China's CITIC Seeks Bear Stearns Stake


China's CITIC Bank would like to buy a stake in Bear Stearns, a senior Chinese regulator said, the first official confirmation of media reports that the state-run bank was a potential suitor for the smallest of Wall Street's five big independent brokerages.

Bear Stearns is among the institutions hardest hit by the U.S. subprime mortgage crisis.

Chief Executive James Cayne said earlier this month it would consider selling a stake to an investor from China or the Middle East if the deal created value.

Jiang Dingzhi, vice-chairman of the China Banking Regulatory Commission, on Tuesday cited CITIC Bank's interest in buying into Bear Stearns as he listed Chinese banks' acquisitions and investments in overseas financial institutions.

"The foreign M&A of our banks is entering a new era, and the pace of internationalization is accelerating," Jiang said at a financial forum during the Congress of the ruling Communist Party.

Asked later about talks on a potential investment in Bear Stearns, Chang Zhenming, general manager of parent CITIC Group, told reporters, "There is no substantial progress."

Spokesmen for Bear Stearns in Tokyo and New York were not immediately available for comment.

Cash Infusion

Bear Stearns shares, the sole gainers among U.S. brokerages, were up $1.50, or 1.2 percent, to $122.19 in morning trade on the New York Stock Exchange. They have fallen more than 10 percent since a credit crunch hit global markets in the summer, cutting the Wall Street firm's market value to $14.2 billion.

Chinese Capitalist Communists

There has been speculation that the firm, battered by two collapsed hedge funds and losses at its flagship mortgage business, needs a cash infusion.

A regulatory filing last month revealed reclusive billionaire Joseph C. Lewis had taken a 7 percent stake.

Other Investors May Wait in Wings

Other potential Bear Stearns investors cited in media reports include Bank of America, Wachovia, China Construction Bank and billionaire chairman of Berkshire Hathaway, Warren Buffett.

Bear Stearns has been looking to expand its overseas focus, and a tie-up with CITIC, China's seventh-largest lender, could give it a big boost in the world's fourth-biggest economy.

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CITIC Bank raised $5.4 billion in a Hong Kong and Shanghai initial public offering in April.

China's big banks, flush with cash after a spate of multibillion-dollar IPOs, have been looking to deploy some of that capital overseas -- reversing a flow that has seen Bank of America, Royal Bank of Scotland and others make big investments in Chinese lenders.

CLSA analyst Dominic Chan said Chinese banks have plenty of opportunity for growth at home, but if they find attractively priced overseas assets, it's worth taking a look.

"I think CITIC has its own story to tell in China. I'm not quite sure they really need to make such a move so soon after the listing," he said.

But he added, "If Bear Stearns is trading below book, it's clearly worth looking at."

Bear Stearns shares have dropped more than 25 percent this year and trade at 1.18 times book value.

CITIC Bank's Hong Kong shares have risen 8 percent since their April listing, underperforming many of the year's debutantes from China. The stock trades at about 2.4 times book. Its Hong Kong shares were up 0.5 percent at HK$6.23 on Tuesday.

Apart from CITIC, Jiang mentioned in his remarks:

  • Industrial & Commercial Bank of China bought 90 percent of PT Bank Halim Indonesia last December.
  • Bank of China paid $965 million last December for Singapore Aircraft Leasing Enterprise.
  • In July, China Development Bank, which lends at the direction of the government, bought a 3.1 percent stake in Barclays for 2.2 billion euros ($3.1 billion).
  • China Minsheng Banking said this month it will buy 9.9 percent of San Francisco-based UCBH Holdings for more than $200 million in the first investment by a mainland Chinese commercial bank in a U.S. bank.