RBS to invest $1.6B in Bank of China

[HenryTo]

The frenzy into China continues...
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The European lender is heading up a $3.1B investment that will give it control of a 10% stake.
August 18, 2005: 2:14 PM EDT

The investment will give Royal Bank of Scotland Group control of a 10 percent stake in Bank of China.

LONDON/BEIJING (Reuters) - Royal Bank of Scotland Group Plc is leading a $3.1 billion investment in Bank of China that will give Europe's second largest lender control of a 10 percent stake in China's second biggest bank

Original link: http://money.cnn.com/2005/08/18/news/international/rbs_boc.reut/index.htm

[HenryTo]

Peter,

Very nice post. Most Americans don't really know how precarious the situation is in China - given the amount of positive writeups that one sees in Business Week, Forbes, Fortune, etc.

Amazingly, hardly anyone is noticing that bad loans at Chinese banks are actually still at or near record highs! Just like Peter mentioned, these banks are bringing in the reinforcements (in this case, American and Western European headquartered banks) in order to clean up their system.

Recent articles:
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Monday August 22, 7:41 PM
UPDATE: China Bank Of Commun Posts Pft But Bad Loans Up

Executives emphasized the bank is continuing to improve its risk management systems, with help from partner HSBC Holdings PLC (HBC), which owns 19.9% of BoCom. And the main measures of asset quality for the bank improved along with its profitability.

Its nonperforming loan ratio, calculated according to Chinese accounting standards, fell to 2.45% at the end of June from 2.91% at the end of 2004. The impaired loan ratio, which is calculated according to the new international financial reporting standards, or IFRS, fell to 2.83% from 3.00% over the same period.

However, the bank's figures for impaired loans showed that the total amount of such loans rose to CNY20.94 billion at the end of June from CNY19.19 billion at the end of 2004. Loans overdue for more than 90 days rose to CNY15.11 billion from CNY11.18 billion over the same period. That means the fall in the ratio was due to a larger increase in all loans.
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BEIJING, Aug. 23 -- By Shenzhen Development Bank Co, the Chinese partner of San Francisco-based buyout firm Newbridge Capital Ltd, plans to offer existing shareholders new stock and sell shares privately to boost capital and meet regulations.

Shenzhen Bank, the weakest among the nation's five publicly traded lenders, is cleaning up its accounts and bolstering capital. The lender is preparing for when China will allow Citigroup Inc, HSBC Holdings plc and other foreign lenders to conduct yuan business with its citizens at the end of 2006 to meet its World Trade Organization entry obligations.

Shenzhen Development's bad-loan ratio fell to 10.74 per cent as of June 30 from 11.41 per cent at the end of 2004. The bank took a provision of 964 million yuan (US$119 million) in the first half, up 15.04 per cent from the same period a year earlier. The bank still had bad loans of 14.5 billion yuan (US$1.79 billion) at the end of June, the lender said in a statement last week.

[pete richardson]

Henry --

Just to rview. The major China banks are selling stakes to the
West to pick up imprimateurs so they can go public. RBS, BofA
et al get a piece of that deal, will get others and can lend in
China favorably.

I see this all as a bail out attempt, with RBS and BofA and DB to
lend their control and systems expertise to the China banks to
bring them up to standard.

China is a gigantic financial house of cards and will collapse in
a downturn unless their banks and other financial intermediaries
are cleaned up. They do not have that expertise. If the Western
banks do not succeed in cleaning up the messes they find, then
China will implode and so likely will its relatively new capitalist
dynasty. The US dearly wishes to avoid this as does the rest of
the West.

It will not be an easy task.

Best,

PR