Citic Gets Research Team for Overseas Growth in CLSA Deal

Credit Agricole CEO Jean-Paul Chifflet
Jean-Paul Chifflet, chief executive officer of Credit Agricole SA. is trimming Credit Agricole’s balance sheet and cutting costs amid higher capital demands from regulators and a decline in trading and underwriting commissions. Photographer: Fabrice Dimier/Bloomberg

Citic Securities Co., China’s largest brokerage by market value, agreed to buy Credit Agricole SA’s CLSA unit for $1.25 billion, joining banks across Asia acquiring the assets of troubled European financial firms.

The Chinese firm completed its purchase of a 19.9 percent stake in the brokerage for $310.3 million, the companies said in a statement on July 20. Citic Securities will buy the remaining 80.1 percent for $941.7 million, subject to conditions including regulatory approval, the companies said.

Buying CLSA would give Citic Securities the overseas research component lacking in its operations as Chairman Wang Dongming seeks to expand beyond mainland China. His challenge will be to marry CLSA’s independent-focused culture with that of the state-backed brokerage, JPMorgan Chase & Co. analysts said.

“In the long term, this transaction, if successfully executed, could become critical” for Citic Securities to compete with investment banks at home and abroad, Joseph Leung and Josh Klaczek of JPMorgan wrote in a note on July 20. “The downside risk is execution, particularly given cultural differences.”

Shares of Citic Securities fell 4.8 percent to HK$13.84 at 10:45 a.m. in Hong Kong, paring their advance since their October debut to 4.1 percent. The benchmark Hang Seng Index slid 2.5 percent in morning trading.

Europe’s Retreat

Wang entered exclusive talks with Credit Agricole in March over the French bank’s remaining CLSA stake. Credit Agricole shares have plunged 28 percent this year as European banks including HSBC Holdings Plc and Royal Bank of Scotland Group Plc sell assets to cope with the region’s debt crisis.

“This is a symbol of European banks’ retreat,” said Christophe Nijdam, an analyst at AlphaValue in Paris who recommends buying Credit Agricole shares. “CLSA was considered a jewel.”

CLSA, founded by journalists Gary Coull and James Walker in 1986, has more than 1,500 employees in 20 locations spanning 13 countries providing equity research, trading, asset management, and advising on stock sales and mergers, according to its website. The Hong Kong-based firm’s research business covers about 1,000 companies listed in 12 Asia-Pacific markets and includes its New York-based Calyon Securities unit in the U.S. where it covers more than 200 stocks, the website shows.

Wood, Mayo

Among CLSA’s analysts are Christopher Wood, chief equity strategist and author of the Greed & Fear report, and Mike Mayo, who covers U.S. lenders and wrote “Exile on Wall Street: One Analyst’s Fight to Save the Big Banks From Themselves.”

The firm is known for its annual forums where guests have included former U.S. President Bill Clinton, former vice presidential candidate Sarah Palin and filmmaker Francis Ford Coppola. Singers Sheryl Crow and Tom Jones are among those who have performed at the event.

It’s “too early to say” if the takeover would affect CLSA’s independence, said Zhang Ying, a Shanghai-based analyst at Industrial Securities Co. “I’m guessing they will want to preserve the independence as this is something unique and important to CLSA.”

CLSA was bookrunner on 150 deals raising more than $22 billion from 2005 to 2010, according to its website. It became a wholly owned subsidiary of Credit Lyonnais SA in 1990. Credit Lyonnais merged with Credit Agricole in 2003. That year, CLSA became the second overseas investment bank to open a Chinese joint venture selling securities on China’s stock market.

Independent Management

Credit Agricole’s corporate- and investment-banking unit owns 65 percent of CLSA, with the broker’s staff owning 35 percent. CLSA will keep the existing independent structure of its management team, according to the statement.

Chief Executive Officer Jean-Paul Chifflet is trimming Credit Agricole’s balance sheet and cutting costs amid higher capital demands from regulators and a decline in trading and underwriting commissions. The bank, based near Paris, has entered exclusive talks to sell its other brokerage, CA Cheuvreux, to Kepler Capital Markets SA.

Credit Agricole declined 6.4 percent to 3.21 euros in Paris on July 20, giving France’s third-largest bank a market value of about 8 billion euros ($9.7 billion).

Citic Securities aims to complete the deal on the remaining 80.1 percent CLSA stake by the middle of next year, the companies said. The firm plans to develop cross-border business through CITICS International, it said in the statement. Citic Securities, founded in 1995, is controlled by the state-owned Citic Group, which is backed by China’s Cabinet.

Asian Buyers

Sumitomo Mitsui Financial Group Inc., Japan’s second-biggest bank, Malaysia’s CIMB Group Holdings Bhd. and KB Financial Group Inc., owner of South Korea’s largest bank, are among Asian buyers of European financial firms’ assets this year.

In January, Sumitomo Mitsui said it would buy RBS’s aviation unit for $7.3 billion gaining control of a 206-plane fleet. Koichi Miyata, president of Sumitomo Mitsui, plans to buy “several hundred billion yen” of assets being sold by European lenders, he said in an interview in December.

KB Financial Group Chairman Euh Yoon Dae last week said his company plans to bid for ING Groep NV’s South Korean life insurance business. CIMB, Southeast Asia’s top-ranked investment bank over the past three years, agreed in April to buy most of Edinburgh-based RBS’s investment banking and cash equities businesses in the region for $142 million.

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