Long-held – and long-cherished – stakes in China’s banks
are being offloaded by western banks and other investors. So is
this the end of the Chinese dream? Yes and no. Two of the banks
that have sold investments – Royal Bank of Scotland (RBS) and Bank
of America (BofA) – also happened to be two of the most deeply
troubled financial groups currently out there, and both are
desperate to raise cash (see Citi falls
apart with $19bn annual loss and RBS limps towards full state control, UK launches
new bail out).
BofA, which had attempted to sell part of its stake in China
Construction Bank in late 2008 only to suddenly cancel the sale,
finally succeeded in raising $2.83 billion by reducing its stake
from 19.1 percent to 16.6 percent. RBS divested its entire 4.3
percent stake in Bank of China on 14 January for £1.6 billion ($2.3
billion).Nevertheless, like BofA, RBS has not completely let go of
China.
Go deeper with GlobalData
It will retain an interest through the 18 branches it acquired
via the ABN AMRO deal. RBS’s new chief executive, Stephen Hester,
has said the bank will explore opportunities in the country through
its existing business, which may include further collaboration with
Bank of China.
Such comments would seem to confirm the prevailing opinion that
the stake sales are more to do with a need to boost balance sheets.
Considered from this angle, the lock-up periods which banks such as
RBS and BofA were required to observe will have proved frustrating:
the Chinese banking sector saw its collective share price fall by
44 percent in the year to 5 December.
Bank of China saw its own shares fall by 49 percent; BofA’s
China Construction Bank stake saw less value destruction due to
CCB’s shares outperforming the sector with a fall of 22
percent.
The breakup of Citigroup will also raise questions regarding the
future of its Chinese interests, which include a 20 percent stake
in Guangdong Development Bank. Initial focus is centred on the
bank’s 3.8 percent stake in Shanghai Pudong Bank, however,
following the expiration of a lock-up period at the end of December
2008.
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By GlobalDataPrivate equity firm Newbridge Capital, which in 2005 became the
first foreign investor to obtain control of a Chinese bank via the
acquisition of a controlling stake in Shenzhen Development Bank, is
set to see its own lock-up period expire this year. The January
announcement of an estimated 77 percent fall in Shenzhen’s 2008 net
profit points the way to difficult times ahead for the bank as the
Chinese government looks to enforce stricter loan loss
provisions.
But the long-term growth potential of China is such that there
continues to be considerable importance placed on retaining
interests in the region from the Western banks hitherto less
affected by the credit crisis. HSBC has said it has “no intention”
of reducing its 19 percent holding in Bank of Communications, for
example, while BBVA doubled its stake in Citic Bank, China’s
seventh largest bank by assets, to 10 percent last June.
For many, the attractions of a country with 1.3 billion
consumers remain obvious.
