The trend for downsizing and cost-cutting across the western banking world presents a unique opportunity to Chinese financial services firms. Cash-rich and acquisitive brokerages have been picking off choice assets as they expand their presence outside Asia and cultivate a more global outlook.
Haitong Securities’ agreement to acquire Portuguese investment bank Banco Espírito Santo de Investimento (BESI) for €379 million in December was the latest venture into the global market by a Chinese firm, and the first such acquisition in Europe. Haitong cited access to markets in Europe, the US, South America and Africa as key reasons for the deal.
“In recent years, the economic ties between China and Portuguese-speaking countries, such as Brazil and Angola, have been increasingly reinforced, with the total amount of investment and trade growing rapidly,” the company said.
Along with the international reach of BESI, the price was also attractive. “It was a troubled asset, so there was a view they could go in and get it on the cheap,” says the Asia head of one global investment bank. “They think it’s an attractive overseas asset at the price. BESI has a global footprint. I think you will see more acquisitions, especially if Asia continues with its sustained rally.”
There is no question Chinese brokerages are going to
continue to internationalize by acquiring other
Nick Ronalds, managing director and head of equities at the Asia Securities Industry and Financial Markets Association (Asifma), shares the view that Chinese firms will continue to focus on overseas assets.
“There is no question Chinese brokerages are going to continue to internationalize by acquiring other brokerages and different parts of investment banking businesses,” he says. “It buys them global reach as well as global experience. A reasonable assumption is that they will be opportunistic when an attractively priced firm comes up.”
Ronalds points to the strong year that Chinese brokers had in 2014, particularly in the fourth quarter. “If you are a Chinese broker and you think that kind of performance may not be repeated this year, diversification makes sense,” he says.
In January, Chinese bank ICBC completed its move to acquire a 60% controlling interest in Standard Bank’s London-based global markets business. The business includes commodities, fixed income, currencies, credit and equities products, and has operations in New York, Dubai, Singapore, Shanghai, Hong Kong and Tokyo.
Citic Securities is another large Chinese firm that has shown its intention to expand, completing the full purchase of Asian brokerage and investment group CLSA midway through 2013 for just over $1 billion. CLSA then went on to extend the non-Asia reach of Citic when it made a strategic investment in US firm BTIG in April, 2014. The terms of the deal were undisclosed.
“Citic Securities’ acquisition of CLSA marked the first time a Chinese financial institution acquired a controlling share in a regional player with global reach,” Yin Ke, vice-chairman of Citic Securities and CEO of Citic Securities International tells Euromoney.
“The global capital market is a dynamic one and in recent years many Chinese enterprises have expanded internationally, while global investors are also keen to participate in China. Leveraging strengths such as relationships with Chinese clients and an understanding of the Chinese market and regulatory framework, Chinese brokerages can play a vital role in capturing this market trend.”
Each Chinese house has its own niche and its own business strategy, he says, so each will pursue a different avenue in terms of expansion. “We believe that only a few market leaders in the sector will opt to expand internationally.”
The launch of Hong Kong-Shanghai Stock Connect, which provides mutual market access between bourses in the two locations, was arguably the most important event in the Asian financial world in 2014. The introduction of Stock Connect and its gradual development is unlikely to have escaped the attention of China’s acquisitive brokers, and could well be behind some of the expansionist thinking on display.
“Clearly for a smart Chinese brokerage firm, Stock Connect has got them thinking about inbound business,” says Asifma’s Ronalds. “Stock Connect has opened up China, so there is a lot of money that will want to find its way into the country over the medium and long term. Why let all the foreign brokers get that business?