- What Secret Do Global Banks Know about Chinese Banks?
by Wolf Richter, http://wolfstreet.com/
They’re dumping their stakes.
“Now is the right time for us to sell this investment,” announced Deutsche Bank’s newish co-CEO John Cryan on Monday after the long Christmas weekend when no one was supposed to pay attention.
It was how Cryan justified the deal to sell Deutsche’s entire 19.99% stake in Hua Xia Bank in China to Chinese insurer PICC Property and Casualty. He couched the deal in terms of executing Deutsche’s “strategic agenda”: boosting capital ratios to prop up the balance sheet.
Deutsche isn’t the first Western bank to bail out of banks in China where regulators limit foreign ownership stakes to a maximum of 20%, which brings some complications.
Goldman Sachs sold its stake in Industrial and Commercial Bank of China in 2013. Bank of America Merrill Lynch bailed out of its stake in China Construction Bank in a series of deals. BBVA, Spain’s second largest bank, has been cutting its stake in China Citic Bank from about 15% in 2013 down to 4.7% now, and that remainder appears to be earmarked for sale as well. Other banks are also likely to pick up their marbles and go, such as Standard Chartered, with its stake in Agricultural Bank of China.
Like Deutsche, they couched those deals in terms of boosting capital ratios and balance sheets. And Deutsche could use some balance sheet repair. One of the largest and most leveraged global banks, it has been tangled up for years in a long list of scandals, court cases, and multi-billion-dollar settlements. Recently it suspended senior staff in Russia after suspecting they’d assisted in laundering money for sanctioned buddies of President Vladimir Putin. We were all shocked.
At the end of October, and in the tradition of new CEOs to frontload a big pile of dirty laundry, Cryan, who was appointed in June, announced massive losses (€6 billion for the quarter), including €1 billion in provisions against litigation expenses (now at €4.8 billion), the suspension of the dividend, and the elimination of 20,000 employees and contractors. Deutsche would pull out of ten countries mostly in Latin America and Europe. And it would dispose of its Deutsche Postbank, a retail bank with about 20,000 employees.