Citigroup's Plan to Join China Bank Exodus Leaves Focus on HSBC

  • Global banks have sold $14 billion of Chinese banks' shares
  • HSBC's 19 percent stake in Bocom worth almost $13 Billion

Citigroup Inc.’s plans to join an exodus of global banks from stakes in Chinese lenders leaves the focus on HSBC Holdings Plc., the only one with a major holding in a big bank after earlier exits by the likes of Bank of America Corp. and Goldman Sachs Group Inc.

Citigroup Inc. is seeking buyers for its 20 percent stake in China Guangfa Bank Co. after the Chinese lender scrapped plans to list in Hong Kong, people familiar with the matter said on Friday. Earlier this month, Deutsche Bank AG signaled it may sell a $3.5 billion stake in Huaxia Bank Co. after saying it "no longer considers this stake to be strategic."

While requirements to hold extra capital against such investments have encouraged foreign lenders to sell their stakes, HSBC is yet to give any signal that it’s planning any similar move for its 19 percent stake in Bank of Communications Co. The U.K.-based lender is instead boosting its bets on China, saying that it will add 4,000 jobs in the Pearl River Delta region over the next three to four years.

Global Strategy

“HSBC is different because its focus is in Asia and China is a big part of its global strategy,” said Richard Cao, a Shenzhen-based analyst at Guotai Junan Securities Co. “HSBC’s tie-up with Bocom has brought it decent dividend income, a client base and improved brand awareness.”

While HSBC’s own operation in China faces restrictions as a foreign bank, Bocom doesn’t because it’s local, Cao added.

HSBC bought its stake in Bocom, the nation’s fifth-biggest lender, for $1.75 billion in 2004. It’s now worth almost $13 billion. Bocom is forecast to report a decline in profit for 2015 in a cooling economy where bad loans are rising.

Banks including Citigroup, Bank of America and Goldman Sachs have sold at least $14 billion of shares in Chinese lenders since the start of 2012, a turnaround from before the global financial crisis, when they were eager to buy in, often ahead of firms’ listings. In 2006, New York-based Citigroup beat Paris-based Societe Generale SA in the year-and-a-half long race for control of Guangfa with help from lobbyists including former U.S. President George H. W. Bush.

HSBC’s Chief Executive Officer Stuart Gulliver said this month that he remains optimistic about the Chinese economy and will increase the bank’s investment in the nation. Shanghai-based Bocom plans to let HSBC name a vice chairman to its board as part of a plan to restructure its ownership, people with knowledge of the matter said in August. HSBC in Hong Kong declined on Friday to comment on the outlook for its Bocom stake.

China caps foreign ownership of a Chinese bank at 25 percent, with a single foreign investor to have no more than 20 percent, making it harder for foreign investors to have any meaningful influence on operations.

Earlier this month, Ma Kunpeng, a Shanghai-based analyst at Sinolink Securities Co., said that the tie-up between HSBC and Bocom was unusual because of the depth of cooperation and was a link that seemed to be “unbreakable.”

— With assistance by Jun Luo

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