Margin financing has been a lucrative fee earner for investment banks albeit a risky one.
Many company owners and high-net-worth individuals in China have put up blocks of shares in internationally listed companies as collateral against loans from investment banks, much of which they recycle into equity investments.
A head of investment banking at a prominent ECM bookrunner told FinanceAsia that revenues from margin financing were equivalent to a meaningful proportion of deal-making fees.
Several banks ended up weighed down with large share positions in July and August after China’s stock market plummeted and some borrowers could not pay back the money. Multiple...