Global financial institutions are reportedly reviewing their operations for China-linked risks in the event of a conflict with Taiwan and subsequent sanctions by the West.
Global banks including Societe Generale, JP Morgan, and UBS have been reviewing contingency plans for their operations in Greater China should their businesses be subject to tit-for-tat sanctions between Washington and Beijing, according to a «Bloomberg» report citing unnamed sources. Top concerns include staff safety, the identification of clients potentially subject to sanctions, and mitigating counterparty risk as well as potential trading losses.
SocGen, for example, has been assessing its headcount in Greater China, including Hong Kong. At UBS, the Taiwan-based trading desk is assessing contingencies and reviewing how to lower exposure to the self-ruled island with possible plans including reduced FX trading.
In another case, a source from an unnamed bank said there were considerations to lower counterparty risk in China by liquidating positions on its Financial Futures Exchange and replicating those contracts on exchanges elsewhere such as Singapore.
Insurance Prices Surge
The impact is not only being felt among banks but also by insurers given a 67 percent average increase in prices for political risk coverage linked to China, according to Willis Towers Watson.
Overall, Wall Street’s biggest banks have disclosed exposure totaling $57 billion in China, as of end-2021.
Loyalty to Washington
The report follows a hearing with the Financial Services Committee of the US House of Representatives which grilled American lenders over various issues including their position on complying with instructions from Washington should Beijing launch a military attack on Taiwan.
In response to one of the questions, the CEOs of major US banks including Citi, JP Morgan, and Bank of America all vowed to comply with Washington’s guidance, including the possibility of pulling out investments from China.
Russian Lessons
Following billions of dollars in investments in China, global financial firms face the risk of write-offs due to the possibility of Beijing disrupting operations as retaliation against US sanctions, such as bans on moving assets or capital abroad.
The move is akin to the situation in Russia with Deputy Finance Minister Aleksey Moiseev previously saying that sales requests of foreign bank units would be rejected «until the situation has improved».
