Bear Stearns and China's CITIC Haggle on Price, Not Share

China's CITIC Securities hopes to adjust its share swap deal with Bear Stearns soon but is not looking to raise its stake in the U.S. investment bank, CITIC Group Chairman Kong Dan told reporters on Wednesday.

Bear Stearns Cos and CITIC Securities, China's largest brokerage, have said they are renegotiating the terms of their October tie-up after both firms' shares were knocked badly in turbulent financial markets.

But contrary to earlier reports that CITIC would try to raise its holding in Bear Stearns, Kong suggested the Chinese brokerage might maintain the size of its 6 percent stake while paying less than the $1 billion that was its original price tag.

"Prices will be cut," he said, speaking on the sidelines of a government meeting in Beijing. Asked if CITIC would try to raise its stake to 9.9 percent, a threshold above which foreign investments require intense U.S. government scrutiny, he replied: "At this point, we have no such idea.... It's not true."

Shares of CITIC Securities and Bear Stearns have both fallen about 40 percent since Oct. 22, when the two parties announced plans to invest $1 billion in each other and form a joint banking venture in Asia.

"The framework of the original agreement will basically remain the same," Kong said. "It's only that prices have changed and the adjustments will make them more reasonable."

Bear said last week that talks between the two were continuing.

"We both remain committed to the transaction and it's progressing accordingly. Given the changes in both company's stock price, the details of the cross-ownership may be adjusted to reflect market conditions," Bear Stearns spokesman Russell Sherman said.

Kong had told reporters in Beijing last week that the broker wanted a bigger stake for its investment and that talks would push ahead quickly.

Bear has been battered by slumping U.S. mortgage marketsand a slowdown in investment banking. The New York-based bank, with its reliance on mortgage and debt trading, has been especially vulnerable to the weaker markets.

Bear may emerge with more than the 2 percent stake it was to receive for its $1 billion investment in CITIC Securities convertible debt -- or, as Kong hinted, end up with the same stake but at a cheaper price.

"We need to negotiate on a technical level about how to adjust the prices," he said.

If CITIC's stake is increased to the 9.9 percent level in a revised deal, it could become the largest single shareholder of the No. 5 U.S. investment bank.