A Chinese bank's wish to buy a minority stake in Bear Stearns Cos. could prove to be the most enticing offer for the investment bank.
China Citic Bank Corp., owned by the Chinese government's investment arm China Citic Group, is bidding for a stake in Bear Stearns, Vice Chairman Jiang Dingzhi of the China Banking Regulatory Commission said during a meeting at a Communist Party congress. Jiang gave no details.
Citic could prove to be the best partner for Bear Stearns because it provides a tie-in opportunity for Bear Stearns to expand internationally, Standard & Poor's investment bank and brokerage analyst Matthew Albrecht said.
Bear Stearns lags behind its competitors in scope and diversity of operations, so an opportunity to build Chinese operations would provide an incentive to complete a deal with Citic, Albrecht said.
Other potential suitors, such as investors Warren Buffett or Joseph Lewis, are unlikely to have a key strategic complement to any cash offer. Lewis is already one of Bear Stearns' largest stockholders; he recently purchased 8.1 million shares of Bear Stearns, giving him a 7 percent stake in the company.
"Bear Stearns's balance sheet is fairly stable and there is no immediate risk," so any sale of a minority stake will likely require a strategic reason like geographic expansion for making the sale, Albrecht said.
Bear Stearns is coming off a rocky summer in which two hedge funds it managed went bankrupt and lost billions of dollars on bad bets in the subprime mortgage industry.
Bear Stearns' earnings were among those hardest hit by rising delinquencies and defaults among subprime mortgages - loans given to customers with poor credit history - and the declining value of securities backed by the risky loans.
For Citic - China's seventh-biggest lender by assets - buying a stake in a major financial firm could give it a niche from which to learn about the U.S. securities industry.
Citic Bank and other Chinese lenders are growing rapidly amid an export-fueled economic boom and are expanding abroad. But they are novices in global markets and at handling complex financial deals.
With Bear Stearns' stock price taking a hit in recent months, it could provide an attractive opportunity for a foreign company to enter the U.S. investment banking market at a reasonable price, Albrecht said. Shares of Bear Stearns have plummeted 21 percent since the beginning of June.
Citic's potential bid comes as Chinese companies step up investments abroad.
An agency created by Beijing to invest $200 billion (141.3 billion EUR) from China's foreign exchange reserves paid $3 billion (2.1 billion EUR) this year for a less than 10 percent stake in U.S. investment fund Blackstone Group LP, while Hong Kong-based First Eastern Investment Group is part of a consortium looking to acquire embattled British mortgage lender Northern Rock Plc.
Bear Stearns did not immediately return calls seeking comment.
The strike was defensive in nature and came in response to three attacks on the US military in February