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Friday 16 January 2009
Foreign Banks May Regret Giving up Hard-Won Stakes in China
In the scramble to unload their stakes in Chinese banks, international lenders are hurrying out a door that took years to pry open and may be shut more tightly against them in the future.
Foreign Banks May Regret Giving up Hard-Won Stakes in China
By Simon Rabinovitch and Xie Heng, Reuters 15 January 2009
BEIJING: In the scramble to unload their stakes in Chinese banks, international lenders are hurrying out a door that took years to pry open and may be shut more tightly against them in the future.
Such are the needs of UBS, Royal Bank of Scotland and Bank of America for fresh capital that they have been willing to give up or scale back their prized footholds in the biggest Chinese banks for chunks of cash over the past two weeks.
The business imperative for the sales was not lost on China, which is struggling to protect its own banks from the global credit crisis. But Chinese regulators are unlikely to forget how the so-called “strategic partners” behaved in the heat of battle.
“They were not so strategic but were more financial as investors,” said Yin Jianfeng, a bank analyst at the Chinese Academy of Social Sciences. “Competition rather than cooperation will become the key relationship between local and foreign banks.”
Bank of China pledged to cooperate with both UBS and Royal Bank of Scotland after its former partners cashed in their stakes of 1.6 and 4.3 percent, respectively, in recent weeks. But cordial farewells aside, that will be very hard to accomplish.
“Maintaining a stake was the premise for mutual cooperation,” said Zhao Qingming, a senior analyst at China Construction Bank. “Now that this premise is completely gone, how will they push forward the next step of cooperation?”
The banking landscape in China is much different from what it was just a few years ago, when Western banks were invited by Beijing to buy into Chinese lenders as strategic investors before they listed shares on the stock market.
A government-sanctioned invitation is no longer necessary, now that shares in the biggest commercial banks in China trade freely on the Hong Kong stock exchange.
“If they want to return one day, they may have to pay a higher price, a market price, for those stakes,” said a Chinese banking regulator, who could not be identified, because he was not authorized to speak to the news media.
The Chinese Banking Regulatory Commission did not immediately reply to requests for comment. People’s Daily, a state-run newspaper, said that China’s banking reform process had benefited from foreign banks’ support in its early days.
Picking up shares here and there in Hong Kong would be no substitute for the initial hopes that international banks had vested in their Chinese partnerships.
UBS, Royal Bank of Scotland, Bank of America, HSBC and BBVA of Spain all competed for and won stakes in Chinese banks before their initial public offerings, and made handsome profits within minutes of the start of public trading.
A single foreign investor is permitted to hold no more than 19.9 percent of a Chinese bank. Before the ravages of the credit crisis caused heavy losses for many foreign lenders, international banks were calling for that ceiling to be lifted.
The regulatory commission has indicated in the past that it might consider such a move. It said in 2007 that it was undertaking a review to examine how well the strategic partnerships had fared. Two years later, the agency has all but stopped mentioning the review.
What is more, international banks may have no seat at the pre-IPO table for the handful of big Chinese banks that are still unlisted, notably Agricultural Bank of China and Everbright Bank.
“Some policies at the regulatory level have already changed,” said Guo Tianyong, director of the China banking research center at the Central University of Finance and Economics in Beijing. “They have cancelled the rule that newly established commercial banks must have a foreign strategic investor on board.”
Holding stakes in Chinese lenders was certainly not the only avenue for international banks trying to break into China’s huge market. They have established fund management and brokerage joint ventures, incorporated locally as commercial banks, introduced a range of private banking services and advised international firms coming into China or local firms venturing out.
But one question now is whether international banks will be dogged by hostility and suspicion in their broader China operations after bailing out of their partner banks.
“Nobody can definitely tell how the stake sales will eventually affect the future business development of these foreign banks in China,” said Chunling Wen, China banking analyst at Fitch Ratings in Beijing. “There are too many factors that can influence the government’s attitude toward these investors.”
For every international bank that has dumped a China bank stake, others have maintained strong ties.
HSBC holds 19 percent of Bank of Communications, while BBVA has a 10 percent stake in Citic Bank. Bank of America recently reduced its holding in China Construction Bank, but it still owns 16.6 percent.
“Some banks remain very committed and I don’t see why they would be frowned upon,” said Nick Lord, who covers Asian banks for Macquarie Securities in Hong Kong.
1 comment:
Foreign Banks May Regret Giving up Hard-Won Stakes in China
By Simon Rabinovitch and Xie Heng, Reuters
15 January 2009
BEIJING: In the scramble to unload their stakes in Chinese banks, international lenders are hurrying out a door that took years to pry open and may be shut more tightly against them in the future.
Such are the needs of UBS, Royal Bank of Scotland and Bank of America for fresh capital that they have been willing to give up or scale back their prized footholds in the biggest Chinese banks for chunks of cash over the past two weeks.
The business imperative for the sales was not lost on China, which is struggling to protect its own banks from the global credit crisis. But Chinese regulators are unlikely to forget how the so-called “strategic partners” behaved in the heat of battle.
“They were not so strategic but were more financial as investors,” said Yin Jianfeng, a bank analyst at the Chinese Academy of Social Sciences. “Competition rather than cooperation will become the key relationship between local and foreign banks.”
Bank of China pledged to cooperate with both UBS and Royal Bank of Scotland after its former partners cashed in their stakes of 1.6 and 4.3 percent, respectively, in recent weeks. But cordial farewells aside, that will be very hard to accomplish.
“Maintaining a stake was the premise for mutual cooperation,” said Zhao Qingming, a senior analyst at China Construction Bank. “Now that this premise is completely gone, how will they push forward the next step of cooperation?”
The banking landscape in China is much different from what it was just a few years ago, when Western banks were invited by Beijing to buy into Chinese lenders as strategic investors before they listed shares on the stock market.
A government-sanctioned invitation is no longer necessary, now that shares in the biggest commercial banks in China trade freely on the Hong Kong stock exchange.
“If they want to return one day, they may have to pay a higher price, a market price, for those stakes,” said a Chinese banking regulator, who could not be identified, because he was not authorized to speak to the news media.
The Chinese Banking Regulatory Commission did not immediately reply to requests for comment. People’s Daily, a state-run newspaper, said that China’s banking reform process had benefited from foreign banks’ support in its early days.
Picking up shares here and there in Hong Kong would be no substitute for the initial hopes that international banks had vested in their Chinese partnerships.
UBS, Royal Bank of Scotland, Bank of America, HSBC and BBVA of Spain all competed for and won stakes in Chinese banks before their initial public offerings, and made handsome profits within minutes of the start of public trading.
A single foreign investor is permitted to hold no more than 19.9 percent of a Chinese bank. Before the ravages of the credit crisis caused heavy losses for many foreign lenders, international banks were calling for that ceiling to be lifted.
The regulatory commission has indicated in the past that it might consider such a move. It said in 2007 that it was undertaking a review to examine how well the strategic partnerships had fared. Two years later, the agency has all but stopped mentioning the review.
What is more, international banks may have no seat at the pre-IPO table for the handful of big Chinese banks that are still unlisted, notably Agricultural Bank of China and Everbright Bank.
“Some policies at the regulatory level have already changed,” said Guo Tianyong, director of the China banking research center at the Central University of Finance and Economics in Beijing. “They have cancelled the rule that newly established commercial banks must have a foreign strategic investor on board.”
Holding stakes in Chinese lenders was certainly not the only avenue for international banks trying to break into China’s huge market. They have established fund management and brokerage joint ventures, incorporated locally as commercial banks, introduced a range of private banking services and advised international firms coming into China or local firms venturing out.
But one question now is whether international banks will be dogged by hostility and suspicion in their broader China operations after bailing out of their partner banks.
“Nobody can definitely tell how the stake sales will eventually affect the future business development of these foreign banks in China,” said Chunling Wen, China banking analyst at Fitch Ratings in Beijing. “There are too many factors that can influence the government’s attitude toward these investors.”
For every international bank that has dumped a China bank stake, others have maintained strong ties.
HSBC holds 19 percent of Bank of Communications, while BBVA has a 10 percent stake in Citic Bank. Bank of America recently reduced its holding in China Construction Bank, but it still owns 16.6 percent.
“Some banks remain very committed and I don’t see why they would be frowned upon,” said Nick Lord, who covers Asian banks for Macquarie Securities in Hong Kong.
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