Banking, China, Corporate Finance and M&A, Politics - Sunday, February 1, 2009 14:19 - 0 Comments

The big questions about foreign China bank sales

Euromoney, February 2009

Three key questions arise from the recent sale of Chinese bank stakes by their global counterparts, two of them widely asked, one not. Observers are wondering what the impact will be on the global banks’ future relations with China, and what will happen when the lock-ups on foreign bank stakes in ICBC expire in April. Rather fewer are asking whether, irrespective of the global lenders’ capital positions, this is actually a good time to be bailing out of Chinese banks anyway.

As soon as Bank of America shelved a deal to shift a chink of its stake in China Construction Bank in December, many observers leaped to a swift conclusion: China had nixed the deal because it didn’t like the idea of the sale, nor the timing. It is understood that BofA chairman and chief executive Ken Lewis pulled the sale after speaking with his opposite number at CCB, Guo Shuqing, but state pressure is unlikely to be the full story, as subsequent events have demonstrated. It appears that at least part of the reason was a technical and legal issue regarding the fact that BofA’s stake had been amassed in two different purchases with different lock-up periods, and it was unclear what rules on allocation of profits would apply to the mooted sale; the fact that the sale did go through less than a month later supports the view that it was a technical delay rather than a veto. Subsequent sales of Bank of China stakes by UBS and Royal Bank of Scotland also undermine the view that China has tried to block sales. Continue…

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