By Pam Martens and Russ Martens: July 28, 2021 ~
New York Stock Exchange
According to their latest 13F form filings with the Securities and Exchange Commission, as of March 31, 2021 the U.S. mega banks on Wall Street held a staggering $6.56 billion in three Chinese education stocks that just had their business model put through a shredder by the Chinese Communist Party. As of yesterday’s close, that $6.56 billion is now worth about 90 percent less than it was on March 31. Depending on just when these mega banks started panic dumping their positions, their losses could be substantial.
New Oriental Education & Technology (stock symbol EDU), Gaotu Techedu (which previously went by the name GSX Techedu) (stock symbol is now GOTU), and TAL Education Group (stock symbol TAL) were all trading below $7 a share shortly after the market opened this morning. New Oriental has gone from a share price of more than $19 in February to become a $2 stock this morning. Gaotu Techedu is trading this morning at $3 and change from an intraday high of more than $149 in late January. TAL Education has a $6 handle this morning, down from an intraday high of over $90 in February.
More than half of the $6.56 billion in U.S. mega bank exposure came from Morgan Stanley’s eye-popping $3.6 billion in these three stocks. Bizarrely, Morgan Stanley had 89 percent of its total exposure to the three companies in just one stock – Tal Education Group. Its 13F shows Morgan Stanley held $3.2 billion in TAL as of March 31, 2021.
The second largest exposure was JPMorgan Chase’s $1 billion in the three stocks. Goldman Sachs showed exposure of $597 million to the three stocks on its 13F filing while Bank of America came in fourth place with $454.7 million. Bank of New York Mellon, Citigroup and Wells Fargo each had approximately $300 million in exposure to the three stocks.
All three Chinese companies provide private education services to students in China and all three companies are listed on the New York Stock Exchange. Their business prospects have now become severely limited by Chinese mandate. Regulations issued over the weekend by China’s Ministry of Education now bar these private tutoring and online education platforms from making profits from the core curriculum taught in schools in China, from capital raising, and from being traded on foreign stock exchanges.
Our first thought was that this might be another Archegos type of debacle where the banks were reporting the stock positions on their own 13F forms while the shares were actually owned via derivatives by hedge funds. But according to the 13F forms, the banks hold the sole voting power in the vast majority of these shares.
In addition to the U.S. banks listed here, foreign banks also had significant amounts of exposure as of their 13F filings on March 31, 2021.
