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Investors are still pondering Goldman Sachs’ (NYSE: GS) sale this week of its remaining stake in Chinese banking giant ICBC (HKEx: 1398; NYSE: 601398), trying to figure out if the move is a positive or negative for China’s wobbly banking sector. My view is that the move is indeed positive, which is being supported by the latest word that a big portion of Goldman’s stake was purchased by Temasek, the massive Singaporean sovereign wealth fund. Read Full Post…
A new media report says global banking giant HSBC (HKEx: 5; London: HSBA) is likely to sell-off more of its Chinese assets, continuing an ongoing divorce by top global lenders tired of slow progress in the complex China market. This latest report doesn’t have any specific insider knowledge of a looming sale, but rather quotes analysts saying such a move is likely. (English article) Still, such disposals seem both likely and logical, following HSBC’s sale last year of its 15.6 percent holdings in Ping An Insurance (HKEx: 2318; Shanghai: 601318) after years of inability to get any strategic returns out of the tie-up. Read Full Post…
After years of focusing on the domestic market, leading Chinese bank ICBC (HKEx: 1398; Shanghai: 601398) is suddenly embarking on a rapid global expansion, this time with the announcement that it has received the necessary approvals to open a Brazilian unit. This latest move would follow a rapid series of new initiatives over the last 2 years, including new entries into South America, the Middle East and US.
Cellphone chipmaker Spreadtrum (Nasdaq: SPRD) and solar panel maker LDK (NYSE: LDK) are both using good news as a smokescreen to draw attention away from bigger bad news, with the former announcing a new dividend and the latter a minor victory in a business dispute. In both cases, each company is grappling with much bigger problems that have caused their share prices to sag as investors lose interest in their tarnished growth stories. In LDK’s case the situation is much worse, with the company essentially being supported by the government as it teeters on the brink of insolvency.
A flurry of fund-raising news is making the headlines today, showing that private equity and venture capitalists are still hard at work investing in China, even as many of their traditional favorites in the overheated Internet space are getting the cold shoulder. At the same time, the inevitable has finally happened with the first concrete report that cash-challenged clothing retailer Vancl has re-started its long-delayed IPO process, with an aim of making a public listing in New York potentially by the end of this year.
What I like to call the “second wave” of overseas financial institutions coming to China is picking up momentum, with announcements of new expansions in the market by relatively unknown players CIT Group (NYSE: CIT) and MoneyGram (NYSE: MGI). I’ll discuss what each of these companies does shortly, as neither enjoys the widespread recognition of much bigger names like Citigroup (NYSE: C) and HSBC (HKEx: 5; London: HSBA) that have been active in China for more than a decade now despite making only limited inroads during that time.
Beijing’s new openness to global banks is leading a growing number of foreign lenders to test the China market, with US giant Citigroup (NYSE: C) becoming the latest to announce an aggressive expansion plan to tap the new open atmosphere. At the same time, China’s own banks are continuing their own global expansion by offering a wider array of yuan-denominated services to foreign investors, with leading bank ICBC (HKEx: 1398; Shanghai: 601398) making its first major offering of so-called dim sum bonds in Hong Kong. The 2 trends are both part of China’s efforts to build a world-class financial services industry as it tries to wean its banks from their history of policy-based lending to big state-owned enterprises and make them more commercially driven.
The following press releases and media reports about Chinese companies were carried on August 8. To view a full article or story, click on the link next to the headline.
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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
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
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
