Deutsche Bank joins China flight
DEUTSCHE Bank’s signal that it may sell a $3.5bn stake in Huaxia Bank shows the fading appetite among global lenders for Chinese tie-ups as the country’s economy slows.
DEUTSCHE Bank’s signal that it may sell a $3.5bn stake in Huaxia Bank shows the fading appetite among global lenders for Chinese tie-ups.
That is a turnaround from before the global financial crisis, when Deutsche Bank, Goldman Sachs and Bank of America were among those buying in, often ahead of the firms being listed.
The stake sales are being driven by a need for global banks to free up capital and the diminished prospects for earnings at China’s banks. China’s caps on foreign ownership are another concern, since they limit the potential for a shareholder to increase its sway.
“Global banks are cutting their nonessential holdings or those in which they don’t have much control to focus limited resources on their core businesses,” said Richard Cao, an analyst at Guotai Junan Securities. “It’s not a bad move to sell because they’ve reaped the best years of China banks.”
Deutsche Bank announced on Wednesday it would take charges on the carrying value of a 20% holding in Huaxia Bank as it “no longer considers this stake strategic”.
Global lenders including Bank of America and Goldman Sachs have raised at least $14bn divesting shares in Chinese lenders since the start of 2012, data show.
Hang Seng Bank, controlled by HSBC Holdings, is getting out of Industrial Bank, while Spain’s Banco Bilbao Vizcaya Argentaria is exiting from China Citic Bank.
The diminished prospects for earnings come from a slowing economy and rising bad loans. In the most recent quarterly results, some of the nation’s biggest lenders reported zero profit growth.
Chinese banks are trading at 0.89 times estimated book value for 2015, compared with an average 1.3 times for global banks, based on comparisons among those with a market value of more than $10bn.
China limits foreign owner- ship in a Chinese bank at 25%, with a single foreign investor to hold no more than 20%.
Deutsche Bank and an affiliate bought 14% of Beijingbased Huaxia Bank, one of the smallest listed national lenders, in 2005 for €272m. It boosted the holding in later years and at yesterday’s market price it was worth about $3.5bn.
However, not every foreign bank is getting out.
HSBC holds about 19% of major listed Chinese lender Bank of Communications.
That tie-up is unusual because of the depth of cooperation, and it seemed to be “unbreakable”, said analyst Ma Kunpeng at Sinolink Securities. No comment was immediately available from HSBC.
In addition, Citigroup owns about 20% of the unlisted Guangfa Bank.
UBS was seeking to invest about $2.5bn in Postal Savings Bank of China, ahead of its initial public offering, sources said last month.
UBS might syndicate a large portion of that stock to other investors.