Wednesday, October 17th, 2007
China Citic Looks to Buy Bear Stearns at Bargain Value
By Jason Simpkins
Staff Writer
Shares of Bear Stearns Cos. Inc. (BSC) soared $2.36 each, or 1.96%, closing at $123.05 yesterday (Tuesday), after China banking giant Citic, a division of China Citic Group announced it was interested in acquiring a stake in the embattled U.S. investment bank.
Jiang Dingzhi, vice chairman of the China Banking Regulatory Commission, announced Citic’s intentions yesterday at the 17th Communist Party Congress in Beijing. China Citic will have to get in line if it wants a piece of Bear Stearns, however, as many companies and financial institutions flocked to the downtrodden giant perceived as a value buy.
Bear Stearns has reportedly been engaged in talks with Wachovia Corp. (WB), Bank of America Corp. (BAC), China Construction Bank Corp., and Warren Buffet via Berkshire Hathaway Inc. (BRK.A, BRK.B). So far only billionaire Joseph Lewis has been the only suitor to strike a deal when he offered $860.4 million for a 7% stake in Bear Stearns in September.
Bear Stearns survived the 1929 stock market crash as well as the Great Depression, but of the five largest U.S. securities firms it has been the worst performer this year. Right now, Bear Stearns stock trades at 1.38 times its book value. By comparison Goldman Sachs Group Inc. (GS) trades at 2.71 times its value and Morgan Stanley (MS) at 2.06.
According to Bloomberg, Bear Stearns President Alan Schwartz said October 4, that the company will "weather the storm," and denied looking for funds from an outside investor. On the same day Bear Stearns Chief Executive Officer James Cayne was quoted by Bloomberg as saying the group would consider a potential partner only if the deal "brings along geographic, strategic value."
Government restructuring and initial public offerings have left many Chinese companies with a large amount of cash on hand. Last year, Bear Stearns held talks with China Construction Bank but negotiations stalled. Now China Citic is stepping up to the plate after raising 5.4 billion in its IPO earlier this year. The Chinese government has been encouraging its banks to invest in foreign institutions, as a means of developing its own investment banking firms.
Combined with the recent purchase of 9.9% of San Francisco based UCBH Holdings Inc. (UCBH), the proposal has U.S. officials watching the Chinese investment carefully to make sure they are motivated strictly buy financial - and not political - interests. Chinese officials insist that because they are commercially motivated and conservative, Chinese investments in U.S. companies should be seen as a stabilizing influence.
News and Related Story Links:
- Money Morning News:
CNBC Dismisses Talk of Outside Investor Stepping in at Troubled Bear Stearns. - Money Morning News:
Warren Buffett and Berkshire Hathaway Rumored as Bear Stearns Investors. - Money Morning News:
Two Bear Stearns Hedge Funds Declare Bankruptcy, a Third Freezes Assets. - Bloomberg:
China Citic Group May Bid for Bear Stearns Stake.
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