Is foreign-exchange trading really profitable in China?

China Merchants Bank, the nation's fifth-largest bank by market value, said its foreign-exchange trading and wealth management businesses are profitable, dousing market speculation that it suffered “huge” losses from these services.

Operations of foreign-exchange trading and foreign-currency denominated wealth management are normal, Shenzhen-based China Merchants said in a statement to the Shanghai Stock Exchange.

China Merchants tumbled by its ten percent daily limit to 12.14 yuan in Shanghai on Oct. 24, extending this year's loss to 69 percent. The stock fell 9.6 percent in Hong Kong to HK$11.34.

China Merchants said last week that profit for the first nine months of 2008 rose more than 80 percent because of expansion in assets, growth in non-interest income, a wider interest spread and lower income tax. Growth may have slowed from the 116 percent surge in the first half, raising concerns that the bank faces deteriorating asset quality.

China Merchants is scheduled to report third-quarter results on Oct. 29.


Will China Merchants' revenue from FX trading and wealth management be enough to cushion possible deterioration in the bank's assets?