PwC China Faces 6-month Business Ban over Evergrande Audit

The logo of Price Waterhouse Coopers is seen at its Berlin office in Berlin, Germany, September 20, 2019. REUTERS/Wolfgang Rattay/File Photo Purchase Licensing Rights
The logo of Price Waterhouse Coopers is seen at its Berlin office in Berlin, Germany, September 20, 2019. REUTERS/Wolfgang Rattay/File Photo Purchase Licensing Rights
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PwC China Faces 6-month Business Ban over Evergrande Audit

The logo of Price Waterhouse Coopers is seen at its Berlin office in Berlin, Germany, September 20, 2019. REUTERS/Wolfgang Rattay/File Photo Purchase Licensing Rights
The logo of Price Waterhouse Coopers is seen at its Berlin office in Berlin, Germany, September 20, 2019. REUTERS/Wolfgang Rattay/File Photo Purchase Licensing Rights

Chinese regulators will likely impose a six-month business suspension on a big part of PricewaterhouseCoopers' auditing unit in mainland China, as a penalty for its work on troubled property developer Evergrande, according to five sources with knowledge of the matter.

PwC Zhong Tian LLP, the registered accounting entity and the main onshore arm of PwC in China, is expected to be hit with the ban in its securities related business, affecting its work for clients including listed companies, IPO-bound companies and investment funds on the mainland, said the sources who declined to be named as the information was private, Reuters reported.

A fine of at least 400 million yuan ($56 million) is expected to accompany the six-month ban, three of the people said. Combined with the business suspension, it would be the toughest ever penalty received by a Big Four accounting firm in China, the three people added.

In the most recent case of a Big Four auditor being hit with hefty penalties, Deloitte's Beijing branch in March last year was fined 211.9 million yuan and the branch's operations were suspended for three months after serious deficiencies were found in its audit of China Huarong Asset Management.

The PwC penalties, which are being mainly handled by China's Ministry of Finance (MOF), the primary regulator of accounting firms in the country, are yet to be finalised, said one of the sources.

"Given this is an ongoing regulatory matter, it would not be appropriate to comment," a PwC spokesperson said in a statement.

The MOF did not immediately respond to requests for comment.

PwC has been under regulatory scrutiny for its role in auditing China Evergrande Group 3333.HK since the developer was accused in March of a $78-billion fraud. PwC audited Evergrande for almost 14 years until early 2023.

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Chinese regulators are expected to announce PwC's penalties in the coming weeks, three of the people said.

The Financial Times first reported on Thursday that PwC China expected a six-month business ban by Chinese authorities as early as September.

Bloomberg in May reported that the firm faces a record fine of at least 1 billion yuan ($140 million).

The looming PwC penalties have led to an exodus of clientele, opens new tab and prompted cost cuts, opens new tab and layoffs, opens new tab at the firm in recent months, sources have said, clouding the firm's prospects in the world's second-largest economy.

As part of the penalties, PwC would be barred from signing off on certain key documents for clients in mainland China such as results and IPO applications as well as from carrying out other securities-related services, the sources said.

The business suspension could also affect PwC Zhong Tian, as a whole, from taking on new state-owned or domestically-listed clients in the next three years, in accordance with Chinese regulations.

Last year, domestic regulators reiterated state-owned firms and mainland China-listed companies should be "extremely cautious" about hiring auditors that have received regulatory fines or other penalties in the past three years.

In the past few months, at least 50 Chinese firms, many of which are state-owned enterprises or financial institutions, have either dropped PwC as their auditor or cancelled plans to hire the firm, according to stock exchange filings reviewed by Reuters.

Its largest mainland China-listed audit client, Bank of China 601988.SS, said on Monday it plans to hire EY, opens new tab for its 2024 annual audit. In June, the bank stated that its service agreement with PwC would only be for the interim report review.

PwC Zhong Tian recorded revenues of 7.92 billion yuan in 2022, making it China's highest-earning auditor that year, followed by EY, Deloitte and KPMG, official figures show.



Dollar Down and Oil Slips as Fed Readies Rate Cuts

A view shows an oil pump jack outside Almetyevsk in the Republic of Tatarstan, Russia June 4, 2023. REUTERS/Alexander Manzyuk
A view shows an oil pump jack outside Almetyevsk in the Republic of Tatarstan, Russia June 4, 2023. REUTERS/Alexander Manzyuk
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Dollar Down and Oil Slips as Fed Readies Rate Cuts

A view shows an oil pump jack outside Almetyevsk in the Republic of Tatarstan, Russia June 4, 2023. REUTERS/Alexander Manzyuk
A view shows an oil pump jack outside Almetyevsk in the Republic of Tatarstan, Russia June 4, 2023. REUTERS/Alexander Manzyuk

Oil fell for a fifth day in a row on demand jitters on Thursday, stocks were subdued in Asia, and the dollar hovered near one-year lows as Federal Reserve minutes signaled that US interest rate cuts are set to begin in a few weeks' time.
The minutes validated bets on a rate cut next month and said the "vast majority" of policymakers felt that if data came in as expected, a September cut was likely to be appropriate.
Oil prices fell, however, and at $75.97 a barrel, Brent futures were near the year's low, having lost nearly 6% in August so far as China's demand outlook weakens and looming rate cuts signal an expectation of a US slowdown.
Stocks, after a phenomenal rebound from early-month lows, were also kept in check, with US and European futures down about 0.1%, and MSCI's broadest index of Asia-Pacific shares outside Japan mostly flat.
"The first 200 days following the first rate cut tend to be challenging for equities, because it signals a deteriorating growth and profits environment," said Nick Ferres, CIO at Vantage Point Asset Management in Singapore.
Trade was thin in China and major indexes notched small losses, with electric vehicle stocks wobbly on tariff risks. Hong Kong's Hang Seng rose 0.5%, helped by an 8% gain in shares of electronics maker Xiaomi after upbeat results.
Surges in pharmaceutical firms Sumitomo Pharma and Chugai Pharm helped Japanese shares notch a three-week high in morning trade, as the market recovers from a stunning collapse in early August.
"I think the market's focus for the equity investor is changing a bit recently," said Daiki Hayashi, head of Japan sales and marketing at J.P. Morgan in Tokyo.
"Investors had been buying Japanese equities because they were cheap. Now, recently, we have been having a lot of discussions about single stocks," he said.
"If we started to see more of a growth story for individual companies, we might see another increase in equity prices."
DOLLAR DOWNTREND
Rates and currency markets see a US easing cycle as having further to run than other countries, since US short-term rates are higher, and have pushed down US yields and the dollar.
It also gives room for smaller markets to make cuts, and in South Korea, policymakers hinted at an October cut as they left rates on hold, as expected.
Treasuries rallied on Wednesday and ten-year yields were broadly steady at 3.80% on Thursday in Asia. Two-year yields held at 3.93%.
Interest rate futures markets have fully priced in a 25-basis-point cut in the US next month, with a 1/3 chance of a 50-bp cut. They project 222 bps of US easing by the end of 2025, against 163 bps for Europe.
The euro stood at $1.1144 in Asia, having touched $1.1173 on Wednesday, its highest since the middle of last year and above chart resistance at $1.1139, with the way open to the 2022 high around $1.1276. Sterling bought $1.3084 and hit a more than one-year high of $1.3119 on Wednesday.
"The unequivocal signal from the (Fed) minutes has been the catalyst for the latest leg down in the US dollar," said National Australia Bank's head of currency strategy, Ray Attrill.
"It is likely that the break above $1.30 on cable looks sustainable," he said, using a nickname for the sterling/dollar pair. "And similarly for the euro ... we're talking about potentially a $1.10-$1.15 range in coming weeks."
Checks on the dollar's weakness may come from US jobs data on Sept. 6 or purchasing managers index (PMI) data due later today, if it confounds market bets on interest rate cuts, or shows softness in Europe that weighs on the euro, Attrill said.