Rationale behind Chinese bid for Goodbody hard to figure

REPORTS that Bank of China is leading the three-horse race to buy Goodbody Stockbrokers seem a little surprising. It isn’t so much that it is apparently in the lead, but why is it in the race at all?

Bank of China is a massive, global stateowned bank with an enormous corporate banking and financial leasing reach.

The bank set up an Irish branch to its UK operation back in 2017. This move was seen as accompanying the growing business links between Ireland and China.

It was also seen as an opportunity to build a corporate loan book in Ireland.

Clearly, when it comes to the three bidders for Goodbody (the Chinese bank, Davy and Irish Life), it has the deepest pockets. The rationale behind the deal isn’t altogether clear. Goodbody isn’t a corporate lender. Irish stockbroking is low-margin. Institutional stockbroking is diminishing.

The valuable core of Goodbody is its access to private clients, mainly in Ireland.

These individuals tend to have a solid net worth and want their financial needs managed, from life assurance and pensions to investments and family financial planning. This is why Irish Life wants it. It is also why Davy wants the business.

Private clients and wealth management in Ireland are growing, but it is small potatoes for a financial juggernaut like Bank of China.

The new wave of Irish wealth management customers may be called the ‘mass affluent’, but it is hard to see how the numbers would register with a Bank of China strategy. If the Chinese want it, they can easily afford to buy it. Nobody else could pay as much for the broker. A previous Chinese consortium almost had the broker bought, when the deal fell apart.

At the time, it was reported to value Goodbody at €150m. With its share of the Irish Stock Exchange out of the way, the current sale price is likely to be less.

Inevitably, it all comes down to the sellers. There is every reason to think that Fexco, with its 51pc stake, will want to sell to the highest bidder, with a clean exit and a large cheque. Management and staff have 49pc, and they might have a different view.

Senior executives who may be interested in moving on after the sale would surely want the biggest cheque.

Those more likely to stay back would surely appreciate certainty and the best chance for future growth. This is where Irish Life is at something of a disadvantage. A mass management exodus could leave the business rudderless.

A mass exit might suit Davy, which has its own equivalent and direct management capability. Davy could benefit most from synergies and cost-cutting.

It is hard to see where the obvious matchups are for Bank of China. It would appear to make more sense if Bank of China wanted to buy Fexco, rather than Goodbody. That is not to say it won’t end up as the eventual owner, especially given its financial firepower.