Business Activities News
- Bear Stearns, CITIC to swap stakes
Date: 24-Oct-2007 Sources: (Shenzhen Daily)
BEAR Stearns Cos, a U.S. investment bank that has been battered by slumping mortgage markets, and China's CITIC Securities Co. have agreed to swap stakes in each other and form a broad alliance, the firms said yesterday.
The deal would bolster access to business in booming China for Bear, which lags bigger Wall Street rivals in expanding its business beyond the United States.
But Peter Goldman, a portfolio manager at Chicago Asset Management, which has invested US$500 million and owns Bear stock, said investors might be disappointed that Bear did not land a large equity investor.
'It's different than what most people were looking for. It may be a little disappointing,'Goldman said. 'People thought there would be a huge capital infusion, not a quid pro quo business partnership.'
Bear Stearns chairman and chief executive Jimmy Cayne reiterated that his company did not need a capital infusion. 'We're in a very good position,'Cayne said.
Bear shares were up US$1.07 to US$117.48 in afternoon trade on the New York Stock Exchange on Monday. The stock is down 28 percent this year amid the collapse of two Bear-run hedge funds and disruption in its fixed-income business, which has been hurt by widespread deterioration in the mortgage market.
Under the preliminary agreement, Shanghai-listed CITIC Securities would invest about US$1 billion in Bear Stearns securities that would convert into about 6 percent of the New York-based investment bank.
Bear Stearns would buy US$1 billion of CITIC debt that would over time amount to a 2 percent stake in the Beijing-based firm. Neither company could hold more than 9.9 percent of the other's stock.
The deal is subject to a definitive agreement. The companies said they have agreed to negotiate only with each other. Cayne said he expected the deal to close within 120 days.
The deal needs approval from China's State Council and securities regulators and CITIC Securities' shareholders.
CITIC Securities, the largest brokerage in China, would continue an outward push by China's cash-rich financial services firms after the industry drew an influx of billions of dollars in foreign investment in recent years.
'It's a good opportunity for CITIC to expand overseas and learn from global players,'said Qiu Zhicheng, an analyst at Haitong Securities.
In a statement, the companies said the alliance will include broad collaboration in China and the development of new securities for the rapidly growing Chinese market.
As part of the deal, Bear and CITIC Securities will form a new Hong Kong-based capital markets joint venture doing business across Asia. Bear will contribute its Asia operations to the 50/50 venture. CITIC Securities will transfer a Hong Kong unit to the venture and pay an undisclosed amount of cash to Bear.
Bear and CITIC said they expect to have representation on each other's boards of directors.
Boosted by a feverish rally in mainland stocks, CITIC Securities has a market value of US$46.8 billion, bigger than Lehman Brothers Holdings Corp. and Bear combined. CITIC Securities shares have risen 600 percent over the past year.
Bear Stearns' market value has tumbled to US$13.4 billion. Plunging values in U.S. mortgages and derivative securities led to collapses at two of its hedge funds, losses in its flagship mortgage business, and the ouster of co-president Warren Spector.
Those struggles fueled speculation that Bear Stearns would sell all or part of itself to a larger bank.
Sponsor Results:
