Recently, the issue of the redemption of Wanxiang Trust has attracted widespread attention.
At present, this problem is not limited to a single financial institution, but exposes the vulnerability of the entire trust industry in the current economic environment.
In my opinion, the delay in solving the problem of Zhongrong Trust has objectively brought a great negative impact on the entire trust industry, and it is foreseeable that if this situation continues, there will be more small and medium-sized trust companies in the case of "passive run", and even it is not impossible to directly detonate the entire trust industry, and the dark clouds of systemic financial risks are gathering.
As the only private trust company in Zhejiang Province, since its establishment in 2012, its business has mainly focused on the basic industry and real estate, especially the investment related to real estate business accounts for more than 60%.
This highly reliant business structure on a single domain undoubtedly increases the risk of its operations in the current environment of real estate market adjustment and capital market volatility.
In 2022, Wanxiang Trust's assets under management.
reached 107.4 billion, but only ranked 54th among 68 trust companies, obviously at a disadvantage in the market competition.
A trust company of this size is naturally limited in its ability to protect against market risks, so when the market is volatile, the vulnerability of Wanxiang Trust is revealed. In October this year, a number of Wanxiang Trust's products could not be redeemed, mainly due to the concentrated outbreak of risks in quasi-urban investment projects in a fourth-tier city in southwest China.
Due to the lack of clear support from the local government, the ability to collect payments and the controllability of risks of these projects have been questioned. Although the activist actions of investors have been positive, the results have not been satisfactory so far. When analyzing the problem of Wanxiang Trust, we must mention the impact of the suspension of Zhongrong Trust on the market.
The problem of Zhongrong Trust has produced a huge ripple effect in the industry, and its status as a central enterprise, the position of the head of the industry, and the huge scale of assets make its influence much greater than that of Wanxiang Trust after the suspension of exchange. Although the problem of Wanxiang Trust is serious, due to its relatively small scale in the industry, its problem has not caused much ripple in the entire market.
However, this does not mean that the problem can be ignored, but should be taken seriously by the industry and regulators. In the case of Wanxiang Trust, the root of the problem lies in its over-reliance on real estate and political credit projects, as well as the lack of diversified investment and risk control mechanisms. The default of its partner only triggered the outbreak of its potential problems.
To fundamentally solve this problem, Wanxiang Trust needs to adjust its business structure, reduce its dependence on a single domain, and establish a more rigorous risk assessment and management system. For the entire trust industry, the problem of Wanxiang Trust is also a warning.
Trust companies need to strengthen their due diligence on projects and improve their risk management capabilities, while regulators should conduct more accurate monitoring and timely intervention on the risk points of the trust industry to prevent the recurrence of similar problems.
Although it is not too late to make amends, the problem of Vientiane Trust is also a microcosm of the decline of the trust industry, Warren Buffett once said that "only when the tide recedes can we find out who is swimming naked" and the problems exposed by the trust industry after the ebb of the real estate industry will also be a key consideration for the management.
To sum up, the redemption problem of Wanxiang Trust is not only a company-level crisis, but also a manifestation of the insufficient risk management of the entire trust industry. Under the current economic situation, trust companies should re-examine their investment strategies and risk control mechanisms, and the regulatory authorities should also take more effective measures to ensure the healthy and stable development of the trust industry. Only in this way can the interests of investors be safeguarded. It is hoped that the state can introduce a treatment plan for Zhongrong Trust as soon as possible to avoid the recurrence of such things.
This article was first published on Knowledge Planet on December 7).
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