Bass says China Bank losses may top 400pc of sub­prime cri­sis

The Pak Banker - - FRONT PAGE -

Kyle Bass, the hedge fund man­ager who suc­cess­fully bet against mort­gages dur­ing the sub­prime cri­sis, said China's bank­ing sys­tem may see losses of more than four times those suf­fered by U.S. banks dur­ing the last cri­sis. Should the Chi­nese bank­ing sys­tem lose 10 per­cent of its as­sets be­cause of non­per­form­ing loans, the na­tion's banks will see about $3.5 tril­lion in equity van­ish, Bass, the founder of Dal­las-based Hay­man Cap­i­tal Man­age­ment, wrote in a let­ter to in­vestors ob­tained by Bloomberg. The world's se­cond-big­gest econo- my may end up hav­ing to print more than $10 tril­lion of yuan to re­cap­i­tal­ize banks, pres­sur­ing the cur­rency to de­value in ex­cess of 30 per­cent against the dol­lar, ac­cord­ing to Bass.

Bass, 46, scored big af­ter bet­ting against mort­gages in 2007, rack­ing up gains as the world's largest banks wrote off more than $80 bil­lion in sub­prime losses. All his calls haven't been as pre­scient. He re­vealed wa­ger­ing on a col­lapse in Ja­pan's govern­ment-bond mar­ket in 2010, a short po­si­tion that Bass later ac­knowl­edged that other bond in­vestors had nick­named "the widow maker." "What we are wit­ness­ing is the re­set­ting of the largest macro im­bal­ance the world has ever seen," he wrote in the let­ter. "Credit in China has reached its near-term limit, and the Chi­nese bank­ing sys­tem will ex­pe­ri­ence a loss cy­cle that will have pro­found im­pli­ca­tions for the rest of the world."

Bass said his hedge fund has sold most of its riskier as­sets since the middle of last year to po­si­tion it­self for 18 months of "var­i­ous events that are likely to tran­spire along this long road to a Chi­nese credit and cur­rency re­set." In an e-mailed re­sponse to ques­tions, he said about 85 per­cent of his port­fo­lio is in­vested in China-re­lated trades. "The prob­lems China faces have no prece­dent," Bass wrote in the let­ter. "They are so large that it will take ev­ery ounce of com­mit­ment by Chi­nese govern­ment to rec­tify the im­bal­ances.

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