Citigroup Inc., the biggest US bank, aims to develop a Chinese securities business to enter a market where trading in stocks more than tripled last year.
“China stands out as a country of unparalleled promise,” Charles Prince, Citigroup’s CEO, said at a press briefing in Beijing on Thursday. One of the priorities is “to continue building our investment-banking business in China.”
Citigroup won about $6 billion (Rs25,800 crore) in overseas underwriting assignments from Chinese companies this year after its worst showing in four years in 2006. The New York-based firm needs to tie up with a domestic securities company to begin proprietary trading and brokerage services in the country, and narrow the gap with Goldman Sachs Group Inc. and UBS AG, who have such deals in place.
Citigroup has a “desire to participate in the domestic securities business,” said Robert Morse, Asia Pacific CEO of Citi Markets and Banking. That’s not possible in China without a local partner.
Prince and Richard Stanley, Citigroup’s CEO for China, declined to comment on any deals the bank is working on.
Chinese firms are expected to raise $55 billion in initial public offerings this year, more than half coming from domestic sales, according to JPMorgan Chase & Co.
The value of shares on the Shanghai and Shenzhen stock exchanges soared 180% in the past year, topping $1 trillion to make China’s market Asia’s third largest, after Japan and Hong Kong. The daily trading value for Shanghai’s yuan-denominated A shares averaged 84.2 billion yuan ($10.9 billion) this year, compared with 23.7 billion yuan in 2006, according to data compiled by Bloomberg.
Citigroup won roles arranging initial public offerings for China Citic Bank Co. and China Railway Construction Corp. this year. Last year the bank managed only China Coal Energy Co., which raised $1.69 billion, making it the 11th-ranked underwriter of international share sales for Chinese companies.
The US bank also last year advised Singapore Aircraft Leasing Enterprise on its $965 million sale to Bank of China Ltd, and Aluminum Corp. of China Ltd on the $619 million takeover of Lanzhou Aluminum Co.
Citigroup is employing a “multi-prong” strategy in China, Prince said. That includes expansion across all the bank’s business lines, including adding its own outlets and investing in local partnerships.
Overseas banks are accelerating expansion in the world’s fastest-growing major economy after China opened its banking industry in December. Prior to that, foreign banks were able to open only one or two branches a year, and regulations restricted the services they could offer.
“Foreign banks have products that domestic banks haven’t been able to develop yet,” said Jim Antos, a Hong Kong-based bank analyst at Bear Stearns & Co. “In terms of branch network, nationwide retail banking, mass market lending, the mainland banks have a scale advantage which will remain for decades.”
Citigroup, with 16 consumer bank outlets and two investment bank representative offices on the mainland, incorporated locally this month to offer banking services to Chinese individuals.
The company plans to beef up commercial banking in China by adding 1,000 employees in 2007 and increase its stake in Shanghai Pudong Development Bank Co. to 19.9% from 3.78% presently.
Prince declined to give more details on the talks with Pudong Bank. Cooperation with the Guangdong Development Bank was making “very good progress,” was all he said.
Citigroup and its partners in December beat Paris-based Societe Generale SA and China’s Ping An Insurance (Group) Co. in the year-and-a-half long race to buy 86 percent of Guangdong Development Bank. With six of 16 board seats, the most held by any of the bank’s owners, Citigroup won immediate access to 500 banking outlets in a market where annual loan growth averaged 14.5% from 2000 to 2005.