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29-06-2014, 10:38 PM
Looks like trouble is coming but since they are big banks, there will be enough fools to pick up such scarce stakes...
China offers chance to take stake in banks
PUBLISHED: 0 HOUR 18 MINUTES AGO | UPDATE: 0 HOUR 11 MINUTES AGO
Reuters
ANGUS GRIGG AND LISA MURRAY
China is courting a new round of foreign investment in its five largest banks, creating an opportunity for Australian lenders as Beijing looks to sell down its holdings further.
Australian Treasurer Joe Hockey was told about the change during a visit to China last week, where it was raised in three separate meetings.
Mr Hockey said China’s central bank governor, Zhou Xiaochuan, was the first to flag the matter.
It was also mentioned by Xu Shaoshi, chairman of the powerful National Development and Reform Commission, in the context of an investment opportunity for Australian banks.
China’s Finance Minister, Lou Jiwei, confirmed the possible sell-down in a later meeting.
“They are encouraging investment,” Mr Hockey told reporters in Shanghai. “It was certainly a surprise to us.”
The country’s five largest banks are Industrial and Commercial Bank of China (ICBC), the world’s biggest financial institution; China Construction Bank; Bank of China; Agricultural Bank of China; and the Bank of Communications.
Chinese banks account for four of the world’s 11 largest.
MOVE ‘IN LINE WITH REFORM PROGRAM’
Treasury secretary Martin Parkinson, who attended the meetings with Mr Hockey, said the delegation was told there were “going to be changes to the foreign investment regime and in particular . . . opportunities to buy into the five major banks”.
“Reading between the lines, what they are saying is that they are going to allow larger institutional stakes,” Dr Parkinson said.
China has previously allowed foreign companies to buy into its major banks, but these were relatively minor holdings.
Goldman Sachs spent $US2.58 billion on a 4.9 per cent stake in ICBC in April 2006 before it went public in Hong Kong. It was a lucrative investment for the US bank, which more than tripled its money.
But Goldman gradually sold down its stake after 2009, netting about $10 billion from the sale, as it was considered to have provided little strategic value to the Wall Street giant. Its last shares were sold in May 2013.
The possibility of a fresh round of equity sales in China’s big banks has been rumoured for much of the past year, as the country sets about gradually opening up the financial sector and reducing the role of state-owned enterprises.
All the big five banks count the Chinese government as their largest shareholder.
Huang Yiping, professor at the China Centre for Economic Research at Peking University, said it was critical for China to open up the state sector by allowing new investment.
“This would be in line with China’s reform program in terms of introducing private and foreign investment into the domestic financial sector,” he said.
BASEL III AN INVESTMENT HURDLE
It remains unclear how attractive any minority stake in China’s big five would be for a foreign bank, given how such investments are treated under new laws known as Basel III.
The international regulations increase the cost of holding minority interests in financial institutions and force banks to set aside more capital if they wish to do so.
These new requirements saw Goldman, UBS, Royal Bank of Scotland, Citigroup and Bank of America all cut their holdings in Chinese banks over the past few years.
David Olsson, China practice consultant at King & Wood Mallesons, said the comments made to Mr Hockey’s delegation were “significant”.
“They point to a renewed desire by China’s policymakers to open the domestic financial markets to greater foreign participation,” he said.
“Whether Australian banks take up this offer remains to be seen, but the development can open up new lines of discussion.”
Price and size would be the issue for Australian banks.
ICBC has a market value of around $US290 billion ($308 billion). This is more than double the size of Commonwealth Bank of Australia, which has a market value of $132 billion and is the largest bank in the country.
China’s fourth-largest bank – Bank of Communications – is of comparable size to CBA and National Australia Bank, according to the 2013 Fortune rankings.
Mr Hockey said he would talk to the Australian banks about the opportunity and encourage them to consider it.
They may be reluctant, however, given concerns over higher-than-reported non-performing loans across the Chinese banking system.
Officially, bad loans are running at just 1 per cent, according to the China Banking Regulatory Commission.
But many analysts believe the figure could be much higher, given the slowing economy, explosive credit growth seen over the last five years and the rapid slowdown in the property market in recent months.
Australian billionaire Kerry Stokes bought a $US250 million stake in the Agriculture Bank of China before its listing in June 2010.
China offers chance to take stake in banks
PUBLISHED: 0 HOUR 18 MINUTES AGO | UPDATE: 0 HOUR 11 MINUTES AGO
Reuters
ANGUS GRIGG AND LISA MURRAY
China is courting a new round of foreign investment in its five largest banks, creating an opportunity for Australian lenders as Beijing looks to sell down its holdings further.
Australian Treasurer Joe Hockey was told about the change during a visit to China last week, where it was raised in three separate meetings.
Mr Hockey said China’s central bank governor, Zhou Xiaochuan, was the first to flag the matter.
It was also mentioned by Xu Shaoshi, chairman of the powerful National Development and Reform Commission, in the context of an investment opportunity for Australian banks.
China’s Finance Minister, Lou Jiwei, confirmed the possible sell-down in a later meeting.
“They are encouraging investment,” Mr Hockey told reporters in Shanghai. “It was certainly a surprise to us.”
The country’s five largest banks are Industrial and Commercial Bank of China (ICBC), the world’s biggest financial institution; China Construction Bank; Bank of China; Agricultural Bank of China; and the Bank of Communications.
Chinese banks account for four of the world’s 11 largest.
MOVE ‘IN LINE WITH REFORM PROGRAM’
Treasury secretary Martin Parkinson, who attended the meetings with Mr Hockey, said the delegation was told there were “going to be changes to the foreign investment regime and in particular . . . opportunities to buy into the five major banks”.
“Reading between the lines, what they are saying is that they are going to allow larger institutional stakes,” Dr Parkinson said.
China has previously allowed foreign companies to buy into its major banks, but these were relatively minor holdings.
Goldman Sachs spent $US2.58 billion on a 4.9 per cent stake in ICBC in April 2006 before it went public in Hong Kong. It was a lucrative investment for the US bank, which more than tripled its money.
But Goldman gradually sold down its stake after 2009, netting about $10 billion from the sale, as it was considered to have provided little strategic value to the Wall Street giant. Its last shares were sold in May 2013.
The possibility of a fresh round of equity sales in China’s big banks has been rumoured for much of the past year, as the country sets about gradually opening up the financial sector and reducing the role of state-owned enterprises.
All the big five banks count the Chinese government as their largest shareholder.
Huang Yiping, professor at the China Centre for Economic Research at Peking University, said it was critical for China to open up the state sector by allowing new investment.
“This would be in line with China’s reform program in terms of introducing private and foreign investment into the domestic financial sector,” he said.
BASEL III AN INVESTMENT HURDLE
It remains unclear how attractive any minority stake in China’s big five would be for a foreign bank, given how such investments are treated under new laws known as Basel III.
The international regulations increase the cost of holding minority interests in financial institutions and force banks to set aside more capital if they wish to do so.
These new requirements saw Goldman, UBS, Royal Bank of Scotland, Citigroup and Bank of America all cut their holdings in Chinese banks over the past few years.
David Olsson, China practice consultant at King & Wood Mallesons, said the comments made to Mr Hockey’s delegation were “significant”.
“They point to a renewed desire by China’s policymakers to open the domestic financial markets to greater foreign participation,” he said.
“Whether Australian banks take up this offer remains to be seen, but the development can open up new lines of discussion.”
Price and size would be the issue for Australian banks.
ICBC has a market value of around $US290 billion ($308 billion). This is more than double the size of Commonwealth Bank of Australia, which has a market value of $132 billion and is the largest bank in the country.
China’s fourth-largest bank – Bank of Communications – is of comparable size to CBA and National Australia Bank, according to the 2013 Fortune rankings.
Mr Hockey said he would talk to the Australian banks about the opportunity and encourage them to consider it.
They may be reluctant, however, given concerns over higher-than-reported non-performing loans across the Chinese banking system.
Officially, bad loans are running at just 1 per cent, according to the China Banking Regulatory Commission.
But many analysts believe the figure could be much higher, given the slowing economy, explosive credit growth seen over the last five years and the rapid slowdown in the property market in recent months.
Australian billionaire Kerry Stokes bought a $US250 million stake in the Agriculture Bank of China before its listing in June 2010.