South Africa’s Standard Bank has called in the lawyers to deal with China’s burgeoning metals scandal, in which copper, aluminum, and other commodity stockpiles may have been fraudulently used as collateral for bank loans. Standard said only that it has “started legal proceedings” related to $210 million of aluminum in warehouses in Qingdao and other locations in China’s Shandong province, joining what could be a cascade of potentially competing lawsuits and claims in Chinese courts.
Earlier this week, Citic Resources said it was suing the operator of Qingdao port over 120,000 tonnes (132,000 tons) of missing alumina, an ingredient in aluminum production. In late June, State-owned Shanxi Coal International Energy Group said it filed a lawsuit against six companies—including Dezheng Resources Holdings, the company believed to be at the center of the Qingdao probe, and its subsidiary, Qingdao Decheng Mining—that allegedly owe a total of $177 million.
Chinese authorities are probing whether companies have been fraudulently overstating the commodities they hold to get short-term loans. Commodity traders believe companies may have used the same metal stocks to obtain multiple loans, which means there could be at least one other lender besides Standard Bank which believes it has a right to claim the same pile of aluminum.
Standard was the first lender to say publicly that it may be affected by the probe, and it has a lot to lose—it’s in the midst of selling a majority stake in its global markets unit, which includes the commodity lending business, to China’s massive state-owned bank ICBC for $765 million in cash. Any material changes to its balance sheet could squash the deal.
The South African bank said its legal maneuvers were related to $170 million in exposure to aluminum stockpiles in Qingdao and $40 million elsewhere, which probably means it has underwritten loans backed by those metals. “These legal proceedings are part of a process undertaken by the group to take all available steps to protect its position in respect of these stocks,” Standard said in its statement.
It remains to be seen how far-reaching the scandal could become. China’s national auditor said recently it had uncovered another $15 billion in loans backed by gold stocks that don’t exist.
Standard Bank said the financial consequences of its exposure “remain subject to assessment” and will be addressed in its August 14 results.