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‘American Express to keep ICBC stake’

‘American Express to keep ICBC stake’
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First Published: Wed, Aug 03 2011. 07 51 PM IST
Updated: Wed, Aug 03 2011. 07 51 PM IST
Hong Kong: American Express Co has assured Industrial and Commercial Bank of China Ltd (ICBC) it wants to keep its stake in the lender after entering into a contract to hedge fluctuations in the stock price, a source with direct knowledge of the matter told Reuters on Wednesday.
Shares in ICBC, the world’s biggest bank by market value, have fallen 5.7% in the past two days after Goldman Sachs executed a $479 million block deal. Hong Kong’s benchmark Hang Seng index is down nearly 3% in the same period.
There has been some speculation that American Express was paring its exposure to ICBC, but two sources close to the deal said American Express was only locking in the value of its ICBC holdings through a hedging contract structured by Goldman.
American Express holds 638 million shares, or less than 1% of ICBC’s Hong Kong-listed shares.
“American Express is not selling its shares, they did that to protect the value of their holdings,” one of the sources said. “Their role as a strategic investor in ICBC is unchanged,” the source added.
One of the sources said the hedging deal was struck with Goldman to reduce the impact on earnings from any volatility in ICBC’s share price.
American Express paid $200 million to buy 1.28 billion Hong Kong shares of ICBC for in 2006 as part of a group of strategic investors before ICBC’s IPO. When the lock-up expired, American Express sold half its stake in April 2009 for some $310 million.
It still holds $463 million worth of shares based on Wednesday’s close, which puts it on course to earn five times return on its initial investment.
Several US and European banks, including Goldman Sachs, American Express, UBS AG, Bank of America/Merrill Lynch invested in Chinese banks as strategic investors before these banks did their initial public offerings.
Some of these institutions have either sold their stakes or trimmed their exposures overtime.
Last month, Singapore state investor Temasek Holdings sold $3.6 billion worth of stakes in two of China’s top four banks. That sale came a day after ratings agency Moody’s warned of a possible downgrade for Chinese banks due to their higher-than-expected exposure to local government debt.
Temasek’s selldown has sparked concern that other strategic investors might exit Chinese banks. The short-term outlook for Chinese financial stocks is also clouded as an estimated $35 billion worth of banks and insurance stocks are expected to come out of lock-ups.
The sources were not authorized to speak to the media. American Express did not immediately respond to a request for comment, while ICBC was not available for an immediate comment.
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First Published: Wed, Aug 03 2011. 07 51 PM IST