Goldman Sachs

Goldman Sachs exits ICBC in final US$1.1b share sale

US investment bank ends seven-year strategic partnership as mainland banks are set to report slower earnings growth in the coming years

PUBLISHED : Tuesday, 21 May, 2013, 12:00am
UPDATED : Tuesday, 21 May, 2013, 4:05am

Goldman Sachs was set to complete its exit from Industrial and Commercial Bank of China (ICBC) yesterday by selling its remaining stake in the world's largest bank by assets.

The sale was expected to raise about US$1.1 billion, market sources said, with the shares being offered at between HK$5.47 and HK$5.50 each, a discount of up to 3 per cent to yesterday's closing price of HK$5.64.

Goldman and ICBC were not available for comment yesterday.

The sixth offloading of ICBC shares by Goldman puts an end to the "strategic partnership" between the two banks that has existed since the New York-based investment bank subscribed to 4.9 per cent of ICBC's shares for US$2.58 billion before the initial public offering in 2006.

The sale, scheduled to be completed by midnight last night, came after Goldman posted a 7 per cent increase in net profit in this year's first quarter, beating market expectations.

The US bank's capital adequacy ratio also exceeded regulatory requirements.

However, the offloading of ICBC shares could help ease capital pressure for Goldman in the longer term under the stricter regulatory regime implemented after the 2008-09 global financial crisis, said Guo Tianyong, a professor at the Central University of Finance and Economics in Beijing.

It would also help the investment bank lock in its gains at a time when mainland banks are set to report slower growth in net earnings in the coming years as bad loans build up and interest rate deregulation sets in, an analyst at a Beijing-based brokerage said.

After yesterday's deal, Goldman would have cashed in a total of about US$10.3 billion in the six sales of ICBC shares, gaining US$7.72 billion from its seven-year investment.

The sale came in the wake of a buy rating which Goldman analysts gave ICBC shares last month after the mainland Chinese bank, the world's largest by market capitalisation, said its net profit climbed 12 per cent in this year's first quarter from a year earlier.

ICBC shares rose 1.4 per cent in Hong Kong yesterday and went up 0.72 per cent to 4.19 yuan in Shanghai before IFR reported the deal last night.

It was Goldman's third disposal of ICBC shares in about a year. The US bank raised US$2.5 billion from a partial sell-down of its stake in April last year, the majority of which was bought by Singapore sovereign wealth fund Temasek. In January this year, Goldman sold about US$1 billion more.

The complete withdrawal of Goldman, despite its repeated assurances over the past few years of its commitment as a long-term investor in ICBC, is expected to affect market confidence in the shares of mainland banks, analysts said.

Headwinds facing mainland banks, not excluding ICBC, include progress in interest rate liberalisation - more flexible spreads invite competition on rates and can eat into their profitability. Other factors include the mounting risk from defaults of loans to exporters, local government financing vehicles, property developers and industries saddled with overcapacity amid a slowdown in mainland economic growth.