Category Banking & Finance

Barclays reportedly plans to add capital, staff to China operations

BEIJING (MarketWatch) — Barclays PLC (BCS:32.27, -2.66, -7.6%) plans to add capital and staff to its China operations, the state-run China Daily reported Thursday, citing bank President Robert Diamond.

Additionally, Barclays is seeking opportunities in China’s retail and commercial banking sector, but local regulations have limited the bank’s efforts, Diamond was quoted as saying.

China’s regulations limits a single foreign institution’s stake in local banks to 20%.

“We would like to be an active investor rather than a minor stakeholder,” Diamond told the newspaper.

The report didn’t give details of the bank’s plans to boost staffing and capital.

China Investment Corp. hiring foreign fund managers

SUZHOU, China: China Investment Corp., the $200 billion Chinese sovereign wealth fund, is hiring foreign fund managers to invest in hedge funds and private equity, as well as in traditional assets like bonds and shares.

Gao Xiqing, CIC’s general manager, said Thursday that he hoped to hire the managers within the next few months.

Dozens of the world’s leading money managers have been making presentations to CIC in Beijing in recent weeks in an effort to win coveted mandates to handle some of the fund’s money.

“The hiring is going smoothly,” Gao told reporters at a pension fund forum in Suzhou, near Shanghai. “The asset classes we are hiring managers for include the cash market, fixed income, equity and hedge funds.

“We will also be hiring managers for private equity.”

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According to media reports, CIC could plough about $4 billion into a private equity fund run by the former Goldman Sachs executive, Christopher Flowers, that will focus on financial institutions weakened by the global credit crunch.

China set up the sovereign wealth fund last September to earn greater returns on part of its $1.53 trillion of foreign exchange reserves, most of which is invested in safe but low-yielding U.S. bonds.

CIC will invest only a third of its initial money overseas. It has already spent most of the rest buying investment vehicles used by the central bank to recapitalize domestic banks.

The fund, which is also busy recruiting in-house staff, moved Tuesday into plush new offices in central Beijing.

CIC has had a rocky start, drawing fierce criticism for steep losses suffered on its maiden $3 billion investment in the U.S. private equity giant Blackstone Group.

The share price of Morgan Stanley has also fallen since CIC took a $5 billion stake in the U.S. investment bank in December.

Gao said he hoped to finish hiring external money managers within a few months.

“We must negotiate terms so it needs some time,” Gao said.

The process could have been shorter if CIC had invited just a few firms to bid for the mandates.

But to ease the concern about a lack of transparency among sovereign wealth funds, CIC had invited a large number of asset management firms to apply, making selection a tougher task.

“Sovereign funds have come under a lot of pressure,” Gao said. “In fact, we didn’t need to invite everyone. We just needed to invite those top-performing ones. But we’re doing so to show we have transparency.”

Norway, Singapore and Abu Dhabi are also among the more than 20 countries with sovereign wealth funds. The International Monetary Fund estimates their worth at between $2 trillion and $3 trillion, a total that it says could reach $10 trillion by 2012.

Some Western critics fear state-owned sovereign funds will not invest for long-term commercial returns but for political purposes, building up stakes in leading companies that will give them influence in politically sensitive sectors.

The European Union said on Wednesday that sovereign funds were welcome to invest in the 27-nation bloc but that they should be more open about their motives and methods.

“Sovereign wealth fund countries must acknowledge that their growing weight in global financial markets brings responsibilities,” said Joaquín Almunia, the EU’s economic and monetary affairs commissioner.

Gao has said CIC would be a benign force in global markets, but that it was unfair to expect total transparency because of the commercial interests at its heart.

Zheng Bingwen, a pension fund expert at the Chinese Academy of Social Sciences, the government’s top research institute, said at the forum that CIC’s assets would expand rapidly, as China’s foreign exchange reserves were likely to keep growing for the next 20 years.

One Bank, Two Systems: Reforming China’s Agro-Finance ?

By Yuan Zhaohui, Li Liming

The Agricultural Bank of China (ABC) has plans to become a commercial banking group and seperate its policy-oriented agricultural financing services from its main operations, according to sources.

Sources familiar with the Bank’s reform plan said it would be splitting its services into agriculture and non-agriculture, with both having independent managements.

Sources close to the reform plan said it received preliminary approval before the Spring Festival but would ultimately need approval from China’s two highest legislative conventions in March.

Meanwhile, lawmakers are still ironing out differences over the splitting of commercial and policy functions within the bank.

Scheme Gradually Unveiled
At a national financial conference held one year ago, the fundamental priorities of ABC’s reforms were set as: to deal with the “three agricultural problems”, namely, rural areas, farmers and agriculture; to introduce overall structural reforms; to operate in a commercial mode; and go public when appropriate.

According to a senior official who was engaged in drafting the reform, the ABC would be turned into a banking group. He added its subsidiaries would include a commercially operated holding company to be named Agricultural Bank of China Company Limited and another institution focusing on agricultural and farmers’ needs in the rural areas.

The source said under this framework, the former would be targetting for market listing, while the latter’s chance to become publicly listed was still under debate considering that it enjoyed government subsidies.

The agricultural-based services would also be reformed, added the source, saying that agro-financing would be developed in accordance with market economy instead of the government-administered model of the past.

The ABC’s 2006 annual report showed that 60% of its branches and 51% of its employees were located in county-level administrative regions, and by the end of 2006, agriculture-related loans and those offered by county-level branches totaled 1.7 trillion yuan–55% of all loans that year.

The ABC’s management believed that it was on par with the other three major state-owned banks to compete in the more developed coastal regions. For example, in Suzhou of east China’s Jiangsu province, ABC has had more market share and higher profits than the other three.

As the backbone of China’s rural banking system, the ABC would require approval from various related agencies before it could implement the reform scheme, including the Ministry of Finance (MoF), its former investor; the central bank, the coordinator of state bank reform; the China Banking Regulatory Commission (CBRC); the National Development and Reform Commission (NDRC), the Ministry of Agriculture (MoA), and the Central Huijin, which would inject 40 billion yuan into the ABC.

A source close to regulators said the above agencies had given preliminary approval to the scheme before the Spring Festival, and that it would be publicized if passed by the two highest legislative conventions in March–the National People’s Congress and the Chinese People’s Political Consultative Conference.

After all the Efforts
When he visited Gansu province in late November last year, the Bank’s president Xing Junbo noted that it was their obligation to support agricultural issues. By October, the Bank had already established “trial bases for agricultural banking services” in seven provinces, including Gansu and Sichuan.

Chen Xiwen, head of China’s rural work office, said recently Chinese banking institutions were focusing more on the urban areas. He stressed the needs for ABC to have a special mission in developing rural areas.

However, commercial banks could not ignore profits, he said, as the ABC needed to maintain solid performance in order to satisfy its shareholders after the reform. He added the government should provide preferential policies for ABC in view of the demands placed on the bank to promote agriculture.

Early in mid 2007, the Central Huijin had decided to invest 40 billion dollars in the Bank, but to wait for the latter’s reform scheme to be publicized before going ahead with it. In the first half of 2007, regulatory bodies, including the central bank, the NDRC, the MoF, the CBRC launched an investigation into the reform and wrote research reports to serve as the basis for reforms.

After resigning from the central bank and being appointed as president of Agricultural Bank last July, Xiang Junbo shifted the Bank’s first priority to jumpstarting reforms as soon as possible. Late last year, the central bank president Zhou Xiaochuan revealed that the Bank’s reforms had entered a decisive phase. As rumors about the reform spread, Bank spokesman Zhou Qingyu replied on February 3rd that the scheme was still being studied.

Based on the experiences of the other three state-owned banks, which have already been reformed into holding companies, if the scheme was approved by the two sessions, ABC would be able to restructure its financial mechanism, introduce the shareholding system and strategic investment, and go public.

Sources said the bank had employed Central Huijin, CITI Securities and two auditing teams to prepare for its domestic IPO; while Morgan Stanley had been shooting to work on its overseas IPO.

Disagreement Remains
Sources said disagreements remained, mainly on how to ensure both commercial operations and support for agriculture.

To better serve agricultural issues, the banks worked out the “Implementation Scheme of Serving the Three Agricultural Problems” last year. According to that scheme, funds raised by county-level branches would mainly be used for agricultural purposes and economic development of the county; with main services covering agricultural production, small and medium rural companies, modern agriculture, infrastructure of rural areas, and development of small towns.

The above-mentioned senior official voiced his concern, saying, “whether there will be risks after a separate agricultural service is established remains an unsolved question.”

There have been relatively few customers in rural branches. In recent years, with many branches having focused on deposits, debt collection, and intermediary services, their credit management teams have been dismissed, leaving most of them simply “deposit institutions”.

“It’s still not clear how the agricultural service will operate,” said the above source. In their opinion, wholesale services may be an option, as “there are already many grassroots organizations, such as rural credit cooperatives, small banks at the village and town level, and micro-credit companies. The bank could provide them wholesale loans and let them do the job instead.”

“The biggest problem lies in strategy rather than management,” said an official of one supervising agency, adding that even if the decision makers agreed on the scheme, the contradiction between agricultural issues and commercial operations persisted. Its goal of “serving the three agricultural problems” might lead to losses, making the Bank a burden for the government.

CitiBank signs China banking deal

Citigroup has agreed with a Chinese partner to establish a mainland investment banking joint venture with Central China Securities, a mid-sized brokerage, ahead of an expected opening of the sector to more overseas participation.

The venture is expected to apply for regulatory approval in the coming weeks, and comes as Beijing is poised to relax a two-year ban on foreign investment in the country’s booming domestic securities industry.

Citi’s move follows those of Credit Suisse and Morgan Stanley, which last month signed separate agreements with Chinese partners to establish mainland investment banking joint ventures. If approved, the JV would become the latest plank in Citi’s mainland platform, which features a stake in Shanghai Pudong Development Bank, de facto control of Guangdong Development Bank and its own retail branch network.

Merrill to expand in emerging markets

Merrill Lynch is seeking to expand its presence in emerging market economies such as Brazil, Russia, India and China as it looks for new sources of growth to mitigate the downturn in US markets, John Thain, Merrill Lynch’s chief executive, said on Wednesday.

Speaking as Merrill Lynch opened a new office in Moscow, Mr Thain said the bank’s shift towards the so-called Bric economies would mean that overall headcount at the bank would not decrease even as it slashed about 1,000 staff at its mortgage and fixed-income divisions at home due to the subprime crisis amid fourth-quarter losses of $9.8bn.

“As the US economy slows, we are looking for growth prospects outside the US. The Bric economies are going to continue to grow … Russia is one of the most important places.”

Wall Street banks have been pouring resources back into Russia over the past year, prompting hiring wars for a small pool of Russia experts and sending salaries soaring. Last year saw $42bn in Russian IPOs in London and Moscow and bankers expect the volume could reach up to $50bn this year.

Merrill Lynch was Russia’s top M&A adviser last year, according to Dealogic, winning $64.3bn in deals, nearly a third of the total.

Russia’s energy-driven equity markets have been seen by investors as a relatively safe haven.

Mr Thain said Russia was more protected than other world markets, including emerging ones. “No one is immune from the global slowdown. But Russia is probably more insulated than other Bric economies.”

China Investment Corp launches global recruiting drive – report

BEIJING (XFN-ASIA) – China Investment Corp (CIC), the 200 bln usd fund set up to invest the country’s foreign exchange reserves, has kicked off a global recruitment drive for senior staff, the Wall Street Journal reported.

The report said CIC’s requirements for Beijing-based positions include overseas education and market experience, and specified openings for portfolio managers for North American, European and Japanese equities and fixed-income products including derivatives.

It said CIC may allocate a third of its assets for investments in global financial markets.

andrew.pasek@xinhuafinance.com

World’s biggest bank poised for more expansion

INDUSTRIAL and Commercial Bank of China Ltd has “insufficient” assets overseas and seeks more investments abroad, President Yang Kaisheng said, even as he denied the lender plans to buy a stake in Standard Chartered Plc. “ICBC will pursue a combined strategy of acquisitions and new projects in expanding overseas,” Yang said at a finance conference in Beijing on Saturday. “Overseas diversification is an important way for Chinese banks to spread risks against cyclical economic downturns.”

Having raised US$22 billion in the world’s largest share sale a year ago, ICBC, the world’s biggest bank by market value, is expanding more aggressively than peers such as Bank of China Ltd. ICBC’s 36.7 billion rand (US$5.4 billion) purchase of a 20-percent stake in South Africa’s Standard Bank Group Ltd is the biggest overseas investment by a Chinese company.

“Overseas expansion is likely to continue as Chinese banks are seeking to build up their global presence,” Bill Stacey, a Hong Kong-based analyst at Credit Suisse, told Bloomberg News yesterday, citing ICBC’s forays in Indonesia and Macau. Yang joined China Construction Bank Corp Deputy President Luo Zhefu in denying a newspaper report that their banks planned to acquire a stake in Standard Chartered Plc from Temasek Holdings Pte, the Singaporean government’s investment company.

“We have no plans to buy a stake in Standard Chartered,” Luo said, while Yang said the report was “just a rumor.”

The Financial Times reported that China’s three biggest banks – ICBC, Construction Bank and Bank of China – had approached Temasek to buy a 17-percent stake.

Blackstone Names Kuo Director of China

Blackstone Names Andrew Kuo Managing Director and Vice Chairman of Greater China

October 22, 2007: 08:20 AM EST

NEW YORK (Associated Press) – Investment firm Blackstone Group LP said Monday it named Andrew Kuo its managing director and vice chairman of its Greater China division.

Kuo will primarily work on sourcing and managing private equity deals, but will assist other business divisions in the region as well.

“His experience in both direct investment and investment banking will be very useful to us as Blackstone expands its Asian franchise,” Stephen Schwarzman, Blackstone’s chairman and chief executive, said in a statement.

Prior to joining Blackstone, Kuo worked as managing director and head of Greater China for private equity firm H&Q Asia Pacific.

Chinese Bank Searches Abroad for New Talent

In an unusual move, a major Chinese investment bank is starting an aggressive recruitment campaign in the U.S.

Traditionally, Chinese financial institutions had no trouble staffing up at home. Now, however — amid a spate of major Chinese-company IPOs both at home and abroad, and increased cross-border deal-making — the banks are looking to bring in more international experience.

Earlier this month, China International Capital Corp. kicked off its U.S. headhunting trip in New York at a Ritz-Carlton hotel near Wall Street. More than 100 professionals, mostly overseas Chinese, were invited. Senior CICC executives touted opportunities represented by China’s booming capital markets.

Ding Wei, head of the investment-banking division, said the firm is looking to hire about 200 people by year end, expanding the team to 1,000. “We are looking for all kinds of talent” in risk management, product design, structured finance and even administrative posts, he said.

The CICC recruiting team next plans to head to the Wharton School of the University of Pennsylvania and other business schools in the U.S.

In the past, CICC has been famously low key. Set up in 1995 as a joint venture between China Construction Bank Corp. and Morgan Stanley’s Morgan Stanley International Inc., it was China’s first foreign-funded investment bank. The purpose was to set up a government-backed firm that could learn from the top-tier Wall Street firms and provide a template for future Chinese investment banks.

Mr. Ding said CICC estimates this year’s revenue to be $600 million to $700 million, growing from 2006’s $450 million.

China desperate for financial talent

BEIJING – “When I hit the big time, I will buy a BMW-7 series car as my marriage dowry,” said sparkling 22-year-old Jian Jingtao. “I’ll give it to my fiance to show him how much I love him.”

In China, the cheapest BMW-7 series model costs nearly 1 million yuan (US$133,000) while the average annual income for urban residents nationwide was only 12,000 yuan in 2006.

Jian, a civil servant in the southwestern province of Sichuan, makes about 1,200 yuan a month, and she also works as a part-time weather girl at a TV station in Liangshan Yi Autonomous

Prefecture, an impoverished region in Sichuan, where most people haven’t even heard of BMW. The part-time job doesn’t bring her much money.

Then, how can she possibly realize her dream? Well, instead of counting on her part-time job, she has other ideas.

“I’m taking the Chartered Financial Analyst [CFA] test and I’ve passed level II,” says Jian, her eyes shining with hope. “Just one step away from the best financial institutions.”

She believes getting a job in such institutions will mean she is one step closer to her dream car.

Official data suggest that staff workers in China’s well-known financial institutions make 15,000 yuan a month and more. And jobs in the financial sector have being taking the lead, driven by the basic principle of a market economy’s supply and demand.

About 45 million people will join the labor force in the next five years in China, but many of them will have to take jobs as laborers and construction workers and make just 800 yuan a month.

When lecturing in China’s leading Tsinghua University, China Construction Bank (CCB) chairman Guo Shuqing testified that the most troubling problem facing his bank in its “go overseas” strategy is a shortage of talented professionals.

CCB, one of China’s “Big Four” state-owned commercial banks, wants to set up branches in New York and London, Guo told the students, adding that the bank is “hungry for people specialized in financial accounting, securities analysis, portfolio management, interest rate pricing and foreign exchange pricing”.

China, the world’s fastest-growing economy with an annual gross domestic product (GDP) growth of almost 10% for the past 10 years, has long been considered the world’s factory, producing about 75% of the world’s home appliances, for example.

But as the country moves to a more market-oriented financial system, financial talent is at a premium because there are many issues to deal with.

As a major reform in the financial sector, China dropped its currency peg to the US dollar in July 2005 and linked the yuan to a basket of foreign currencies, allowing it to float in a 0.5% band (which was expanded to 0.5% this year) around the official central parity.

“Everything changed when they expanded the fluctuation range to 0.5%,” says textile trader Wei Changshan from Beijing-based Dongxing Textile Co. “I’d really like to hire someone to tell me about how to manage it.”

In July 2005, one US dollar could be exchanged for 8.28 yuan. On September 21 this year, the same dollar could be bought for just 7.51 yuan.

Hearkening to overseas comments, Yi Gang, assistant governor of the People’s Bank of China (PBoC), the country’s central bank, said that the exchange rate of the Chinese currency would gradually become more flexible.

As for the stock market, the benchmark Shanghai Composite Index surged by more than 130% year-on-year in 2006 after a five-year bearish market, thanks to reformed securities regulations and continuing strong economic growth. China’s stock market is now the largest in Asia by market capitalization.

As new regulations come into play concerning foreign investments, Chinese fund managers and securities traders would like to compete with overseas competitors. The lack of financial talents seems serious.

A recent government document on qualified domestic institutional investors (QDII) allows domestic fund management and securities companies to follow commercial banks into the arena of overseas securities.

“We started preparing for QDII products nearly six months ago,” said Xu Xiaosong, vice general manager of China Southern Fund Management. “So we are recruiting. Unfortunately we are not the only ones. A number of big securities companies are looking for people,” said a fund manager who asked to remain anonymous. “It’s simple. If we want to win the competition we need the best team.”

Not surprisingly, foreign banks are also on the lookout for qualified people in China. In 2005, the Bank of East Asia opened personal services, the first to do so in China.

In the China-US Strategic Economic Dialogue held in May, China agreed to allow foreign banks to issue their own yuan-dominated credit and debit cards. The move is seen as a way of boosting fair competition between local and foreign financial institutions.

At the third national conference on financial work early this year, Chinese Premier Wen Jiabao said that China would facilitate fair competition between domestic and foreign financial institutions.

As the government opens the banking sector to meet its World Trade Organization commitments, the human resources battle for the best and brightest in the financial sector has escalated as well.

HSBC expects to grow its headcount from 3,000 to 4,000 in China this year and Citigroup plans to hire about 1,000 extra people. Standard Chartered said it did not have a specific target this year but hired 1,000 in 2006.

Finding enough experienced staff and training them adequately is the toughest issue confronting the bank, HSBC China chief executive Richard Yorke said earlier this year.

“There is no real finance education in Chinese colleges,” noticed Wang Zhao, an economist with Beijing University’s China Center for Economic Research. “The so-called finance [education] in colleges only consisted of macro-control measures, such as monetary policy, that hark back to the days of the planned economy. What Chinese students want now is courses on securities analysis and portfolio management,” he said.

A recent international survey released by Deloitte Consulting found that two-thirds of the 636 senior finance executives surveyed thought the supply of high-quality talent in Asia was limited or inadequate.

“The crucial but tricky part is that you have to master international practice as well as the local reality,” managing director for Asia-Pacific Operations CFA Institute Jane Squires commented.

“This year, 10,200 people signed up to take the CFA test in China, up 30% from last year,” Squires said. “We can reasonably project that there will be 600 more CFA holders at the end of 2007.”

“I can’t say how many financial experts China needs but one thing is certain, there is plenty of room for those who have the capacities. The United States currently has 44,220 people who hold the CFA qualifications. In comparison there are 3,650 in Hong Kong, 2,133 in Singapore and just 1,086 in China,” she said.

China has outlined its new policies for the financial sector, including deepening the reform of state-owned banks, facilitating rural financial reforms, and steadily pushing forward the reform of foreign exchange rate.

The country’s financial sector is set to speed up as the market continues to swing open. In that case, Jian Jingtao, the young lady with so many traditional Chinese virtues, has an excellent chance of realizing her dream and the dream of her lucky boyfriend, probably with a little help in the shape of a bank loan.