Three big Chinese banks extended their drop on Wednesday, after a US media report suggested they could face fallout from an investigation into North Korean sanctions violations.
China Merchants Bank Co., Bank of Communications Co. and Shanghai Pudong Development Bank Co. fell in Shanghai and Hong Kong trading after the Washington Post said that a US judge found three unidentified Chinese lenders in contempt for refusing to comply with subpoenas related to the probe. Details in court rulings “align with a 2017 civil forfeiture action in which the Justice Department alleged” that the three worked with a Hong Kong company accused of laundering money for a sanctioned North Korean entity, the newspaper said.
All three banks said in statements that they were not under investigation for sanctions violations.
While the report didn’t suggest any US action against the banks was imminent, the sell-off shows how sensitive investors have become to any indication of a heightening in tensions between China and America. In recent months, news of comments and deliberations by US officials have triggered declines in Chinese stocks, including Iflytek Co. and Hangzhou Hikvision Digital Technology Co. Merchants Bank’s fall in Hong Kong was the most in nearly four years.
“People are very sensitive about news related to politics now,” said Jackson Wong, Hong Kong-based director at Amber Hill Capital Ltd. “The North Korea news report can be a big thing, turning into a bargaining chip between the US and China in the trade talks, or it can be a very small thing. The market doesn’t know yet, so it became an excuse for them to sell.”
The US court order triggers a provision that could see Pudong Development Bank lose access to dollars, the Washington Post said, a decision that the paper said could be made by US Attorney General William Barr or Treasury Secretary Steven Mnuchin.
Mnuchin said in 2017 that the US may impose additional sanctions on China, potentially cutting off access to the US financial system, if it didn’t follow through on a fresh round of United Nations restrictions against North Korea. A spokeswoman for the US District Attorney’s office declined to comment to the Washington Post about whether the government is considering invoking the penalty.
Merchants Bank’s stock extended 4.8 percent drop and was down 1.6 percent in Shanghai on Wednesday and 0.8 percent in Hong Kong. Shares of Bocom, China’s fifth-biggest bank by assets, were 0.3 percent lower in the mainland city and down 0.5 percent in Hong Kong. Pudong Development Bank was trading little changed after falling as much as 0.9 percent earlier. Bocom’s dollar-denominated, loss-absorbing debt instruments, known as AT1 bonds, fell by the most since March 2018.