Though China Citic Bank Corp, the banking unit of China Citic Group, said as recently as Thursday that it hadn’t spoken with Bear Stearns about buying a stake in the awesomely declining Madison Avenue stock, nor did it plan to “in the next three months,” China’s Citic Securities Co., another unit of Citic Group*, agreed to pay $1 billion for about 6 percent of BSC (with the right to buy an additional 3.9% in the public market), and to also give Bear a 2% stake in the Beijing-based firm for $1 billion, with the option to buy an addition 5% of the company over the next five years. Sneaky! And also, pretty good news for both firms. For Citic (Securities), whose shares have more than tripled so far this year, the deal offers a larger presence in the global market, even if that entryway comes at the price of being associated with Bear Stearns. For Bear Stearns, whose shares are down 28% on the year, the deal means that there’s at least one company out there still willing to work with Bear Stearns. The odd couple is also said to be planning a venture that will combine their operations outside of China. The deal apparently came together in the last few months, though its roots can, completely unsurprisingly, be traced back to 1992, when Citic Group President Chang Zhenming first met Jimmy Cayne, while “playing cards.” (Both men, along with Citic Securities Chair Wang Dongming, are said to share each other’s philosophy of placing hobbies before actual work).
On a related note, Warren Buffett maintains that he “wouldn’t touch Bear Stearns with an 80-ft pole,” and that the only way you’d ever see something “so sickening” actually come to pass would be if it were the conclusion to a series of escalating dares. But he could very well be lying so…on your toes.
Bear Stearns, China’s Citic to Invest in Each Other [Bloomberg]
Bear Stearns, Citic Reach Deal [WSJ]
Bear Stearns and Chinese Bank to Form Joint Venture [NYT]
Bear, Citic Strike Deal [CNN Money]
Bear Stearns and Citic enter a finger trap [Market Watch]
Citic Says It Doesn’t Now Plan To Seek Stake in Bear Stearns [WSJ]
China Citic Bank: No Plan To Buy Bear Stearns Stake In 3 Months [CNN Money]
Buffett and Citic Deny Bear Stearns Talks [DealBook]
*Start at the beginning and take a shot every time I say “China” or “Citic.”
China
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Posted in:
Bear Stearns
At Least One Subsidiary of Citic Group Does Not Consider Itself Too Good To Be Seen in Public With Bear Stearns
By Bess Levin
You say you want to be able to buy Barbie dolls for your son without worrying that he’s going to get lead poisoning but at what cost? Toy manufacturers hoping to call parents on their collective bluff—and really actually kind of baiting them to do so—today announced that they will be complying with safety standards but it’ll come out of overly worrisome guardians’ pockets. Mega Brands, which saw one child die and 27 others suffer internal injuries* on its watch this year, manipulatively bemoaned the fact that they’ve now been forced to contract “almost 200…people that go around to factories and test…from a frequency standpoint, the cost is going to go up,”and BMO Capital Markets analyst Gerrick Johnson estimated that price points will rise from $14.99 to $19.99.
Betrothed and father-to-be John Carney said, “There’s no way in hell [he's] willing to fork over an extra 5-spot.” Are you?
U.S. parents want safer toys, but will cost them [Reuters]
*speaking of which, our publisher just order us these and they are AWESOME. We highly recommend them. If you thought our posting schedule was erratic before, just wait.
The population of China, unable to describe what was going on between Maria Bartiromo and Todd Thomson during their trysts to the Far East, decided to modernize its language.
Respectful of Maria’s status as the Money Honey, Maria and Todd were officially branded “ban tang fu qi” or a “semi-honey couple.” The phrase denotes young, married professionals who live in separate homes or go on long trans-continental flights with one another.
Chinese authorities were pretty pissed when they found out Maria and Todd weren’t married, and no one has the heart to tell the CPC how old the two are (if they ever want to be seen again).
“Semi-honey couple” is just one of the 171 new terms added to the national language registry in China, designed to reflect modern work and life situations. One of the terms added, “fang nu,” literally translates into “house slaves,” and refers to young people struggling to pay off home-loans. A culturally ingrained stigma is one way to prevent a subprime crisis.
Another term, “duan bei,” literally means “brokeback” and refers to male homosexuals. That’s where the Ang Lee movie title comes from, although going from urban slang in Shanghai to cowboys in Wyoming is a pretty significant leap.
“Ding chong jia ting” was officially registered and means “DINKS with pets.” A DINK is an acronym for “double income no kids.” The term refers to an increasing number of married professionals in China who choose a pet over having a child.
Modern marriage, mortgages enter Chinese lexicon [Reuters]
China believes the children are our future, just its children, not ours. That is why the first phase of China’s global takeover strategy is to poison U.S. children. Turns out the mole is Elmo, and he wants to pump the West’s children full of lead. He runs more red than we originally thought, it seems.
Mattel Inc, owner of Fisher Price, had to recall over one million toys sold in the U.S. and U.K. after an internal probe discovered that the Chinese manufacturer was using lead based paint to coat all things Sesame Street, Dora the Explorer and Clifford the Big Red Carcinogen.
The recall is expected to dent Mattel’s operating income by $30 million, cutting reported operating income almost in half.
China’s Commerce Minister Bo Xilai reminds us that “More than 99% of the products China exports are of good quality and are safe,” while the other 1% will kill you.
Mattel (NYSE: MAT) is down 1% in daily trading.
Toys recalled over safety fears [BBC]
Steve Schwarzman is selling state secrets to the Chinese. Is Schwarzman trying to pull a Jack Bauer’s father in last season of 24 (Schwarzman is the only PE fund guru as “tall” as Keifer Sutherland, after all)?
For the low, low price of $540 million dollars, or a nice $23 million a day, the Chinese government has been studying the U.S. buyout market, courtesy of Blackstone’s IPO. The first lesson is an awfully bitter fortune cookie – PE fund IPOs allow shrewd fund partners to cash out while passing impending turmoil onto investors.
China used its increasingly hard to employ $1 trillion “rainy day fund” of foreign exchange holdings to pump money into a 10% stake in Blackstone’s IPO. China bought shares at a 4.5% discount and watched Blackstone’s share price fall 18% in 24 trading days.
China is watching patiently, slowly developing the script for taking the PE reigns from the West, and the script for “Shaolin PE Investing,” starring Stephen Chow.
(Pictured: Some Chinese investors have lost their shirts in the deal, others just have an axe to grind.)
Blackstone share slump costs China $540 million [MarketWatch via Deal Journal]
Citi is no longer the world’s largest bank in terms of market cap. When Asian markets closed yesterday the Industrial & Commercial Bank of China (ICBC) was $3 billion ahead of Citi’s market cap of $251 billion.
The main reason for Citi’s dethronement is ICBC’s 15% share price surge this month, compared with Citi’s relatively flat stock. Investor exuberance has propped the Chinese bank up despite that fact that state controlled ICBC generates less than a third of the income Citi does. Last year, ICBC posted net income of $24 billion last year compared to Citi’s $90 billion. Investors value ICBC’s stock at 28 times projected earnings per share, opposed to Citi’s below market 11x P/E ratio. The global average for major banks is 16x P/E.
Will Citi regain its crown?
The Yeas (BusinessWeek) contend that Citi’s M&A business is right up there these days with Goldman, Morgan Stanley and JPMorgan. Citi now commands 27% of global M&A business, in line with the white shoes on the Street.
The Nays (everyone else) maintain that the solidification in its M&A unit doesn’t disguise the fact that Citi is a relatively bloated, poorly run (according to Jim Cramer) behemoth of an institution that dropped the ball on hedge funds, private equity and prop trading, three of the fastest growing sources of bank revenue. When it comes to enterprise market share, as calculated by the Competing for Customers and Capital blog, Citi has lost the vast majority of market share that other banks have gained in recent months.
Next stop, HSBC, in 3rd place with a $215 billion market cap.
ICBC tops Citigroup as largest bank [ReportonBusiness.com]
Citigroup Enterprise Marketing Expenses: The Middle Line [Competing for Customers and Capital]
How Citi Fixed Its M&A Business [BusinessWeek]
You know outsourcing production to China is out of hand when the Swiss Army Knife could have a “Made in China” label on it as early as this year. This has some Swiss people very angry, measured by the ever decreasing number of marshmallows in our hot chocolate.
Alois Kessler, a lawyer and retired Swiss Army colonel, is petitioning the Swiss Defense Ministry over a WTO rule that may enable the knives to be made in China. Kessler is arguing that the knife qualifies for a WTO exemption and that non-Swiss bidders would fail to meet Swiss environmental and quality control standards.
Victorinox AG has been producing Swiss Army knives domestically since 1909. Customers include the actual Swiss Army, the pope, a couple of hipsters, that weird kid in your 6th grade shop class, senile veteran grandparents (that’s not rust sonny, it’s Kraut blood) and 5.5 million others annually.
Peter Lyoth, spokesperson for the Swiss Defense Ministry, proclaims the need for a new Swiss Army knife (pictured) and will not comment on whether it will be ordered from China or not.
Officer Petitions Military to Keep the Swiss Army Knife Swiss [Bloomberg]
Chinese officials are imploring investors not to be tempted by the tips of Mr. Wang (like parents of teenage daughters in the Midwest).
Wang Xiujie (pictured) was arrested in Changchun (Changchun is often called the Paris of the Jilin province) for giving investment tips on his blog Daitou Dage 777. Daitou Dage 777, which stands for “senior big brother” and is also the name of a popular kung fu character, is one of the most popular blogs in China.
Mr. Wang, a former stockbroker, rakes in more than $1 million a year giving advice on his site and delivering “personal messaging services” to clientele. No charges have been filed against the Wanginator and the China Securities and Regulatory Commission (also a popular kung fu character) will not comment.
China’s regulatory bodies are deciding how to randomly oppress the common man in the securities industry and the $50 billion under unlicensed private management. Unlicensed private funds (“hedge funds” in China, and a popular kung fu character) represent almost a third of the private asset management sector.
Chinese blogger held over stock tips [Financial Times]
We’re not saying it’s the height of all arrogance to assume that one’s rank as the “world’s most profitable investment bank” would be enough to displace the fact that a would-be Asian CEO-appointee can barely read or write in Chinese, we’re just saying. Goldman Sachs was told that it could not name Richard Ong chief executive officer of its Beijing joint venture on account of Ong’s “knowledge of Chinese [being] too weak.”
Apparently Ong, currently co-head of investment banking in Asia, didn’t write satisfactorily enough to take a mandatory test for senior managers, which China began requiring in 2004 (managers hired before then have until 2009 to pass before losing their positions). Zha Xiangyang, deputy CEO of Goldman Sachs Gao Hua Securities, was promoted instead.
Since December, the China Securities Regulatory Commission as increased enforcement of the language requirement. On November 30, the group said it would “punish” securities firms appointing managers who haven’t passed the exam, but did not detail what the penalty would be. Given the reaction to a little contaminated food, Goldman was probably wise to not push this one.
Ong declined to comment (to the Chinese edition of Bloomberg).
Goldman’s Ong Misses China CEO Job on Language Hitch [Bloomberg]
China isn’t gobbling up foreign assets at a rate that many expected, with overseas acquisitions this year on pace to reach only about 75% of last year’s volume. China more than doubled overseas M&A volume last year, acquiring over $20bn in foreign assets in 2006, up from $9.6bn in 2005. This year China’s overseas deal volume stands at $6.2bn, and most acquisitions have been attempts to bolster existing energy platforms.
One continuing problem with Chinese companies looking to buy abroad is that pesky disclosure and regulatory requirements often get in the way, forcing acquirers to put on a façade of being legit, or at least solvent (and this is before they even attempt to state a value-adding proposition).
For now, India is still the go-to emerging market for foreign deals in Asia. Last year, India barely edged out China in terms of foreign deal volume, with $21.7bn in deals. This year however, India is on pace to double China’s volume with $14.1bn worth of foreign deals completed so far this year.
One reason for this year’s foreign deal lull in China is that Chinese officials are preoccupied with scanning the frescoes of the 1,600 year old Dunhuang caves that served as a religious center and trade hub on the Silk Road during the Sui and Tang dynasties. I don’t know, it sounds like a good reason.
Chinese buyers gun-shy on overseas M&A [Reuters]
China’s 1,600-Year-Old Dunhuang Frescoes Enter the Digital Age [Bloomberg]
Over 300k people are opening brokerage accounts every day in China and driving the most recent market surge, pushing Shanghai’s CSI 300 past the 4,000 mark. The index has quadrupled since 2006 and doubled since the start of this year, although Greenspan is wary of the bubble buzz, and warned of a possible dramatic correction last week. According to the BBC:
One of the main factors behind the surge in shares has been a willingness among ordinary people, such as students and pensioners, as well as investors and businesspeople, to buy shares [so…the main factor in the surge in shares has been that people are buying shares…insight does not grow on trees kids]. Instead of leaving their savings in bank accounts [or continuing to serve as human coffee tables], many people are now using the cash to buy shares in the hope of receiving better returns [and buying back female offspring from rural villages].
China’s stock market hits record [BBC via Fintag]
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