CITIC to buy into Morgan Stanley?

From today's SCMP
Citic considers buying stake in Morgan Stanley
CIC mulls raising holding in US firm
Tim LeeMaster
Updated on Sep 19, 2008
State-owned Citic Group is reportedly considering buying a stake in Morgan Stanley as the United States investment bank seeks new capital amid the deepening financial crisis.
China Investment Corp, the mainland's sovereign wealth fund, meanwhile, is mulling raising its stake in Morgan Stanley despite Beijing's reluctance to approve overseas financial sector acquisitions.

CNBC yesterday reported that Citic was in talks with Morgan Stanley while the Financial Times reported that CIC, which already has a 9.9 per cent stake in the Wall Street firm, wanted to lift its holdings.

Citic and Morgan Stanley officials were unavailable for comment.

The troubled US financial industry has been increasingly seeking deep-pocketed Asian investors to bail it out of a crisis that has been compared with the Depression in its severity.

Citic is an investment holding company and has financial subsidiaries including the mainland's largest investment bank, Citic Securities, and the seventh-largest lender, China Citic Bank Corp.

CIC manages US$200 billion of the mainland's foreign exchange reserves.

Various media outlets have reported that Morgan Stanley is also in talks with Wachovia Corp, Citigroup and HSBC Holdings.

Morgan Stanley's shares have plunged 42 per cent in the first three trading days of this week as the crisis gripping some of the world's largest financial firms worsens.

Lehman Brothers Holdings, formerly the fourth-largest investment bank in the US, filed for bankruptcy on Monday before selling its US operations to Barclays, the third-largest British bank, for a comparative bargain.

Merrill Lynch did better with a sale, at a 70 per cent premium to its share price, to Bank of America Corp but lost its independence as a company.

The US government on Tuesday took over American International Group, the country's largest insurer.

Mainland regulators have been blocking bank acquisitions overseas this year as financial stocks continued to spiral downwards, making previous investments look like poor decisions.

China Development Bank, a policy bank trying to transform into a more commercially focused lender, was blocked in January from pumping US$2 billion into Citi, at that time the largest US financial institution.

Citic Securities was slowed in its attempted acquisition of Bear Stearns by regulatory foot-dragging, a move that turned prescient in March when Bear Stearns collapsed and was bought by JP Morgan.

"Bear Stearns was a lucky miss for them but Morgan Stanley is a more substantial operation and in a healthier state at this moment," said Warren Blight, a banking analyst at Foxx-Pitt Kelton.

"Given that [Citic] does have China's largest investment bank you can see some alignment there."

Still, other market observers said the prospect of a major move by mainland companies into the international finance sector was dim.

"In view of the global financial turmoil, Chinese financial institutions are likely to adopt a more cautious approach towards overseas investments," said Jing Ulrich, JP Morgan's chairman of China equities.

CIC acquired 9.9 per cent stakes in both Morgan Stanley and US private equity firm Blackstone Group last year.

Shares of Morgan Stanley are down 59.05 per cent this year to Wednesday while Blackstone's have fallen 32.22 per cent.

Meanwhile, Barclays yesterday said that it would raise US$1.36 billion from the sale of new shares to help fund its takeover of Lehman's US operations.

China Development Bank was forced to subscribe to a share placement in July to maintain its 3 per cent stake in the bank.

It's Official: Bear Citic deal nixed

From today's WSJ:

HONG KONG -- China's Citic Securities Co. Tuesday dropped plans for a $1 billion cross-investment with Bear Stearns Cos. in the wake of J.P. Morgan Chase & Co.'s deal to take over Bear.

CITIC to invoke MAC clause?

Back in October last year, Citic Securities announced it would buy up to 9.9% of Bear Stearns. This would have been a landmark deal but, given Bear's current troubles, it will be surprising if Citic doesn't bail.



From 10/23/2007 Washington Post

NEW YORK, Oct. 22 -- China's Citic Securities would acquire up to a 9.9 percent stake in Bear Stearns under a joint venture that marks the first time an entity controlled by the Beijing government has obtained a significant stake in a major Wall Street investment bank.



The two firms would invest about $1 billion in each other, sell financial products in China and start a Hong Kong-based joint venture offering financial services in other Asian markets.



"Citic invests in energy and other sectors, but this is a major step so far in investing in the financial services area," said Wenran Jiang, director of the China Institute at the University of Alberta in Canada. "The simple fact is that there is a lot of cash flowing around. The basic law when you have so much surplus capital is just to go diversify and look into the big guys overseas."