Legal Money Laundering: How A German Bank Is Cleaning Tainted Bitcoin And Other Dirty Cryptos

Illustration by Fernando Capeto for Forbes; Photos by Malerapaso/Getty Images; Pete Starman/Getty Images

Just before sunset on a chilly Spring day in 2019 armed German special agents broke down the door to the Frankfurt home of a 22-year-old hacker who the government has only identified as Coder420, the developer of a dark web exchange called Wall Street Market.

At its peak, the enterprise was the largest of its kind, conducting about €50 million in sales between October 2016 and April 2019, selling everything from cocaine to credentials. At the time of Coder420’s arrest, he had roughly 1,000 bitcoins, then worth $5.5 million.The operation was a huge success. The German state of Hesse, home to Germany’s finance capital Frankfurt, seized 2,200 bitcoin and other cryptocurrencies from Coder420 and two collaborators. “It was a classical takedown of a darknet marketplace,” says Jana Ringwald, 41, a senior prosecutor for the attorney general of Frankfurt.

To this day, it’s the largest trove of cryptocurrency ever seized by a German governmental body, and it set off a series of events that resulted in the state and a tiny German bank, with a mere €40 million of assets (about $40 million), overcoming a huge obstacle to bringing tainted crypto out of the shadows.

Though less than one percent of cryptocurrency transactions last year were considered illicit, according to blockchain data firm Chainalysis, that was still a record $20 billion, most of which is marked as dirty by a cottage industry of blockchain-data startups managing independent and unofficial blacklists. Crypto sitting on a blacklist is difficult to use and many crypto exchanges like Coinbase and Kraken refuse to accept it.

Instead of selling those assets at an auction the way the U.S. Justice Department has done for 185,000 bitcoins it has seized over the last nine years, attorney Ringwald partnered with Frankfurt-based Bankhaus Scheich, which has a fledgling side business in cleaning the blacklisted cryptocurrencies. So far it has cleaned and sold some €150 million worth of dirty digital assets for the state of Hesse.

Yesterday, in partnership with the FBI and German Federal police, the state of Hesse seized another €46 million worth of bitcoin and other cryptocurrency from two servers they believe are responsible for laundering $700 million for North Korea and an undisclosed amount to help the Russian military buy malware.

Over the past month, two other states have signed deals similar to Hesse’s, according to the bank’s managing director of digital assets, Nils von Schoenaich-Carolath, 34, and other German states are currently exploring similar services, he says. As U.S. banks with crypto exposure are facing an existential threat in the wake of the ripple effects surrounding the bankruptcy of crypto exchange giant FTX, Bankhaus Scheich’s CEO and co-founder Wolfgang Beck, sees his firm’s work as a model for how clear regulations and innovative banking practices can upgrade financial infrastructure while protecting users.

“This new digital-asset business is for so many people kind of a strange thing, which they do not understand,” says Beck, 64, who is the bank’s sole shareholder. “So I’m trying to give them the feeling that an old house for trading securities is now doing the same thing with a digital asset. We want to take all of these people, all these institutions, to find a solution for their clients in the new markets. So they have to go over the bridge, plug in, and onboard on our platform for digital assets.”

Bankhaus Scheich was founded in 1985 as Scheich & Partner Börsenmaklermarket, an OTC trader for fixed-income products like bonds. Over the past eight years, the firm has expanded in a number of ways, laying the foundation for its forays into crypto. In 2015, it was licensed as a securities trading bank by Germany’s financial services regulator and now transacts hundreds of millions of euros a day worth of traditional OTC volume and fixed-income assets listed on the Frankfurt Stock Exchange, including securities of Bayer, Lufthansa and Volkswagen.

In 2018, Bankhaus Scheich expanded to capital markets. Recognizing the traditional need for companies to pre-fund million-dollar investments through regulated brokers, the firm started building a suite of institutional crypto services, called Tradias, that lets financial-services firms conduct OTC trades, market making and create securities tokens on the Ethereum and Polygon blockchains. Periodically, the crypto trades are netted out internally, and the bank buys and sells digital assets on exchanges, including Kraken, Binance and formerly on now-defunct FTX.

At around the same time Bankhaus Scheich entered the capital markets, Ringwald, the Hessen prosecutor, began her work with the state’s Ministry of Justice to figure out how to liquidate 100 bitcoins (then worth about €200,000) that had been seized in 2014 and were just laying around.

Absent any formal process to auction the assets as local governments do all the time for seized drug dealer Lamborghinis for example, Ringwald had to personally, painstakingly, piece together a process by which her team could sell the bitcoin. Two years later she was called on again when her team grabbed the much larger 2,200 bitcoin booty from the Wall Street Market.

Since her first, highly manual sale of bitcoin, digital-asset regulation had advanced, she says, “and you could see step by step that coins were becoming more and more actual financial instruments. They’re not cars,” she says.

“So I put pressure on my boss and said, ‘I need a professional partner.’” In spite of increasing regulatory clarity in Germany, Ringwald had trouble finding institutions that actually had all of the required licenses to deal directly with crypto. So over the course of more than a year she assembled a team including two lawyers to find a qualified broker.

Enter tiny Bankhaus Scheich, which had decided that embracing digital assets could give it a strategic edge after German regulators updated rules to allow for the creation of funds tracked on “crypto securities registers.” In January 2021, the Federal Financial Supervisory Authority, known as BaFin, approved such a prospectus, allowing Bankhaus Scheich to convert European Union investment funds into assets issued on a blockchain through a process called tokenization that lets assets settle around the clock.

In pilot projects, the bank has so far tokenized real estate, private equity and a convertible bond. Nine months later, Bankhaus Scheich signed a deal with Frankfurt-based Universal Investment, which provides administration and risk-management services that allows its crypto subsidiary to trade crypto and tokenize securities for banks, asset managers, and custodians in Germany, Luxembourg and France.

Bankhaus Scheich’s crypto conversion and immersion has not been without hiccups. Recently an eight million euro tokenization pilot of a fund of funds fizzled after German neo-bank partner Nuri became insolvent in the aftermath of the FTX collapse.

Though von Schoenaich-Carolath, who is also the Tradias chief revenue officer, declined to share cost savings from cutting out securities depositories like Luxembourg-based Clearstream, it’s client Cashlink, which helps Scheich tokenize commodities and securities, put the savings at between 35% and 65%.

Before Hessen attorney Ringwald partnered with Bankhaus Schiech to clean her seized digital assets, she brought them to a crypto exchange, to see with her own eyes what would happen if the tokens were sold as they were. “The machines reacted and said, ‘this is no good,’” she recounts, “and that proved that we would have had a huge problem.”

Ringwald’s team identified Bankhaus Scheich in November of 2021 as a crypto service provider capable of legally accepting the number and variety of crypto assets Hesse had seized. A month later, the contract was signed.

To clean the funds, Ringwald first had to make sure her colleagues and bosses at the state government were okay with writing an official letter in English for international companies on German state letterhead, something that’s normally frowned upon.

In a form letter she sent to Scheich, then forwarded to Chainalysis, CoinFirm, Ellipse and other cryptocurrency blacklist creators, Ringwald confirmed her cybercrime center has the legal authority to “collect the respective purchase price” of digital currencies seized during legal proceedings, according to a copy of the letter provided to Forbes, confirms the office’s contractual relationship with Bankhaus Scheich and gives permission for the tokens to be sold to the bank.

Instead of dealing directly with exchanges that might disappear overnight, the state sells the assets directly to the bank at a discount. “We only have direct contact to Bankhaus Scheich,” says Ringwald. “Never to the market itself.” Other clients looking to trade crypto place orders directly with the bank, which fulfills the orders from its own crypto reserves.

To keep the total crypto it holds below a one million euro limit that it set after witnessing cryptobank Silvergate’s demise, the bank periodically nets the transactions with its other crypto buy and sell orders, selling them at market prices on 20 exchanges, liquidity pools and via over-the-counter (OTC) brokers that use the same security firms to check for blacklisted money.

After the buy and sell trades are netted, the position is closed out on cryptocurrency exchanges. “We don’t want to be long,” says von Schoenaich-Carolath. “We don’t want to be short.” “This white-listing process was then done for the first time in December 2021,” says Ringwald. “And then we had 100 million euros after that.”

Ironically, much of laundering process for tainted bitcoin and other dirty digital assets is accomplished manually via emails and phone calls. The whole process of cleaning tainted crypto takes about two weeks. Since its first crypto-washing cycle, the attorney general’s cybercrime unit has cleaned an additional €50 million worth of seized cryptocurrency using the Bankhaus Scheich process.

Yesterday morning in Frankfurt, Ringwald’s team, and the German Federal Criminal Police (the Bundeskriminalamt) surreptitiously acted as administrators of two servers to seize at additional 1,909 bitcoin and other cryptocurrencies along with seven terabytes of data about the operation. Germany expects to keep the proceeds of the sale of the assets, which should occur in the next week or two. “The FBI had a very big interest in this mixing service,” says Ringwald. “As many do. It was the biggest one on the dark web until yesterday.”

The funds will be turned over to the state’s Ministry of Finance and are expected to be partially used to support the state’s judicial offices, according to Ringwald. In part as a result of her work, Ringwald was appointed chair of the Hessen office on cryptocurrencies and is informally helping the other 15 German states explore ways to deal with dirty crypto.

“What is happening now in Germany is that other states are adopting that,” says Ringwald. Von Schoenaich-Carolath says two states have already signed a deal with the bank but declined to name them. In addition to its German state clients, Bankhaus Scheich is working with more than 30 institutions offering it other blockchain services, including, traditional securities exchange Börse Stuttgart, broker Trade Republic and Deutsche Telekom.

While some crypto initiatives, including a bitcoin exchange-traded note with Fidelity International, are run from the main bank offices, the majority are housed at subsidiary Tradias, which has grown to nearly 100 employees from just 10 a year ago. Chief Executive Beck owns 100% of Bankhaus Scheich and 60% of Tradias, with the other 40% owned by his son Christopher, who is the subsidiary’s CEO.

In February, the bank filed its annual statement for 2021, showing €14 million in crypto trading revenue, representing roughly a third of the €47 million in total trading income that year, compared to almost nothing the year before. That also doesn’t count Tradias’ revenue, which is not disclosed.

Given Bankhaus Scheich’s crypto-trading operation and the fact that it sells most of the crypto it cleans back to various crypto exchanges around the world, it maintains accounts at many of them. One of them happened to be recently shuttered FTX. In November, along with most of FTX’s other customers, the exchange froze Bankhaus Scheich’s funds, including about €2 million worth of bitcoin, ether and stablecoins.

The German bank is suing FTX, but the global exchange’s collapse may wind up bringing new business to Bankhaus Scheich as mainstream companies seek third parties to represent them in their crypto trading and tokenization efforts. “The clients now understood after FTX that there’s something like counterparty risk in the market,” says von Schoenaich-Carolath, who admits to already signing up three new clients that were formerly considering working with FTX.

“We put our money in 20 different baskets within our risk limits,” he says. “And when we lose some, nothing happens.” It’s possible that FTX’s collapse could create billions more in cryptocurrencies in need of cleansing, depending on which seized assets analytics firms decide to blacklist.

It is clear that U.S. regulators have prioritized enforcement over establishing clear regulatory rules and that’s likely to result in more crackdowns, seizures and untradeable crypto. In fact, in January, the U.S. Federal Reserve Board, the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency issued a rare joint statement warning banks about the “vulnerabilities related to cyber-attacks, outages, lost or trapped assets, and illicit finance” and seizures and forfeitures are expected to increase as regulators around the world crack down on illegal uses of cryptocurrency.

All of this could be good news for Bankhaus Scheich, its in house crypto specialist Tradias and its budding digital asset laundry.

I report on how blockchain and cryptocurrencies are being adopted by enterprises and the broader business community.

Source: Legal Money Laundering: How A German Bank Is Cleaning Tainted Bitcoin And Other Dirty Cryptos

Related contents:

Marketing Programs You May Like:

3D Pal Toons
7 Minutes Kit
9 figure Success
Ad Raven
ADA Bundle
Ada leadz
Adsense Machine
Adtivate Agency
Agency Client Finder
AIWA Commercial
ALL-in-One HD Stock
Appoint B Agency
Art Of Living
Audio Studio
Aweber Crash Course
Big Audio Club
BigAudio Club
Boost Optimism
Church Finance
Commission smasher
Content Gorilla
Content Tool Kit
CourseAlly eLearning
Credit Repair
Diabetes Guide
Diddly Pay’s
Diet fitness diabetes
Dominate Email
DUX Forex Signals
Easy NFT
EBook Agency
Ejaculation Total
Email Monetizer
Extreme Adz
Extreme Coupon
EZ Local Appointment
Ezy MultiStores
Facebook Cash Machine
Fade To Black
Fitness Nutrition
Followup Builder
Forex Atlatian
Forex Blizz
Forex Blue Stark
Forex expert
Forex Hybrid Scalper
Forex Joustar
Forex Mastery
Forex Scouts
FX Goldminer
Gaming job  s
Genesis Mining
Gluten free
GMB Snap
Graphic Alta
Heal Your Emptiness
High Converting Emails
Hostley Domain Creator
Human Synthesys Studio
Insta Keyword
Instant Website
iTraffic X
Klippyo Kreators
Levidio Royal Podcasting
Linkable DFY
Live Your Truth
Living An Intentional Life
Living an International Life
Local Leader
Local Sites
Mat1 Simple Funnel
Mech Forex Robot
Mobi First
Motion Kingdom Studio
Movid Animation
MT4Code System
My Passive Income
Next Drive
Organic Life Guide
PlanB Muscle Growth
Podcast Advantage
Podcast Masterclass
Power Reviews
PR Rage
Prime Stocks
Profile mate
Push Button Traffic
PWA Agency
QR Verse
Quintex Capital
Quit Smoking
Self Validation
Seniors Income
Stackable Picture
Steven Alvey’s
Stock Mages
Sunday Freebie
Super backdrop
The Internet Marketing
Tonai Voice Content
Toon Video Maker
TV Boss Fire
Ultrafunnels A.I
VIADZ Ad Template
Video Campaignor
Video Games
VideoRobot Enterprise
Viral dash
Viral Quotes
VR Studio
WordPress Mastery
WP Simulator
Writer Arc
writing job
XBrain Forex
Your 3DPal

German Industry Braces For Tougher 2022 Due To War, Lockdowns

German industry is bracing for a tougher 2022 as lockdowns in China and the war in Ukraine compound ongoing supply chain problems, leading two associations to downgrade their forecasts for the year.

The VDMA engineering association cut its machinery production growth outlook for a second time on Monday. It now expects production of industrial machinery carrying the “Made in Germany” label to grow 1% this year, having already slashed its forecast to 4% from 7% two months ago.

Last year, production grew by 6.4%. The BDI industry association said it now expects exports to grow by only 2.5% this year, after predicting a rise of 4% in January. read more

The lowered forecasts come despite many companies having strong backlogs of orders, as they are struggling to fill them: A survey by the Ifo institute said 77.2% of companies complained about bottlenecks and problems procuring intermediate products and raw materials.

One in two companies affected by material shortages said the China lockdowns made the situation even worse than before, the IFO survey published on Monday showed. VDMA President Karl Haeusgen said in a statement that before Russia’s invasion of Ukraine, 80% of companies described their business prospects in Russia as good or satisfactory. Now, 75% expect it to deteriorate in the next six months or want to abandon it altogether.

“This shows the extent to which the war has changed everything,” Haeusgen said. BDI predicts production will grow by nearly 2% – less than expected before the war began – with the caveat that this forecast depends on supply chain problems easing and Russian gas continuing to flow in.

Exports may also be a concern. Last year, machinery made up a substantial part of the 26.6 billion euros ($28.5 billion) in goods that Germany exported to Russia.

Source: German industry braces for tougher 2022 due to war, lockdowns | Reuters

Critics by Carlos Caceres, Mai Chi Dao, and Aiko Mineshima
IMF European Department 

Germany’s economy contracted by just under 5 percent in 2020, outperforming most European peers. New waves of infections and associated lockdowns during late-2020 to early 2021 hampered the rebound from the first wave. But forward-looking indicators suggest further growth in exports and a brightening outlook for the services sector, in line with re-opening plans and anticipated pent-up demand.

For the year as a whole, growth of about 3.6 percent is expected. The recovery pae

th, however, is beset with risks, particularly regarding the progress of the pandemic and supply shortages in key industries. Retaining supportive fiscal policy until there is clear evidence of a sustained recovery while also using the fiscal space to lift potential growth over the medium term will be crucial. 

The government has extended various COVID-19 measures from 2020, such as grants to firms and an expansion of the short-time work subsidy, while also introducing several new measures to support households and businesses. Maintaining adequate support while the economy is still weak is important to minimize scarring effects. As the recovery firms up, more targeted policies and a focus on facilitating resource re-allocation becomes important.

Over the medium term, it is important that Germany’s fiscal space is used to boost growth potential by investing in physical and human capital, accelerating digitalization, incentivizing innovation, bolstering labor supply, and increasing disposable income for low-income households. Making progress towards these goals would also help with external rebalancing.

A green transition is key to Germany’s recovery program, yet there are opportunities to improve the cost-effectiveness of its climate mitigation measures. Following a constitutional court ruling in May, Germany tightened its greenhouse gas emissions targets aiming for a 65 percent reduction by 2030 and net zero emissions by 2045. Germany could bolster its mitigation program with a better-specified schedule of carbon prices over a longer time horizon, complemented with sector-specific feebates (revenue-neutral tax/subsidy schemes).

Continued government support for green infrastructure and technologies is also essential for the transition and to spur the economic recovery. To mitigate the potential adverse impact of higher carbon prices on households, further relief targeted at lower-income earners can be considered.

Germany’s expanded short-time work subsidy or Kurzarbeit remains important until the recovery takes hold, while groups not covered by Kurzarbeit need to protected by different means. The unprecedented take-up of Kurzarbeit helped keep unemployment in check and supported aggregate demand. However, as the recovery takes hold, normalizing Kurzarbeit parameters becomes essential so as not to inhibit labor reallocation toward growing firms and industries. Job search assistance and appropriate training programs can facilitate workers’ transition into post-pandemic jobs.

For groups not covered by Kurzarbeit, maintaining expanded access to the current basic income program would be beneficial until the job market recovers sustainably. To arrest widening inequality, the government could consider reducing social security contributions on lower incomes, which would also spur hiring and labor supply.

Safeguarding financial stability during the nascent recovery is essential. So far bankruptcies and financial losses have been limited, while bank capital has actually increased since the onset of the pandemic. But bankruptcies may rise as support measures are phased out, warranting continued targeted liquidity and solvency support for viable firms.

Meanwhile, specifying an appropriately gradual timetable for banks to rebuild capital buffers is important to mitigate the risk of curtailed lending when it is most needed. Banks also need to improve their cost structures to address chronic low profitability. Progress has been made in narrowing data gaps that have hampered the full assessment of macro-financial risks. But the buildup of financial vulnerabilities in real estate markets calls for close monitoring and for expanding the macroprudential toolkit to include income-based instruments.

Further reading:

UK inflation expectations stick at high levels – Citi/YouGov, article with imageWorld
WorldNATO’s support for Ukraine is unbreakable, Spain’s PM Sanchez says,
European MarketsRussian rouble rallies past 62 vs dollar, reversing last week’s heavy losses
European MarketsWorld stocks turn positive in May on Fed bets
European MarketsDollar resumes slide as stock markets tentatively pick up
More Remote Working Apps:     Quintex Capital   Genesis Mining   BevTraders  LiteTrading  prime stocks  content gorilla  stock rush  forrk  keysearch  gluten free  diet fitness diabetes  writing job  postradamus  stoodaio  profile mate  senuke   asin  appimize  super backdrop  audiencetoolkit  4brandcommercial  talkingfaces  socifeed  gaming jobs   backlink indexer  tubeserp  PR Rage  design beast  commission smasher  MT4Code System  viral dash  coursova  fanpage  forex expert  appointomatic  woocommerce  domainname  maxslides  ada leadz  eyeslick  creaitecontentcreator  vidcentric  studioninja  marketingblocks  clipsreel  VideoEnginePro  BarclaysForexExpert  Clientfinda  Talkingfaces  IMSyndicator  SqribbleEbook  superbackdrop  VirtualReel  MarketPresso  voiceBuddy  tubeTargeter  InstantWebsiteBundle  soronity  DFY Suite 3.0 Agency+ information  VideoRobot Enterprise  Klippyo Kreators  ChatterPal Commercial  WP GDPR Fix Elite Unltd Sites  EngagerMate  VidSnatcher Commercial  myMailIt  Storymate Luxury Edition  iTraffic X – Platinum Edition  Content Gorilla One-time  Push Button Traffic 3.0 – Brand New  SociCake Commercial  The Internet Marketing  Designa Suite License  XFUNNELS FE Commercial  ShopABot  Inboxr  MediaCloudPro 2.0 – Agency  MyTrafficJacker 2.0 Pro+  AIWA Commercial  Toon Video Maker Premium  Steven Alvey’s Signature Series  Fade To Black  Adsense Machine  Diddly Pay’s DLCM DFY Club  CourseReel Professional  SociJam System  360Apps Certification  LocalAgencyBox  Instant Website Bundle  GMB Magic Content  PlayerNeos VR

Tokenized Apple, Tesla And Coinbase? Why Binance Is Bowing Out.

Binance Chief Executive Officer Zhao Changpeng Interview

Tokenized stocks, or digital assets pegged to the price of company shares, are no longer available for purchase on Offerings had included Tesla, Apple, and Coinbase shares, which Binance claims were fully backed through shares held by its partner, German-based investment firm CM-Equity AG.

Support for stock tokens was first made available on in April, 2021, which was enabled through a partnership with Digital Assets AG, a firm focused on issuing tokenized financial products.

“Today, we are announcing that we will be winding down support for stock tokens on to shift our commercial focus to other product offerings,” the announcement reads.

Although the exact reason for the about-face is unclear, Binance’s reversal on tokenized stocks comes as financial regulators around the world are putting pressure on the firm. Officials in Germany, Thailand, Japan, Canada, and the United Kingdom have all issued warnings about the exchange over recent months, the firm has been dropped by the payments processor Clear Junction, and certain banking relationships in Europe and around the world are coming into question.

More broadly, it raises doubts about Binance’s hyper growth strategy of rapidly launching new products around the world such as debit cards and derivatives products.

Users currently holding stock tokens have 90 days to sell their shares. Clients in the European Economic Area and Switzerland have the option to transfer their holdings to a new digital asset platform from CM-Equity AG. After October 14, 2021 they will not be able to manually sell or close their positions on the Binance site.

Follow me on Twitter or LinkedIn. Check out my website.

Source: Tokenized Apple, Tesla And Coinbase? Why Binance Is Bowing Out.



Binance will list MicroStrategy, Microsoft and Apple, providing Binance users with exposure via the tokenization of equities. The tokens are expected to be denominated in the exchange’s stablecoin, BUSD.

The move means Binance users will be able to qualify for economic returns on the underlying shares, which will include potential dividends. The tokens also allow Binance customers to purchase as little as one-hundredth of a regular stock using BUSD.

Binance’s stock tokens are tokenized equities that can be traded on traditional stock exchanges. Each tokenized stock represents one ordinary share of the stock and is backed by a depository portfolio of underlying securities held by CM-Equity AG, Germany, according to the post.

Two stock tokens have begun trading on Binance including electric vehicle maker Tesla and cryptocurrency exchange Coinbase. Those listings are already ruffling the feathers of regulators who say the exchange has not acquired the necessary license to begin marketing equities to the public.

Cryptocurrency exchange Binance is allowing its users to buy fractions of companies’ shares with a new tokenized stock trading service, starting with Tesla.

  • The crypto exchange announced Monday the launch of Binance Stock Tokens, zero-commission digital tokens that qualify holders for returns including dividends.
  • As of 1:35 p.m. UTC (9:35 a.m. ET) April 12, users will be able to buy fractions of actual Tesla shares, which trade at $677 a share at the time of writing.
  • Users will be able to purchase as little as one-hundredth of a Tesla share, with prices settled in Binance USD (BUSD).
  • The exchange’s native crypto Binance Coin (BNB) has surged more than 25% in the last 24 hours, reaching an all-time high of $637.44. It is priced at $590.51 at press time. It’s not immediately clear what is driving the price of the coin.
  • It’s not the first tokenized stock play in crypto land: Terra Labs’ Mirror Protocol went live in December.
  • But where Mirror uses synthetic stocks (or tokenized representations of actual equities), the Binance product is “backed by a depository portfolio of underlying securities” managed by an investment firm in Germany.

See also: Binance Faces CFTC Probe Over US Customers Trading Derivatives: Report

Related Stories

Chinese Developer Woes Are Weighing on Asia’s Junk Bond Market

Financial strains among Chinese property developers are hurting the Asian high-yield debt market, where the companies account for a large chunk of bond sales.

That’s widening a gulf with the region’s investment-grade securities, which have been doing well amid continued stimulus support.

Yields for Asia’s speculative-grade dollar bonds rose 41 basis points in the second quarter, according to a Bloomberg Barclays index, versus a 5 basis-point decline for investment-grade debt. They’ve increased for six straight weeks, the longest stretch since 2018, driven by a roughly 150 basis-point increase for Chinese notes.

China’s government has been pursuing a campaign to cut leverage and toughen up its corporate sector. Uncertainty surrounding big Chinese borrowers including China Evergrande Group, the largest issuer of dollar junk bonds in Asia, and investment-grade firm China Huarong Asset Management Co. have also weighed on the broader Asian market for riskier credit.

“Diverging borrowing costs have been mainly driven by waning investor sentiment in the high-yield primary markets, particularly relating to the China real estate sector,” said Conan Tam, head of Asia Pacific debt capital markets at Bank of America. “This is expected to continue until we see a significant sentiment shift here.”

Most Read

  1. business

    China Blocks Didi From App Stores Days After Mega U.S. IPO

  2. business

    Massive Ransomware Attack May Impact Thousands of Victims

  3. markets

    Investors Don’t See End to Record-Breaking Equity Rally Just Yet

  4. business

    Nevada Leads Nation in Covid Cases as 300,000 Descend on Vegas

  5. markets

    It’s the Beginning of the End of Easy Money

Such a shift would be unlikely to come without a turnaround in views toward the Chinese property industry, which has been leading a record pace in onshore bond defaults this year.

But there have been some more positive signs recently. Evergrande told Bloomberg News that as of June 30 it met one of the “three red lines” imposed to curb debt growth for many sector heavyweights. “By year-end, the reduction in leverage will help bring down borrowing costs” for the industry, said Francis Woo, head of fixed income syndicate Asia ex-Japan at Credit Agricole CIB.

Spreads have been widening for Asian dollar bonds this year while they’ve been narrowing in the U.S. for both high-yield and investment grade amid that country’s economic rebound, said Anne Zhang, co-head of asset class strategy, FICC in Asia at JPMorgan Private Bank. She expects Asia’s underperformance to persist this quarter, led by Chinese credits as investors remain cautious about policies there.

“However, as the relative yield differential between Asia and the U.S. becomes more pronounced there will be demand for yield that could help narrow the gap,” said Zhang.


A handful of issuers mandated on Monday for potential dollar bond deals including Hongkong Land Co., China Modern Dairy Holdings Ltd. and India’s REC Ltd., though there were no debt offerings scheduled to price with U.S. markets closed for the July 4 Independence Day holiday.

  • Spreads on Asian investment-grade dollar bonds were little changed to 1 basis point wider, according to credit traders. Yield premiums on the notes widened by almost 2 basis points last week, in their first weekly increase in six, according to a Bloomberg Barclays index
  • Among speculative-grade issuers, dollar bonds of China Evergrande Group lagged a 0.25 cent gain in the broader China high-yield market on Monday. The developer’s 12% note due in October 2023 sank 1.8 cents on the dollar to 74.6 cents, set for its lowest price since April last year


The U.S. high-grade corporate bond market turned quiet at the end of last week before the holiday, but with spreads on the notes at their tightest in more than a decade companies have a growing incentive to issue debt over the rest of the summer rather than waiting until later this year.

  • The U.S. investment-grade loan market has surged back from pandemic disruptions, with volumes jumping 75% in the second quarter from a year earlier to $420.8 billion, according to preliminary Bloomberg league table data
  • For deal updates, click here for the New Issue Monitor


Sales of ethical bonds in Europe have surged past 250 billion euros ($296 billion) this year, smashing previous full-year records. The booming market for environmental, social and governance debt attracted issuers including the European Union, Repsol SA and Kellogg Co. in the first half of 2021.

  • The European Union has sent an RfP to raise further funding via a sale to be executed in the coming weeks, it said in an e-mailed statement
  • German property company Vivion Investments Sarl raised 340 million euros in a privately placed transaction in a bid to boost its real estate portfolio, according to people familiar with the matter


Source: Chinese Developer Woes Are Weighing on Asia’s Junk Bond Market – Bloomberg



The Chinese property bubble was a real estate bubble in residential and/or commercial real estate in China. The phenomenon has seen average housing prices in the country triple from 2005 to 2009, possibly driven by both government policies and Chinese cultural attitudes.

Tianjin High price-to-income and price-to-rent ratios for property and the high number of unoccupied residential and commercial units have been held up as evidence of a bubble. Critics of the bubble theory point to China’s relatively conservative mortgage lending standards and trends of increasing urbanization and rising incomes as proof that property prices can remain supported.

The growth of the housing bubble ended in late 2011 when housing prices began to fall, following policies responding to complaints that members of the middle-class were unable to afford homes in large cities. The deflation of the property bubble is seen as one of the primary causes for China’s declining economic growth in 2012.

2011 estimates by property analysts state that there are some 64 million empty properties and apartments in China and that housing development in China is massively oversupplied and overvalued, and is a bubble waiting to burst with serious consequences in the future. The BBC cites Ordos in Inner Mongolia as the largest ghost town in China, full of empty shopping malls and apartment complexes. A large, and largely uninhabited, urban real estate development has been constructed 25 km from Dongsheng District in the Kangbashi New Area. Intended to house a million people, it remains largely uninhabited.

Intended to have 300,000 residents by 2010, government figures stated it had 28,000. In Beijing residential rent prices rose 32% between 2001 and 2003; the overall inflation rate in China was 16% over the same period (Huang, 2003). To avoid sinking into the economic downturn, in 2008, the Chinese government immediately altered China’s monetary policy from a conservative stance to a progressive attitude by means of suddenly increasing the money supply and largely relaxing credit conditions.

Under such circumstances, the main concern is whether this expansionary monetary policy has acted to simulate the property bubble (Chiang, 2016). Land supply has a significant impact on house price fluctuations while demand factors such as user costs, income and residential mortgage loan have greater influences.


%d bloggers like this: