Foreign Banks Reap Handsome Profits Cashing out of Chinese Banks

Posted by: Frederik Balfour on June 10, 2009

One of my alert New York editors [hat tip to Cristina Lindblad] sent me this nice little story from the Deal which points out how foreign banks including Bank of America, Goldman Sachs and UBS have been netting healthy gains from their disposal of stakes in Chinese banks since the crisis. Goldman, for example, bagged $1.9 billion on June 2 when it sold less than 1% of ICBC [its stake of remaining 3.9% is still locked in until 2010], and Bank of America got $7.3 billion last month when it sold 5.6% of China Construction Bank. And according to the Wall Street Journal, TPG’s Asian arm, Newbridge Capital, is poised to sell off part of its 17% stake worth $1.5 billion in Shenzhen Development Bank, about 10 times what it paid for it in 2004.

Readers may recall that a few years ago many Chinese were incensed when chunks of their banks were sold off at discounts to foreign banks around the time they listed their shares. At the time, the overseas investors were considered necessary to help IPOS, and shareholders who did snap up these issues have done very well for themselves.

Had it not been for the financial crisis, the banks may have held onto their Chinese stakes a lot longer, but the huge rally in mainland stocks –Shanghai is up about 55% this year, and Shenzhen even more—has come at a propitious time for them.

The fact that foreign institutions are making out like bandits must surely rankle folks high up the ranks in Beijing as China’s forays into foreign financial institutions has been something of a debacle. China Investment Corp. had egg on its face after making a $5 billion investment in Morgan Stanley in early 2008 just months before the wheels started falling off, and the State Investment Company’s investment in Blackstone last summer proved a major embarrassment.

Interestingly, in today’s Shanghai Daily newspaper, China has announced it will ease curbs on overseas lending from parent companies to their subsidiaries to encourage them to go global. Perhaps the collapsed $19.5 billion purchase by Chinalco of Rio Tinto has made Beijing look for other ways in which Chinese aspiring companies with global ambitions can extend their reach.

Reader Comments

MatthewCK

June 10, 2009 8:04 AM

Western banks are cashing out only because they are bankrupt at home and need the money to repay their debts.

"China Investment Corp. had egg on its face after making a $5 billion investment in Morgan Stanley in early 2008." Interesting, actually the Arabs, Japan and even Singapore had lost much more money there because they kept on buying after China had stopped. China in comparison had lost very little money because it refused to buy anymore after the loss with Morgan Stanley.

jcage

June 10, 2009 5:29 PM

Well,at least they got earn some money when compared with the trillion of dollar lose to its share holder, bond holder and the million of life destroyed by these gangster, oh I mean bankers!
After this debacle for CIC, and other foreign sovereing funds will really think twice about investing in American financial system. There should be nothing to brag about if one think about the potential ramification. It seem that Mr. Frederik Balfour is taking great joy at seeing the foreing investor fleece for investing in American institutions but it won't happen again as the American financial institution have their reputation completely destroyed by selling toxic asset to the whole world!

ANdy

June 10, 2009 8:21 PM

Well, from the Chinese hardliners and nationalists stand point,this is good news. Out with the foreign devils.

Paul

June 11, 2009 4:46 AM

It shows that China's economy is far more open to Western investments than the West is open to China's investment. China allowed foreign investors to own big stakes in their major banks. But look at how Australia reacted when a Chinese company sought to buy a MINORITY STAKE in Rio Tinto or worse how the US reacted when CNOOC sought to buy the OVERSEAS assets of UNOCAL.

Squeezebox

June 11, 2009 9:33 AM

The Chineese stock markets are bubble machines! Just u wait n see.

C. H. Ng

June 11, 2009 11:22 PM

There shouldn't be any complaint about those western banks cashing out when the going is good. Likewise if any of the Chinese investment wants to cash out, that's their (or anybody's)prerogative. This is called a good business sense.

As for the comment that the Chinese stock markets are bubbles waiting to be burst, there is no need for us to wait and see. Remember what goes up will surely comes down sooner or later; be it the Chinese or anybody else. Just see the good times the western nations and her people have been enjoying for the past years. Now is their time to suffer. So what's there to goad about, Mr or Ms Squeezebox?? You seem to be anti-Chinese all the times.

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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