Banks Face Big Losses From Bets on Chinese Realty

Back in the good old days — early 2007 — bankers from Merrill Lynch, Deutsche Bank and other financial giants placed their bets on a 48-year-old property tycoon who was supposed to be China’s next billionaire. They lent his company $400 million, encouraged him to acquire large tracts of land and in early 2008 promoted a proposed $2.1 billion public stock offering by the company, the Evergrande Real Estate Group, in Hong Kong.

One year later, China’s housing market has collapsed, Evergrande is mired in debt and the Wall Street bankers are facing huge losses because the company never sold stock to the public.