After a flurry of capital raising in the beginning of the year, China’s banks have been silent over the last 6 months despite my previous predictions that 2012 would see a big flurry of money raising by these financially-challenged companies. But now that silence has abruptly ended with word that Bank of China (HKEx: 3988; Shanghai: 601988), one of the nation’s top 4 lenders, is preparing to raise about 23 billion yuan, or around $3.7 billion, through a subordinated bond offering. (English article) So now the question becomes: is this the beginning of a new flurry of fund-raising by China’s banks? The answer is a definite “probably”, though in this case we’ll probably simply see the banks that didn’t raise capital late last year or early this year engage in new fund raising.
Tag Archives: China Construction Bank
Citi Heats Up China Credit Cards 花旗将引爆中国信用卡市场
China’s credit card market could be heading for a major explosion soon, following the official entry of the first foreign card issuer to the market in the form of global banking giant Citibank (NYSE: C). Foreign media have given relatively little coverage to this event, but in my view the development is quite significant for reasons that I’ll explain shortly that could ultimately lead to the kind of consumer credit bust that previously wreaked havoc on the banking sectors in Taiwan and South Korea.
AgBank: Looking Good As Rivals Struggle? 中国农行或受不良贷款危机影响最小
I’ll be the first to admit I’m far from an expert on China’s banks, but the latest signs coming from the sector lead me to wonder if perhaps Agricultural Bank of China (HKEx: 1288; Shanghai: 601288), the least respected of the country’s big 4 lenders, may be best positioned to weather the bad loan crisis sowing chaos in the industry. China’s broader banking sector is facing one of the worst crises since many of the nation’s banks started going public in the mid-2000s, as lenders are unable to collect billions of dollars in loans made for questionable infrastructure projects during the global financial crisis. The problems is being compounded by the nation’s current economic slowdown, fueled in large part by anemic exports and foreign investment as the rest of the world grapples with lingering effects of the global recession.
News Digest: August 25-27, 2012 报摘： 2012年8月25-27日
The following press releases and media reports about Chinese companies were carried on August 25-27. To view a full article or story, click on the link next to the headline.
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- Nexen (Toronto: NXY) Schedules Vote on CNOOC’s (HKEx: 883) $15.1 Bln Offer (English article)
- Alibaba, Tencent (HKEx: 700), Ping An (HKEx: 2318) Establish Insurance JV (English article)
- US Investigates Youku (NYSE: YOKU), Tudou Over Insider Trading (Chinese article)
- China Telecom (HKEx: 728) Merges International Operations (English article)
- China Construction Bank (HKEx: 939) Quarterly Earnings Beat Forecasts (English article)
- Latest calendar for Q2 earnings reports (Earnings calendar)
Singapore Votes For ICBC 新加坡看好中国工商银行
After scooping up a steady stream of Chinese bank shares being dumped by other major institutional investors over the past year, the Singapore government appears to be placing its bets on China’s biggest lender, ICBC (HKEx: 1398; Shanghai: 601398), based on its latest move. Before I get into the details behind the lmove by Temasek, Singapore’s big sovereign wealth fund, I should say that I agree that ICBC looks like the most attractive of China’s big bank stocks, both due to its traditional position as a business lender in the domestic market and also for its smart foreign expansion strategy focusing on developing markets. Now let’s take a look at the actual news, which has Temasek confirming that it is selling $2.4 billion worth of shares of 2 other top Chinese lenders, Bank of China (HKEx: 3988; Shanghai: 601398) and China Construction Bank (HKEx: 939; Shanghai: 601939). (English article) That sale comes just weeks after Temasek purchased around $2.5 billion worth of ICBC shares from Goldman Sachs (NYSE: GS), which joined other major global banks including Bank of America (NYSE: BAC) and Royal Bank of Scotland (London: RBS) in selling off big stakes they purchased in China’s major lenders 5-6 years ago. (previous post) Throughout the sell-off, Temasek has been one of the few cash-rich investors that has continued to show an interest in the Chinese bank shares, which many investors have avoided over concerns they may be on the brink of a long downturn if and when many of the questionable loans they made under Beijing’s economic stimulus plan during the global financial crisis start to sour. Now Temasek is finally realizing it may not be too smart to invest so much money in this particular sector, and is trimming its holdings to focus on ICBC, which it sees as the strongest player in the group. As I said above, I personally agree with Temasek since ICBC is probably the best positioned to suffer the least in the coming downturn for China’s banking sector. As a lender to businesses, ICBC should have less exposure to the real estate sector, which is expected to drop sharply in the next 2 years as Beijing shows a steadfast determination to cool the country’s overheated property market. On the global front, ICBC has made a steady stream of targeted investments in emerging markets in Latin America, Africa and Southeast Asia, seeking to leverage its expertise in those kinds of markets to diversify from its strong dependence on China. Last year the bank’s profits from overseas operations rose 18 percent, trailing its 37 percent rise in overall profits that year. But as profit growth from domestic operations slows or even contracts in the months ahead, steadiness in the international business will help ICBC to outperform many of its peers.
Bottom line: Singapore’s focus on ICBC reflects the bank’s relatively strong position compared with its peers as the broader Chinese banking sector heads into a downturn.
Related postings 相关文章:
◙ Bank of China Results: Downturn Ahead 中行业绩黯淡 或预示银行业将迎来低迷期
◙ ICBC, Huawei: It’s Cold Out There 工商银行、华为：国外市场冷清
◙ Goldman Flees ICBC as Bank Crisis Looms 中国银行业危机隐现 高盛迅速转让工行股票
Bank of China Results: Downturn Ahead 中行业绩黯淡 或预示银行业将迎来低迷期
Bank of China (HKEx: 3988; Shanghai: 601398) made news earlier this week when it became China’s first member at the prestigious London Metals Exchange (English article), but its latest headlines are far less positive as it reported lackluster growth in the first quarter that was below market expectations. (earnings announcement; English article) The 10 percent profit growth for the quarter was less than half the 28 percent growth rate from a year earlier, when Bank of China and its peers were reaping big new profits after a lending binge ordered by Beijing to stimulate the domestic economy during the global economic crisis. With the economy now showing signs of slowing sharply as the government tries to cool the real estate market and tame inflation, many fear that Chinese banks could start to see many of the loans they made during that binge start to sour. Recent weakness in the stock market, following a rally early in the year, could add to the problems, as many recent bank loans have gone to fund stock buying. From a purely numerical perspective, Bank of China’s 10 percent profit rise doesn’t look too bad, since that kind of growth rate is certainly respectable. But more worrisome is growth rate’s slowing, which is likely to accelerate in the next 2 quarters and could even turn negative by the end of the year. Bank of China is one of the nation’s top 4 lenders, and first-quarter results will come out later today from the other 3, ICBC (HKEx: 1398; Shanghai: 601398), China Construction Bank (HKEx: 939; Shanghai: 601939) and Agricultural Bank of China (HKEx: 1288; Shanghai: 601288). I would expect all 3 of the other big lenders to report slowing profit growth as well, signalling a recent rally for their stocks could soon be finished. Most of China’s major bank stocks performed poorly for most of last year on concerns that they would soon face a flood of bad loans after the lending binge of 2009 and 2010. But most have bounced back since then as Beijing took steps to address the problem, including allowing many lenders to raise billions of dollars in new capital to strengthen their balance sheets. Bank of China’s own shares have risen nearly 50 percent since hitting a low early last October. Perhaps sensing that the rally may soon be over, Goldman Sachs (NYSE: GS) became the latest major shareholder in a Chinese bank to sell down its stake earlier this month, dumping more of its stock in ICBC. (previous post) Goldman joined Bank of America (NYSE: BAC) and Citigroup (NYSE: C), which last year also sold off large stakes in China Construction Bank and Pudong Development Bank (Shanghai: 600000), respectively, partly due to concerns about a looming Chinese banking crisis. Following this lackluster Bank of China earnings report, investors will be watching closely to see if the other 3 banks also report weak earnings, and also if any are showing signs of growing bad loans. If the reports are weak, which seems likely, look for a sell-off in Chinese banking shares next week, which could mark the beginning of a long downturn for the sector.
Bottom line: Bank of China’s lackluster first-quarter report could mark the beginning of a long downturn for Chinese lenders and their stocks.
Related postings 相关文章:
◙ Goldman Flees ICBC as Bank Crisis Looms 中国银行业危机隐现 高盛迅速转让工行股票
◙ UnionPay Stirs IPO Pot With Big Numbers 银联有望上市
◙ AgBank Results: First Look at Banking Winter 中国农业银行财报：银行业的冬天
MoneyGram In Latest Financial Services Move 速汇金携手中行 提供汇款服务
After years of watching the major global banks first pile into China only to more recently retreat, it’s refreshing to see a new wave of lower-key investments and tie-ups coming into the country again from second-tier players with more realistic expectations for the market. The latest in this string of lower-profile deals has MoneyGram (NYSE: MGI) signing a deal to provide its specialty money-transferring services through Bank of China’s (HKEx: 3988; Shanghai: 601988) more than 10,000 branches nationwide. (company announcement) The deal sharply expands a previous tie-up that had the pair offering MoneyGram’s services at a much smaller 240 Bank of China branches in Beijing, and is clearly targeted at the growing number of Chinese living overseas, who now send an estimated $57 billion home each year. The deal follows another similar expansion of a tie-up between MoneyGram and ICBC (HKEx: 1398; Shanghai: 601398), another of China’s top 4 banks, aimed at money transfers between Japan and China. Other interesting lower-key deals in recent months have included an investment in a domestic electronic payments company called Lianlian by American Express (NYSE: AXP) (previous post), and several major tie-ups between foreign banks with UnionPay, China’s operator of a financial settlements network similar to the Cirrus and Plus networks operated by MasterCard (NYSE: MA) and Visa (NYSE: V). PayPal, the electronic payments arm of online auctions specialist eBay (Nasdaq: EBAY) has also indicated it wants to delve further into China’s domestic e-payments market, stating very clearly on several recent occasions that it has applied for a new round of licenses soon to be offered for such services. (previous post). While names like MoneyGram, PayPal and even American Express aren’t as high-profile as the more familiar global banking giants, their quieter and relatively cautious advance is a refreshing and strong contrast to big names like Citigroup (NYSE: C), Bank of America (NYSE: BAC) and Goldman Sachs (NYSE: GS), which have all recently retreated from a market that all previously hyped as full of potential with its billion-plus consumers. Citi recently sold its long-held stake in a regional Shanghai bank, while Bank of America and Goldman have sold off most or all of their stakes in China Construction Bank (HKEx: 939; Shanghai: 601939) and ICBC, respectively. (previous post) Citi, Bank of America and Goldman were all quite bullish on China’s potential when they made their investments around 5-6 years ago; but since then they’ve discovered the tie-ups didn’t really help them to build up their China presence, and most finally sold their stakes to raise cash to bolster their balance sheets after the global financial crisis. I personally think these smaller, more targeted investments from the likes of MoneyGram, American Express and PayPal are much more realistic than the bigger headline-grabbing purchases of the big global banks, and would fully expect to see an acceleration in similar moves from other smaller global players in the next 2 years.
Bottom line: MoneyGram’s latest tie-up with Bank of China looks like a smart, targeted play at China’s financial services market, with more smaller, low-key deals likely in the next 2 years.
Related postings 相关文章:
◙ AmEx Chases E-Payments With Lianlian Link 美国运通联手中国连连集团
◙ Goldman Flees ICBC as Bank Crisis Looms 中国银行业危机隐现 高盛迅速转让工行股票
◙ New UnionPay Tie-Up Boosts US Presence in IPO Run-up 中国银联携手US Bancorp 未来有望两地上市
Goldman Flees ICBC as Bank Crisis Looms 中国银行业危机隐现 高盛迅速转让工行股票
Everyone is buzzing over word that Goldman Sachs (NYSE: GS) will sell down nearly half of its remaining stake in ICBC (HKEx: 1398; Shanghai: 601398), the world’s largest bank by market cap, with analysts saying Goldman will net a tidy return on this investment made over six years ago before ICBC’s mega-IPO. (English article) But in my view they’re missing the point, as this sale is less a sign of satisfaction and more one of concern, as China’s banks stand on the cusp of a meltdown that could see their bad assets balloon and their share prices tumble in the next 2 years. That concern could easily snowball in the months ahead if China’s big banks really start to see their bad loans jump, leading Goldman to offload its entire remaining stake and perhaps even prompting American Express (NYSE: AXP), one of the banks’ last remaining major western investors, to dump its own ICBC holdings as well. Let’s take a look at the news first, which has western media reporting that Goldman is raising $2.5 billion by selling about 40 percent of its current ICBC holdings to Temasek, the Singaporean sovereign wealth fund. Goldman is selling the stake for about 3 percent less than its publicly traded price before the news broke, representing a fairly modest discount all things considered. This latest sale comes just 5 months after Goldman sold down another $1.5 billion worth of ICBC stock late last year. At around the same time, Bank of America (NYSE: BAC) also sold a its remaining stake in China Construction Bank (HKEx: 939; Shanghai: 601939), as it completely unloaded its 10 percent of the Hong Kong-listed shares of China’s second largest lender over the course of last year. Citigroup (NYSE: C) joined the exodus last month, when it also sold off its long-held stake in a smaller lender, Pudong Development Bank (Shanghai: 600000). Other major western banks that previously unloaded similar major investments in Chinese banks have included Royal Bank of Scotland (London: RBS) and UBS. While analysts have been pointing out that Goldman and Bank of America both need to raise their capital to meet stricter requirements imposed after the global financial crisis, the recent sales by these 2 US giants were undoubtedly also driven by fear that their China investments could rapidly plunge in value if a looming crisis for China’s banks ever materializes. China’s major lenders all survived the global financial crisis with little or no damage, mostly because all were prohibited from investing in the toxic global assets that caused the crisis in the first place. But Beijing sowed the seeds of its own financial meltdown in 2009 by ordering its banks to embark on their own lending binge as part of its 4 trillion yuan stimulus plan to prop up the Chinese economy at the height of the global turmoil. Now many of those loans — especially ones to local governments for dubious infrastructure projects — are showing signs of souring, prompting Beijing to consider a steady stream of measures to delay the inevitable wave of defaults. Worries about a looming crisis weighed heavily last year, with shares of most Chinese lenders falling during even as major global indexes rose. A rally for Chinese bank stocks early this year was most likely behind Goldman’s decision to sell now, as it sought to lock in some gains before the sector starts to sink again. Such a new sell-off has indeed already started to happen, and could accelerate in the weeks ahead as the Chinese banks start to release their first-quarter earnings results and outlook by the end of this month. If the reports show any signs of weakness, which seems likely, look for the downward share pressure to accelerate, and for Goldman and possibly even American Express to quickly consider selling the remainder of their ICBC holdings to lock in gains while they can.
Bottom line: Goldman’s latest reduction in its ICBC stake reflects growing concern about a looming China bank crisis, with more similar sales likely in the next 6 months.
Related postings 相关文章:
◙ Foreign Banks in China: A Love Affair Ends 外资银行撤资与中国同行说再见
◙ AgBank Results: First Look at Banking Winter 中国农业银行财报：银行业的冬天
AgBank Results: First Look at Banking Winter 中国农业银行财报：银行业的冬天
We’re getting a first look at what could be a long-predicted chill set to take hold in China’s bloated banking sector, with Agricultural Bank of China’s (HKEx: 1288; Shanghai: 601288) annual results showing its quarterly profit fell for the first time since it went public on slower lending and a massive provision against future bad loans. Now the big question that remains is: How long will the winter last, and how cold will it get? AgBank gave the markets a preview of what’s ahead as it became the first of China’s big four lenders to announce its annual results (earnings calendar), which revealed a 14 percent drop in its fourth-quarter profit. (English article) China Construction Bank (HKEx: 939; Shanghai: 601939), the nation’s second largest lender, is set to report later today, while ICBC (HKEx: 1398; Shanghai: 601398) and Bank of China (HKEx: 3988; Shanghai: 601988) will report next week. AgBank is considered the weakest of China’s top 4 lenders, so it’s important not to take its results as too reflective of the broader industry. Still, the numbers look less than exciting, providing a hint of things to come. (results announcement) Perhaps the most telling figure — and also a bit alarming — is the 22.8 billion yuan in provisions the bank took in 2011 against future bad loans, more than double the amount from the previous year. The increase should come as a surprise to no one, as many are predicting a jump in non-performing loans after China’s banks embarked on a lending binge in 2009 and 2010 as part of Beijing’s economic stimulus program at the height of the global financial crisis. Many of the loans made during that period were of questionable quality, especially ones for infrastructure projects to local governments that may now be in danger of defaulting. Beijing has taken a number of moves to ease the situation, including allowing banks to restructure some of those loans to delay repayment (previous post) and also letting banks raise billions of dollars in fresh new capital just 2 years after a previous money-raising wave that saw them collectively tap financial markets for more than $100 billion. Bank of Communications (HKEx: 3328; Shanghai: 601328) became the latest lender to raise fresh capital earlier this month, collecting $8.9 billion through a private placement to mostly government entities. (previous post) AgBank itself said it has no plans to raise fresh capital, thanks in part to 50 billion yuan, or nearly $8 billion, in debt that it issued last year. Issuers of such debt seldom say who the buyers are, but I suspect the Chinese government and government-backed institutional investors were also some of the major purchasers, as Beijing has shown an increasing willingness to rescue the banks since much of their troubles are the direct result of its lending directive during the financial crisis. China bank stocks have rallied at the start of the year following a dismal 2011, but look for that rally to quickly lose momentum in the months ahead when more similar financial results start to come out.
Bottom line: AgBank’s results, including a rare drop in quarterly profit, are setting the stage for a long-awaited banking downturn, which will kill a nascent rally in China banking stocks.
Related postings 相关文章:
◙ Bocom Recapitalizes, Govt Pays the Bill 交行再融资或掀起新一轮银行再融资热潮
◙ More Banking Bad News From Minsheng 民生银行融资揭示银行业困境
◙ Beijing’s Latest Mixed Signal Bodes Poorly for Banks 中央政府最新政策预示对银行不利
SMIC: Still Tethered to the State 中芯国际：仍然依赖国家
China’s largest chip maker SMIC (HKEx: 981; NYSE: SMI) seems firmly dependent on support from the Chinese government despite its best efforts to show it can compete in the lucrative but also highly competitive market for these high-tech products that lie at the heart of most electronic gadgets. The latest evidence of SMIC’s inability to stand on its own comes in the company’s latest announcement that it has secured a $600 million loan to help it upgrade its state-of-the-art factory in Beijing. (company announcement) Within the announcement, SMIC’s CEO Tzu-Yin Chiu points out that the participation of commercial banks in the loan validates the company’s strong prospects, implying that commercial banks would only lend money to a company with strong future potential. But a closer look at the list of banks participating in the loan reveals that it’s all Chinese policy banks and state-run commercial lenders, all of which take their orders from the government. The list includes policy banks China Development Bank and Export Import Bank of China, and commercial lenders China Construction Bank (HKEx: 939; Shanghai: 601939), Bank of Beijing and Bank of Shanghai. No one should be surprised that SMIC’s 2 biggest bases are in Shanghai and Beijing, which explains why 2 of the top regional banks in these cities were among the commercial lenders on the deal, no doubt instructed by local government officials to participate. I’m not saying that there’s anything inherently wrong with accepting money from government-controlled banks, but it’s certainly not very strong evidence to convince investors of your strong long-term prospects. Indeed, investors seemed unimpressed and and perhaps even worried by the loan announcement, with the company’s New York-traded shares falling nearly 5 percent after the news came out. SMIC’s Hong Kong-listed shares have languished since last summer, when an internal management battle broke out after its chairman suddenly died and its well-respected CEO was forced to resign. (previous post) A period of instability followed before the instigator of the internal battle himself was pushed out and Tzu was brought in as new CEO to return some stability. SMIC’s shares fell from as high as HK$0.90 before the battle, when the previous CEO was showing clear signs of turning around the underperforming company, to their current position where they are now stuck in the HK$0.40 to HK$0.50 range. This latest loan announcement just underscores that any progress made under the previous CEO has been dismantled as the highly cyclical global chip sector heads for its next downturn, and any return to profits for this once-promising but consistently troubled company probably won’t come until late next year at the earliest.
Bottom line: SMIC’s continued dependence on state support for its financing reflects a company stuck firmly in the red, with no near-term prospects for return to profitability.
Related postings 相关文章:
◙ SMIC Puts Turmoil Behind It — Again 中芯国际又走出内讧
◙ Chip Merger Near, More Consolidation Ahead? 华虹NEC和宏力半导体合并预示未来或有更多整合
Banks to Lend More, But to Whom? 银行获准增加放贷 但流向选择有限
Chinese banks are fast becoming a group of financial contradictions, rushing to implement the latest government financial directives even when doing so makes little or no commercial sense, once again spotlighting the big risk that investors take by buying into these companies. The latest twist in China’s ongoing banking saga has central planners suddenly loosening their grip on the nation’s lenders, which were under strict orders last year to curb their new loans to help Beijing cool an overheated economy. But following a GDP report earlier this week that saw growth slip to a 2 year low of 8.9 percent in the fourth quarter, central planners are deciding that perhaps banks should lend a little more to make sure the economy doesn’t cool too much. Separate media reports are saying that Beijing has suddenly decided that top banks, including names like ICBC (HKEx: 1389; Shanghai: 601398) and China Construction Bank (HKEx: 939; Shanghai: 601939), can increase their lending by up to 5 percent this quarter (English article), and that the banking regulator may also loosen capital requirements. (English article) Both of these moves are clearly designed to pump more money into the economy to spur growth, much the way Beijing did at the height of the global financial crisis when traditional economic engines like exports and foreign investment dropped off sharply. The only problem this time is that while Beijing has given the green light for banks to lend more, it isn’t giving them very many options about where they can make those new loans. Two of the biggest traditional sources of new loans, real estate mortgages and government infrastructure, both remain off-limits for banks, as Beijing tries to cool the overpriced home market and worries about the potential for massive defaults on a huge jump in loans made to local governments for new infrastructure during the global slowdown. Lending to small and medium sized enterprises also looks unlikely to grow much soon, as corporate lending by the big banks typically goes to big state-owned enterprises. With all those lending channels closed or inaccessible, one of the few remaining outlets is the stock market, as another major source of loans is for individuals and companies that use the funds to bet on the stock market. So we could potentially see the stock market get a lift from this latest Beijing banking directive, though that kind of boost hardly seems healthy or natural, and could lead to even more problems in the form of more bad loans if the stock market rally is short-lived.
Bottom line: China’s banks are fast becoming schizophrenic lenders intent on implementing Beijing’s latest directives, leading them to policies that make little or no commercial sense.
Related postings 相关文章:
◙ 2012: Capitial Raising II Year For China Banks 2012：中国银行业的又一个融资年
◙ Ping An Returns to Market With Second Big Fund Request 中国平安拟发大规模可转债
◙ Beijing’s Financial Shufflle: Bankers or Regulators? 中国金融高层“大换血”
