China’s financial industry has experienced a golden age in the last decade. In 2013, China’s banks made a staggering $292 billion in aggregate pretax profit: Chinese institutions represent four of the top ten global banks, ranked by total assets. And yet, trouble is on the horizon. In the last year, most Chinese banks reported their worst annual earnings growth since going public. This presents a challenge and an opportunity. Now that the banks have more and more loans turning sour, they are getting more involved in lawsuits, which harms the bottom line. But the news is good for bank lawyers, as banks are now investing more heavily in legal services.
I work for China Minsheng Bank, a second-tier commercial bank (ranked 48th in terms of total assets in the world) and received a JD from Temple in 2014. Generally speaking, working for such a bank in China means that I help to manage a portfolio of billions of dollars ($US) worth of assets and routinely lead multi-million dollar transactions. Most of our clients are leading companies in their industries in China and around the world. Also, of course, we are competing with the most excellent people from other institutions.
I am a deputy general manager, responsible for developing and promoting financial products that finance clients’ accounts receivable. Clients’ financial demands are diverse. In many situations, companies would prefer alternatives to traditional loans, such as asset-backed securities. Because China isn’t entirely a free-market economy, there are always opportunities to arbitrage interest rates, exchange rates or even regulations. All these are market opportunities for the banks, and all have kept the bank’s financial product divisions busy.
I have used my legal training at Temple to help design structures to help issuers while still satisfying investors’ demands and regulators’ requirements.
For example, recently we have begun to help clients issue asset-backed securities (ABS) on behalf of our clients. By issuing ABS, firms can select their best assets to support the securities issued. This results in a better rating and lowers their financial costs. When providing a concrete solution to an ABS issuer, in addition to accounting/financial backgrounds, legal skills (like those I learned at Temple) are essential. Assets need to be separated to avoid being captured by other creditors in a bankruptcy of the issuer, and information needs to be disclosed to investors appropriately. I have used my legal training at Temple to help design structures to help issuers while still satisfying investors’ demands and regulators’ requirements.
Sometimes, financial products are designed around regulatory impediments. For example, to reduce the likelihood of a real estate bubble, loans to real estate developers are highly restricted in China. But banks can offer to pay real estate developers’ past-due accounts payable to their suppliers so that they can extend their accounts payable period. Thus, the developers are financed indirectly through their suppliers. Strategies like these require me to carefully analyze the legal relationships between the parties, so that even with no contract signed between the bank and the real estate developer, the bank can still have recourse to the real estate developers, which are supposed to have a stronger financial position as a result of the transaction.
Finally, we often review our instruments to see whether they need to be updated in the light of new laws and new court decisions. Geography poses a challenge: China spans such a big area, with wide development gaps between east (rich) and west (poor). Courts may reach different conclusions depending on their location based on similar facts due to lack of professionals in poor areas.
We need to understand Chinese culture and history to read between the lines of the opinions. We must also exercise judgment to balance the risks and benefits implied in the opinions, to protect the interests of the bank while still being open to innovation. To make things more challenging, everything needs to be done very fast, so we have limited time to do the research and analysis.
That is what it is like to work in China’s financial industry: with the necessary legal background and financial skills, you will have fun while working in one of the most prosperous and exciting industries in the world.