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Author: Shi Hao

On August 6, the Hangzhou Xihu District Court initiated an execution case against two film and television companies in response to a lawsuit filed by China Merchants Wealth Asset Management Co., Ltd. (hereinafter referred to as China Merchants Wealth).

The Times Weekly discovered that behind the above disputes, some investors have taken China Merchants Bank and China Merchants Wealth to court due to financial losses.

A Ms. Xu from Hangzhou purchased a 1 million yuan asset management plan from China Merchants Wealth Management through the China Merchants Bank APP. The funds were ultimately invested in Xindingming, the affiliated company behind the two film and television companies mentioned above. Currently, Ms. Xu has only recovered 11,600 yuan of her 1 million yuan investment principal.

From Xindingming to Qilin Yingfeng, Ji Zhong Culture, and then to the previous Everbright MPS, the huge amount of "wealth management funds" of China Merchants Wealth Management have failed in many high-risk film and television cultural projects. Wealth management clients like Ms. Xu have become litigation opponents of China Merchants Bank because they cannot recover their principal.

1 million yuan investment, 11,600 yuan back

On August 6 this year, the execution lawsuit filed by China Merchants Wealth in Hangzhou against two film and television companies: Feixia Film and Television and Hongzhong Film and Television was accepted by the court.

Tianyan Check shows that the major shareholders behind Feixia Film and Television and Hongzhong Film and Television are both Hangzhou Xindingming Cultural Media Co., Ltd. (hereinafter referred to as Hangzhou Xindingming).

A previous judgment document showed that investor Ms. Xu purchased a 1 million yuan Xindingming Phase IV asset management plan product through the mobile client of the China Merchants Bank head office APP. For this, Ms. Xu directly paid 1 million yuan in the China Merchants Bank APP and paid an additional 10,000 yuan in handling fees to China Merchants Bank, for a total of 1.01 million yuan.

The judgment document shows that Ms. Xu proposed that the electronic contract provided in the China Merchants Bank mobile APP confirmed that China Merchants Wealth (indirectly controlled by China Merchants Bank) is the manager of the asset management plan, China Merchants Bank Hangzhou Branch is the custodian, and the product investment is nested in the private equity fund "Xindingming Cultural Investment Phase IV Private Equity Fund" managed by Haining Xindingming Film and Television Culture Investment Management Co., Ltd. (Haining Xindingming).

Tianyan Check shows that the top shareholders of Haining Xindingming and Hangzhou Xindingming are affiliated companies and are controlled by the same controller.

The Xindingming Phase IV Asset Management Plan was established on May 26, 2017, with a duration of 2+1 years, and will expire and be liquidated on May 26, 2020.

Ms. Xu stated in the lawsuit that during the period of the asset management plan, China Merchants Bank and China Merchants Wealth never informed her of the risks of the relevant investments. However, in April 2020, Ms. Xu received an announcement on the China Merchants Bank mobile app stating that due to the inability to recover the back-end film and television investment private equity fund, the Xindingming Phase IV asset management plan could not liquidate the principal and income on schedule.

In addition to receiving a sum of 11,600 yuan, Ms. Xu still had 988,400 yuan of principal that was not recovered, and did not receive any returns from financial management, so she sued China Merchants Bank, China Merchants Wealth and Xindingming Company in court.

The Times Weekly discovered that the institution behind the Xindingming Film and Television Fund Special Asset Management Plan is Haining Xindingming. The official website of the Fund Industry Association shows that there were at least 27 registered private equity funds managed by Haining Xindingming, and China Merchants Bank obtained the custody business of nearly half of these products.

Multiple judicial documents show that since June 2019, private equity funds under Xindingming have begun to be unable to repay when they mature.

In September 2022, Haining Xindingming was deregistered as a private equity fund manager by the Fund Industry Association due to "abnormal operation". Of the 27 products managed by Xindingming, 19 had been liquidated at the time of deregistration (2022), and the other 8 had not been liquidated.

Among the eight private equity funds that have not been liquidated by 2022, seven have China Merchants Bank as the custodian bank, including the "Xindingming Cultural Investment Phase IV Private Equity Fund" mentioned in Ms. Xu's lawsuit materials.

In addition, judging from the products registered with the Fund Industry Association, at least five phases of Xindingming Film and Television Special Asset Plans have been issued at the China Merchants Wealth level. Among them, the "China Merchants Wealth-Xindingming Phase 4 Asset Management Plan" embedded with the "Xindingming Cultural Investment Phase 4 Private Equity Fund" purchased by Ms. Xu is in the "Terminated" product status.

Ms. Xu’s attorney told the Times Weekly that to date, Ms. Xu’s principal has not been recovered, and she is still seeking accountability from China Merchants Bank, China Merchants Wealth and others.

How many "wealth management plans" related to Xindingming sold by China Merchants Bank and issued by China Merchants Wealth have not yet been withdrawn? What is the total amount? Times Weekly has sent interview letters to China Merchants Bank and China Merchants Wealth many times, but has not received a reply so far.

Qilin Yingfeng, Jizhong Culture

Ms. Xu from Hangzhou bought the Xindingming "wealth management" product on the mobile phone APP of China Merchants Bank; another judgment document shows that a Mr. Zhang was recommended by the wealth management manager of China Merchants Bank to buy a "Qilin Yingfeng Film Special Asset Plan" of China Merchants Wealth Management when he was doing business at a branch of China Merchants Bank in Zhongshan. The judgment document shows that the amount of money Mr. Zhang paid was the same as that of Ms. Xu mentioned above. He also paid a subscription fee of 1 million yuan and a handling fee of 10,000 yuan, but the result was better than that of Ms. Xu. He got back 497,500 yuan, which was close to half of the principal. There was still 512,500 yuan of principal that could not be recovered.

Ms. Yang, who bought the same Qilin Yingfeng wealth management plan from a branch of China Merchants Bank in Foshan, suffered the same fate as Mr. Zhang, except that she invested 2 million yuan in principal, but ended up with more than 1 million yuan that could not be recovered. A branch of China Merchants Bank explained in the judicial process that the China Merchants Wealth-Qilin Yingfeng Special Asset Management Plan was assigned by the superior bank (China Merchants Bank Foshan Branch) to sell the asset management product on behalf of the superior bank (China Merchants Bank Foshan Branch).

The judgment document shows that the "Qilin Yingfeng Film Special Asset Plan" claimed to have invested in the film projects "Painted Skin 3" and "The Mermaid". After the projects were disposed of, "there were no excess assets to be distributed to investors."

Also in dispute with China Merchants Wealth is the film and television culture company established earlier by the well-known director Zhang as the major shareholder - Shanghai Ji Zhong Culture Development Co., Ltd. (Ji Zhong Culture).

Jizhong Culture was founded in 2012 and after several rounds of financing, it plans to be listed on the New Third Board. Tianyancha shows that in 2014, China Merchants Wealth subscribed 81 million yuan and established a fund (Jizhong Film and Television Fund) with Jizhong Culture to invest in film and television dramas.

However, the Times Weekly found that in June 2022, the Beijing Financial Court announced a ruling document, in which China Merchants Wealth requested the freezing of 74.9269 million yuan of Jizhong Culture's property. Comparing the 81 million yuan that China Merchants Wealth originally subscribed to the Jizhong Film and Television Fund and the final amount of freezing required, the huge amount of capital subscribed by China Merchants Wealth has been invested for nearly 8 years, and by 2022, there may be difficulties in exiting. The court's execution ruling document shows that in addition to freezing the equity held by Jizhong Culture in turn, the court also deducted more than 1,000 yuan in cash. In addition, no other property available for execution was found on the part of Jizhong Culture.

What is the overall form of the cooperation between China Merchants Wealth and Jizhong Culture? Does the capital come from China Merchants Bank's wealth management investors or other channels? How much capital has not been withdrawn so far? In this regard, Times Weekly sent an interview letter to China Merchants Bank and China Merchants Wealth, but has not received a reply so far.

In addition, China Merchants Wealth invested 200 million yuan to establish a Hehe Black Ant Film Investment Center with the affiliate of Hehe Pictures, and invested 191 million yuan to participate in 14 films such as "Heart of a Champion", "Journey to the West: The Demons Strike Back", and "Just Walk Away", but the revenue from the distribution was not enough to cover the investment cost. Therefore, China Merchants Wealth also initiated legal proceedings against Hehe to recover 148 million yuan and interest.

From Xindingming to Qilin Yingfeng, Hehe, and Ji Zhong Culture, many film and television cultural projects in which China Merchants Wealth participated from 2014 to 2018 encountered exit difficulties and long-term legal disputes after 2020. The project with the largest risk amount was still the Everbright MPS incident.

In the Everbright MPS incident, the Shanghai Jinxin Fund, which raised RMB 5.203 billion and was managed by Everbright Jinhui, a subsidiary of Everbright Capital, a wholly-owned subsidiary of Everbright Securities, as an executive partner, was unable to repay its huge investment principal due to its investment in MPS, a company that broadcasts overseas sports events. Among them, China Merchants Bank invested RMB 2.8 billion through China Merchants Wealth, becoming the largest investor in the MPS Fund.

After the crisis broke out, after several years of tug-of-war, the court made a preliminary judgment in 2019. An announcement from Everbright Securities showed that Everbright Capital had to pay RMB 3.116 billion to China Merchants Bank and interest losses from May 6, 2019 to the actual repayment date, and bear the corresponding expenses.

According to an announcement by Everbright Securities, Everbright Capital and China Merchants Bank reached a settlement with a total consideration of 2.24 billion yuan, to be repaid in four years. In 2023, Everbright Capital has repaid 734 million yuan to China Merchants Bank, with 1.506 billion yuan remaining. In addition, China Merchants Bank also auctioned 6.8588 million shares of Tianyang Hongye held by Everbright Capital through the court in 2023.

There is a difference of more than 800 million yuan between the 3.116 billion yuan awarded by the court and the 2.24 billion yuan settlement price reached with Everbright Capital. Does the total settlement price obtained by China Merchants Bank cover the 2.8 billion yuan principal of the wealth management product investors? If there is a difference between the final repayment amount and the investors' principal, how will China Merchants Bank and China Merchants Wealth arrange and respond to the wealth management customers? How will China Merchants Bank deal with this difference financially? In this regard, Times Weekly sent an interview letter to China Merchants Bank and China Merchants Wealth, but has not received a reply so far.

Nested private placement licenses: 6 natural persons account for 98% of the shares

China Merchants Bank, known as the "king of retail finance", has achieved annual revenue of 339.123 billion yuan in 2023, including non-interest income of more than 100 billion yuan. Fees and commissions from agency sales of financial products, asset management, and custody business commissions are important components of China Merchants Bank's non-interest income.

China Merchants Bank recently stated that it attaches great importance to wealth management and asset management business, and continues to improve the "four capabilities" of value creation, "people + digitalization", risk management, and ecosystem symbiosis and co-prosperity. Currently, China Merchants Bank serves more than 200 million retail customers, including more than 50 million wealth customers.

China Merchants Fund, CMB International, which are controlled by China Merchants Bank, and China Merchants Wealth, the asset management subsidiary of China Merchants Fund, are all important components of China Merchants Bank's asset management sector.

Since the release of the new asset management regulations in 2018, which require asset management institutions to return to the origin of asset management, strictly control channel business, and prohibit multi-layer nesting, the high-risk "wealth management" rectification wave in the large asset management field has begun, and the asset management business of fund subsidiaries has become more strictly controlled. According to statistics from the Fund Industry Association, the scale of private equity asset management of fund subsidiaries has decreased by 8.58 trillion yuan in six years from a peak of 10.5 trillion yuan in 2016 to 1.92 trillion yuan at the end of 2022.

While many of its peers have been shrinking in size, China Merchants Wealth has bucked the trend and become the fund subsidiary with the largest (average) asset management scale (data from the Fund Industry Association in 2023).

The Times Weekly found that as a fund subsidiary with over 200 billion yuan in assets under management and the "manager" of many wealth management products in the China Merchants Bank system, China Merchants Wealth does not directly hold a private equity manager license. There are several main ways for it to participate in private equity products:

The first is to directly serve as an LP and cooperate with other private equity managers outside the CMB system. For example, taking the "Jiaxing Xindingming Cultural Investment Phase II Partnership" as an example, industrial and commercial data show that the GP (executive partner) of the partnership is Haining Xindingming, a subsidiary of Xindingming, and China Merchants Wealth invested 140 million yuan as an LP. In the Wuxi Yingfeng Film Industry Fund, China Merchants Wealth serves as an LP, and the GP of the partnership is Yingfeng Capital, which has a private equity fund manager license.

The second is to use private equity managers affiliated with the China Merchants Bank system as GPs. Among them, the most commonly used GP is CMB International Capital Management Co., Ltd. (Shenzhen CMB International). Shenzhen CMB International is a subsidiary of CMB International, a subsidiary of China Merchants Bank (Hong Kong). It has a huge number of cooperative funds with China Merchants Wealth and is responsible for a large number of private equity fund management work.

Thirdly, China Merchants Wealth also indirectly participates in a nested private equity fund manager license - Shenzhen Zhaocai Gongying.

Take China Merchants Wealth’s investment in Xindingming as an example. Tianyancha shows that in addition to directly serving as an LP in the “Jiaxing Xindingming Cultural Investment Phase II Partnership”, China Merchants Wealth also has an indirect stake in Hangzhou Xindingming. At the shareholder level of Hangzhou Xindingming, there is a partnership private equity fund - Shenzhen Zhaocai New Third Board Phase II Equity Investment Partnership (Zhaocai Phase II). Tianyancha shows that the partners of Zhaocai Phase II are three parties:

China Merchants Wealth, accounting for 99.59% of the partnership share of China Merchants Wealth Phase II,

Shanghai Zhaoyin Equity Investment Fund Management Co., Ltd. (Shanghai Zhaoyin, a subsidiary of China Merchants Wealth) holds a 0.332% partnership share.

Shenzhen Zhaocai Gongying Equity Investment Fund Management Center (Zhaocai Gongying) holds a 0.075% partnership share.

However, Zhaocai Gongying, which holds the smallest share, is the executive partner of Zhaocai Phase II. At the same time, Zhaocai Gongying is registered with the Asset Management Association of China and has the qualifications of a private equity fund manager. It currently has 7 private equity funds registered with the Asset Management Association of China.

The Times Weekly found that Shenzhen Zhaocai Gongying, as a private equity fund manager, adopted a nested partnership structure at the upper level: China Merchants Wealth, through Shanghai Zhaoyin, serves as the executive partner, able to manage Zhaocai Gongying's affairs and obtain additional shares, but only holds 1.14% of the investment share in Zhaocai Gongying's partnership system. The remaining more than 98% of Zhaocai Gongying's investment share is enjoyed by 6 natural persons.

How much management fee did Zhaocai Gongying, which is owned by natural persons as one of the indirect GPs, directly or indirectly obtain from the series of investments in Zhaocai Phase II-Xindingming? Did the six natural persons of Zhaocai Gongying get any share of the profits? If so, how much was the total amount? In this regard, Times Weekly sent an interview letter to China Merchants Bank and China Merchants Wealth, but has not received a reply so far.

While risks were encountered in multiple "wealth management" projects of China Merchants Wealth, problems also arose in another core subsidiary of China Merchants Bank, China Merchants Wealth Management.

At the end of June this year, the State Financial Regulatory Administration imposed a total fine of 12 million yuan on China Merchants Bank and China Merchants Bank Wealth Management on the grounds that the wealth management business failed to effectively penetrate and identify the underlying assets, information disclosure was not standardized, and investors' right to know was infringed.

What financial products are specifically involved in the above-mentioned punishment? What is the current repayment situation? In this regard, Times Weekly sent an interview letter to China Merchants Bank and China Merchants Wealth, but has not received a reply so far.