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China spending big in financial services
December 10, 2012
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LONDON: Analysts predict that Chinese firms have the chance to gradually build up teams and expertise rather than making giant acquisitions.

“They’ll be much more clever than simply buying moribund banks at high prices: they’ll be buying people,” said David Marsh, co-founder of a forum in London that connects central banks and sovereign wealth funds with banks and asset managers.

“What we’re seeing now is just the precursor of a much bigger shift that will take place over the next 10 years, but it won’t happen in one fell swoop.”

China has not been completely asleep on the acquisitions front.

Two Chinese private equity funds are on the final shortlist of bidders for the asset management arm of Franco-Belgian financial group Dexia, a deal that could be worth 500 million euros or more.

And CITIC Securities has agreed to buy CLSA Asia-Pacific Markets, a highly regarded Hong Kong-based brokerage, from its French parent, Credit Agricole SA, in a two-stage transaction worth $1.25 billion. The deal is symbolic. Whereas CITIC is China’s biggest brokerage, Credit Agricole is battling mounting losses in Greece, the epicentre of the euro zone crisis, where it owns the country’s sixth-largest bank, Emporiki.

“Distressed banks selling good assets always happens in a crisis like this. Banks which don’t want to raise capital by issuing new equity end up selling their offshore assets, and typically they sell the crown jewels,” said Ken Courtis, founding partner of Themes Investment Management and a former vice-chairman of Goldman Sachs Asia.

A clutch of other European financial institutions is also beating the retreat in Asia.

Britain’s Royal Bank of Scotland has offloaded some of its Asia-Pacific investment banking operations to Malaysia’s CIMB Group Holdings Bhd, while ING is selling its $7 billion Asia insurance business. Both banks had to be bailed out by their governments during the crisis.

Integrating independent-minded CLSA would be one of the biggest challenges for CITIC, Courtis said. Chinese financial institutions in general have a narrow bench of executives with the right linguistic and overseas management expertise - one reason why they are initially beefing up their offshore presence in more-or-less familiar Hong Kong, he said.

Reuters

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