China Gives Cold Shoulder to Western Banks

SHANGHAI/BEIJING (Reuters) – China’s CITIC Securities (600030.SS) said on Thursday it is not talking about investing in Morgan Stanley (MS.N) while banking executives insisted China has no stomach for acquiring foreign banks in the current credit crisis.

CNBC reported that CITIC Group, China’s largest financial conglomerate and parent of CITIC Securities, was in talks with Morgan Stanley, which is scrambling to seek a buyer as fear grips the financial markets.

“I have no idea if our group is holding any kind of talks on investments in Morgan Stanley but I am sure that CITIC Securities is not in any talks of that kind,” said a CITIC Securities executive, who declined to be identified due to the sensitive nature of the situation.

A representative for CITIC Group could not be reached for comment despite repeated phone calls, but several senior bankers agreed that Chinese interest in buying a major Wall Street bank at this time would be difficult to imagine.

“In my own opinion, it is very unlikely in the short term that Chinese companies will make major acquisitions of financial assets in overseas markets, in particular the U.S. and western markets,” said Simon Yuan, head of the China financial institutions group at Merrill Lynch.

“This is partly because the process for the Chinese government to make a decision takes a very long time … So on the operational level, it will be very difficult for Chinese companies like CITIC to do a deal quickly, given the current market environment and concerns from the government,” he said.

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Chinese firms with deep pockets are routinely mentioned as potential white knights for foreign financial firms, but the country’s regulators this year have put the brakes on approvals for large stake purchases in overseas financial institutions, after a record-setting year of deals in 2007.

Several of last year’s investments, such as the $5 billion stake that China Investment Corp, the country’s sovereign wealth fund, bought in Morgan Stanley, are now deep in the red.

Earlier this year, CITIC Securities backed out of a proposed investment in Bear Stearns, which was eventually sold on the cheap to rival bank JPMorgan Chase (JPM.N: Quote, Profile, Research, Stock Buzz) in a deal backed by the U.S. government.

After the near miss on Bear Stearns, Beijing began tightening approvals of financial institutions’ investments overseas.

Any foreign investment worth “a considerable amount of money” requires approval from the cabinet before a legally binding agreement can be reached, which usually takes several months and can take more than a year, sources with direct knowledge of the situation told Reuters in March.

Regulators have also repeatedly warned banks, insurers and securities houses to be fully aware of investment risks and weigh them against opportunities in the U.S. credit crunch.

“For overseas financial assets, I think Chinese companies will be very cautious and will not make overseas acquisitions blindly,” said Brian Gu, the head of Greater China mergers and acquisitions for J.P. Morgan, based in Hong Kong.

Last month, CITIC Securities was also linked by news reports to discussions with Lehman Brothers (LEH.P) but nothing came of the speculation, as China has turned very cautious about overseas markets. (

The CITIC Securities executive told Reuters on Thursday that the brokerage, China’s largest, would keep its sights on China.

“The global markets are still very unstable, so we have to be very cautious and we will focus on domestic business this year,” he said when asked about the CNBC report.

His comments were in line with a statement from CITIC Securities spokesman Tang Zhenxin, who said he had heard nothing about talks with Morgan Stanley.

The Wall Street bank has held preliminary takeover talks with Wachovia Corp (WB.N), the fourth-largest U.S. bank, a person familiar with the situation told Reuters. (For details please double click on [ID:nN17405535])

The CITIC Group owns several major financial institutions, including CITIC Securities and CITIC Bank (0998.HK), a mid-sized lender.

Shares in Shanghai-listed CITIC Securities tumbled their 10 percent daily limit on Thursday following the CNBC report, but pared their losses to end down 5.14 percent at 16.25 yuan, while the broader market’s benchmark Shanghai Composite Index .SSEC fell 1.72 percent.

By George Chen and Kirby Chien
(Additional reporting by Samuel Shen in Shanghai, Michael Flaherty and Tony Munroe in Hong Kong; Editing by Louise Ireland)