IFR Editor-at-large Keith Mullin
Wang apparently liked the book so much he pushed for a Chinese translation, had it published and wrote the foreword himself. Given that you can pick up a used copy of the Goldman book for US$1.99, I’d say he gets the prize for being the most parsimonious investment bank chairman out there, bearing in mind that most investment banks pay millions of dollars to high-end independent consultants to articulate their strategies for them (usually involving the consultants telling the banks what they already know using fancy presentations and incomprehensible charts to justify the expense).
One thing concerns me, though: the book was written in 2009 in the aftermath of the global financial crisis, the same crisis that almost did Goldman in. I do hope Wang is not trying to re-create pre-crisis Goldman in a post-crisis world. His desire, though, to build out areas such as asset management and in particular complex derivatives suggests a Back to the Future scenario built on his either having read one book too many about how investment banking used to be; or perhaps having watched the original Wall St film on a serial loop and fancying himself as a slick and brightly suspendered merger arb. Or perhaps both.
In his foreword, Wan apparently writes: “For Chinese investment bankers, it’s very likely that what Goldman has experienced in the past we will go through in the future”. The comment was more of a historical reference but it must nonetheless have made the blood of financial regulators world-wide run cold.
Developing global platforms
I’ve been following the industry debate about the emergence of Chinese investment banks onto the global stage for some considerable time and I must say remain to be convinced. At the same time as the lenders are focusing their attentions broadly on domestic clients, the investment banks similarly don’t look close to threatening the international bulge bracket or the group underneath them for non-domestic investment banking business. In China M&A, the international banks still hold sway.
But interestingly a combination of upcoming deregulation at home and the pain of the IPO freeze could be pushing China investment banks to act. At the moment, they’re caught between a rock and a hard place, what with the freeze imposed by the China Securities Regulatory Commission.
Chinese A-share IPO proceeds collapsed by two-thirds last year to just US$16.5bn. The six-month IPO hiatus is inflicting huge pain on mainland Chinese investment banks as the IPO capital of the world grinds to a shuddering halt resulting in job losses and cuts in compensation. Citic Securities itself is believed to be looking to cut headcount by up to 10%, with senior bankers on the hook as well as more junior staff.
(Spare a thought, by the way, for those unfortunate investors who because of the freeze have nothing to buy. They ravaged China Minsheng Bank’s convertible with orders of US$233bn. Yep. That’s right: US$233bn. That money could bail Cyprus out dozens of times and they wouldn’t even miss it. Life just ain’t fair sometimes …)
But I digress. Chinese investment banks may claim to be full-service players but they’re not. The IPO freeze is forcing them to look at developing rapid-fire capabilities in other areas such as fixed-income, vanilla derivatives and/or to move overseas to develop business away from China.
There are seven or eight Chinese banks in the top 25 Asia syndicated lending league table and every one of the deals they’ve done is for a Chinese company
As well as looking to grow its Hong Kong footprint (where it recently launched a prime broker) and develop complex derivatives trading, Citic is also setting out to conquer pastures new in Singapore, Australia and the UK. The bank cemented its pretensions to regional investment banking status last year by acquiring CLSA from Credit Agricole, and it is seeking to build a presence in US capital markets by applying for a US securities licence.
For the time being, though, Chinese commercial and investment banks are staying close to their domestic clients. There are seven or eight Chinese banks in the top 25 Asia syndicated lending league table and every one of the deals they’ve done is for a Chinese company. Similarly, the investment banks don’t seem to be in too much of a hurry to launch headlong with their thin and embryonic advisory skills into attempting to win business from non-Chinese clients or more to the point to win business that doesn’t involve China.
Number one Asia M&A adviser
A lot has been made of the fact that Citic is the number one Asia M&A adviser year-to-date. While that’s true, it flatters its achievements in a thin year for regional activity. It’s clear that as China inbound and outbound M&A continues to grow, Chinese banks will be sitting on potentially prime advisory mandates, but the reality is they still lack the developed advisory skill set required so while you’d be foolhardy to write off the Chinese banks in global investment banking in the (very) long term, I reckon it’ll be some considerable time before they realistically threaten the international bulge bracket.
I’m not knocking it, but if you look at what Citic has done in Asian M&A this year, it’s all China-related. Of its four deals year-to-date, one was the two-stage ‘keep-it-in-the-family’ group acquisition by Citic Telecom of Macau Telecom, which it did with Barclays. The firm also worked with Nomura on Carlsberg’s acquisition of a stake in Chongqing Brewery; I’m trying to get some insight into who did all of the work on that one and may revert …
Of its two sole advised trades, both were classic Chinese ‘moving the pieces around the State’ affairs. One was Guangxi Guiguan Electric Power (a unit of State-owned Datang Corp) acquiring 85% of LongTan Hydropower (another Datang unit) that also involved other state-owned groups. The other was the acquisition by Hunan Jiangan Red Arrow Co of Zhongnan Diamond Co in a rather convoluted state share transfer that seemed to be centred on China North Industries Group.
One final thought: I wonder how you say muppet in Mandarin.
