China Developing Its Own Goldman Sachs
Goldman Sachs Group, Inc., was the leading provider of investment banking services for mergers and acquisitions for the first nine months of 2010, according to Financial Times’ investment bank league tables.
Goldman, U.S.-based rival JPMorgan Chase & Co., and Japan-based Nomura Securities Co. are Asia’s leading investment banks—and firms that the Chinese are eyeing to take down with their own investment banking giant.
The Beijing-based Industrial and Commercial Bank of China (ICBC) is one of China’s “Big Four” banks and currently has an investment-banking footprint. In September it was one of the joint book runners in Brazilian oil firm Petrobras’s $80 billion stock sale, the only Asian underwriter on its tombstone, according to the company.
That’s a big development for a Chinese bank. No Chinese bank cracked the global top 20 rankings in the latest investment banking league tables, a ranking of the top global securities firms by fees and market share.
Nomura was the only Asian name on the list. Nomura has a sizable presence in the U.S. market, and two years ago bolstered its position in Asia after acquiring U.S. securities firm Lehman Brothers Holdings’ Asian business based in Tokyo.
China’s most well-known investment bank is CICC (China International Capital Corp.), which is backed by U.S.-based Morgan Stanley & Co. CICC is one of the biggest underwriters in Hong Kong.
“A big issue for a Chinese bank like ICBC versus Nomura is that China has a closed capital markets structure. It's not as if Chinese investors—even if they want to—can go out and invest in stocks around the world,” said Jay Ritter, a University of Florida professor, in a Reuters report.
Perhaps Petrobras picked ICBC for its market presence in Hong Kong and Shanghai, two markets the Brazilian giant is likely eyeing for expansion.
Either way, China is looking to grow its investment banking business—traditionally a “clubby” group of firms with extensive histories and networks—abroad.
This month, ICBC acquired Fortis Securities, the U.S.-based broker-dealer of the now defunct Belgian-Dutch headquartered Fortis N.V./S.A.
While Fortis’s business in the United States is tiny, it is a licensed broker-dealer that allows ICBC to skirt the fees the Securities and Exchange Commission charges foreign deposit-taking institutions for engaging in securities business in the United States.
Fortis’s license and Western-trained know-how could prove valuable for ICBC and the Chinese. But for now, ICBC is downplaying the significance of the acquisition.
“It’s still a very small case,” ICBC Chairman Yang Kaisheng said, in an interview after the deal with Reuters.
“The media shouldn’t pay too much attention to it.”