Monday, December 15, 2008

Warning about foreign banking acquisitions

CHINESE banks should take a "cautious" stance toward overseas acquisitions as more losses at financial companies around the world remain to be exposed, China Banking Regulatory Commission Vice Chairman Cai Esheng said.

"What we should be cautious about now is acquisitions of financial institutions," Cai told Bloomberg News on Saturday on the sidelines of a financial forum in Beijing. "Industrial acquisitions, at home or abroad, present better opportunities."

Cai's remarks come two days after reports that the Bank of China Ltd may have to delay a planned US$342-million investment in La Compagnie Financiere Edmond De Rothschild as China's banking regulator withholds approval. A delay would highlight a tougher stance by the government after investments in foreign financial firms led to about US$13 billion in paper losses over the past year.

"We can't simply say we're calling off or not calling off" the overseas acquisition plans of all banks, Cai said. "It's not just about a policy stance, there are also many specific issues," he said. The commission supported acquisitions as long as they were in line with the market's development and could help improve the competitiveness of Chinese banks, Cai said.

China Investment Corp, the nation's US$200-billion sovereign wealth fund, paid US$5 billion last year for 9.9 percent of Morgan Stanley and invested US$3 billion in Blackstone, the world's largest private-equity firm. Both New York-based companies have lost more than two-thirds of their market value since the investments were made.

China Development Bank, which funds the nation's public works, spent 2.2 billion euros (US$2.9 billion) for 3.1 percent of Barclays Plc in July 2007 and bought another 136 million pounds (US$203 million) of stock in June. The combined holding is now worth just US$582 million.

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