Since 1998, the government has spent almost $283 billion to shift a mountain of bad loans off the books of state-owned banks. In a report last week, the Organization for Economic Development and Cooperation said $203 billion more was needed to clean up the rest. Taken together, this rescue amounts to more than 30 percent of China’s gross domestic product for 2004.
And while the Finance Ministry bails, a procession of senior managers at Chinese banks have been led away to serve long prison sentences for embezzlement, fraud and theft.
Given this performance, foreign investors might be expected to give China’s banking sector a wide berth.
Instead, global financial heavyweights have been scrambling for a piece of the action as China opens up its financial sector.
If I could just get the petty cash from all these deals!
Among the recent big deals, Temasek signed a $3.1 billion agreement this month to buy a 10 percent stake in Bank of China and invest $500 million more in the bank’s stock when it goes ahead with a planned market listing.
In August, a consortium led by Royal Bank of Scotland said it would pay $3.1 billion for a 10 percent stake in Bank of China, the country’s second-biggest lender. Bank of America in June agreed to pay $2.5 billion for a 9 percent holding in China Construction Bank and to buy $500 million of stock when the Chinese bank proceeds with a planned initial public offering.
HSBC last year paid $1.75 billion for a 19.9 percent stake in Bank of Communications, the maximum permitted shareholding in a Chinese bank for a single foreign shareholder, and plans to increase its stake when the government goes ahead with plans to relax this limit.
Commonwealth Bank of Australia last year laid out $17 million for an 11 percent stake in Jinan City Commercial Bank and followed this year with a $77 million investment for a 19.9 percent holding in Hangzhou City Commercial Bank.
Despite all the bad publicity generated by corruption, governance problems and the poor financial state of the Chinese banks, Citigroup’s chief executive for China, Richard Stanley, like most bankers inside the country, is a promoter for the market.
“This is a case of the banks chasing a great opportunity,” he said. “And it’s one of the greatest opportunities that we will ever have, quite frankly.”
Read the whole article if you have time. Lots of info.
What’s a little corruption, when you have this once in a lifetime
opportunity? I had no idea that China was such a leader in banking.
I guess the next big thing will be Chinese savings and loans. We had savings and loans in the U.S. at one time. I think the government is still paying for the mess. I’m not doing any banking in China. I think that Royal Bank of Scotland has branches here in my area. Maybe the banks will start those deals up again, where you open an account and get a free Chinese toaster or blender. I remember when the bank lobby looked like a cookware store. That bank went out of business years ago or was bought up by some other bank. I wonder if the Swiss are sending all their deposits to China. I sort of doubt it.