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The chance of China investing in a foreign lender just got a lot slimmer

It has been over a decade and a half since a Chinese financial institution bought or invested in a Western counterpart. Beijing sees the West’s banking system as incomprehensibly chaotic and messy, and its own – albeit flawed – as a bastion of stability.

Illustration: iStock

It has been a while since China’s ruling party mulled the idea of letting one of its treasured state banks buy a strategic stake in a foreign lender.

In fact, you have to rewind to the days when Lehman was still alive and kicking: late 2007 to be precise, when over a two-month period, Industrial & Commercial Bank of China paid $5.6 billion for 20% of South Africa’s Standard Bank, and China Investment Corporation (CIC), a newly minted sovereign wealth fund, bought 9.9% of Morgan Stanley for $5 billion.

Since then – nothing. These days, when Western lenders cry out for help, be it for emergency funding, a bailout or a just a capital freshener, it tends to be Middle East institutions who answer the call.

No fondness

In November, Saudi National Bank (SNB), the Kingdom’s largest lender, bought a 9.9% stake in Credit Suisse for SFr1.4 billion ($1.5 billion). This January, Qatar Investment Authority (QIA), which first invested in Credit Suisse in the global financial crisis, boosted its stake in the lender to 6.8%. Neither will probably look back fondly on these decisions.

Then there are the deals that were pondered but never happened. In January, First Abu Dhabi Bank admitted it had been “at the very early stage of evaluating a possible offer” for Standard Chartered, having hired Citi and Moelis as advisers. It would have transformed the UAE’s largest bank into a global player, with operations across Asia and Africa.

When Gulf-based financial and sovereign wealth institutions aren’t willing or able to step in, Western firms often pick up the slack.

Were Beijing ever to consider committing state resources to buying a foreign lender, recent events would probably change its mind

Before UBS saved Credit Suisse from collapse, BlackRock mulled the acquisition of part of its business. And HSBC was content to buy the UK arm of Silicon Valley Bank on March 13 for the princely sum of £1 ($1.21), in the face of competition from Abu Dhabi investment firm Royal Group.

Where was China all this time?

Beijing controls the world’s largest sovereign wealth fund – CIC, with $1.35 trillion in assets under management at the end of 2022. Its foreign exchange reserves were $3.13 trillion in February. That is down from its 2014 peak of $4 trillion, but still enough to buy Amazon, Berkshire Hathaway and Meta outright at current market values, with sufficient in the kitty to add Morgan Stanley, JPMorgan and Bank of America for good measure.

There is still a good amount of residual respect in the Chinese capital for Wall Street’s ruthlessness, and for the institutional clout of the likes of JPMorgan.

But were Beijing ever to consider committing state resources to buying a foreign lender, recent events would probably change its mind.

On March 16, the chairman of SNB, Ammar Al Khudairy declared Credit Suisse to be financially “sound” and “fine”. Within days, it had been acquired by UBS, putting SNB on track to lose $1.2 billion on its investment.


But, when it comes to financial services, China is grievously lacking.

The country has many rotten lenders. It has no bank to rival UBS or Morgan Stanley in wealth management, or to compete with Citi or HSBC in institutional capacity. The chances of one of its top investment banks – a CICC or a Citic Securities, say – advising on a merger between two global energy or consumer goods firms are still vanishingly slight.

Does that matter?

Party leaders will have watched the chaos of the past few weeks with some sense of satisfaction. They’ll have enjoyed seeing the shares of their big state banks sharply outperform those of US and European lenders over the past month as investors flocked to an asset class shielded from global volatility.

And they’ll have compared the stability of the Chinese banking system with the periodic instability and messiness of others.

That is why you haven’t seen a Chinese financial institution rush to buy or invest in a struggling Western lender for years. And why that is unlikely to change.