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Reuters

Mainland financial firms are targeting purchases of distressed banking assets in Europe, having been urged by Beijing to expand their reach beyond emerging markets.
The first mainland purchase of a European investment bank was announced this month, with Haitong Securities agreeing to pay €379 million (HK$3.65 billion) for an investment bank in austerity hit Portugal.
Banco Espirito Santo de Investimento (BESI) is being sold by Novo Banco, the bank carved out of Banco Espirito Santo after it was rescued in August.
For the mainland’s second largest brokerage it’s a modest-sized deal, equivalent to just 1.5 per cent of Haitong’s market value. But it demonstrates the changing character of acquisitions by mainland financial firms.
These days they mostly seek controlling stakes, and now they are scouting Europe for opportunities, avoiding anything too big.
“Increasingly, Chinese financial firms are seeking control deals as a way to expand their global footprint,” Mayooran Elalingam, head of Deutsche Bank’s Asia-Pacific M&A said.
“Several distressed opportunities are available in euro zone economies and we expect the Chinese financial services sector to be active in these situations.”

	The government is encouraging the outbound M&A push

	Hong Kong based M&A banker
Such deals can help mainland banks gain treasured European banking licences as well as expertise, notably in debt markets, that can be transferred back home, whereas growth through opening overseas bank branches can be a slow process.
This year, the central government began encouraging mainland stock brokers and financial firms to acquire greater international reach, according to investment bankers.
"The government is encouraging the outbound M&A push," a Hong Kong based M&A banker said.
The drive for geographic spread reflects Beijing’s efforts to build up overseas bank outlets as the yuan gains a greater share of global trade.
Haitong’s purchase of BESI, Portugal’s biggest debt underwriting firm, will give it control of a business that earned €247 million in revenues last year, according to analysts at Daiwa Capital Markets, and a ready-made investment banking network in Europe.
“As regulators liberalise the financial industry in China, banks, insurers and securities firms would be on the lookout for asset managers, private banks and wealth managers,” said Bernard Teo, head of financial institutions group investment banking in China with Goldman Sachs.
Some M&A bankers do not rule out the possible acquisition of a European commercial bank.
Struggling Italian lender Monte dei Paschi di Siena, the worst-performing European bank in a recent asset quality review by the European Central Bank, could attract mainland bids, according to Hong Kong-based M&A bankers.
Mainland buyers could also be interested in Novo Banco, which Portugal’s authorities hope to sell in the first half of next year, they added.
Until now mainland financial firms’ strategy has been based on organic growth and sporadic purchases of minority stakes in foreign firms, mostly in emerging market.
So far this year, they have announced US$3.2 billion worth of overseas deals, three-quarters of which were majority stake purchases.
The total spending on overseas deals is way below the record US$17.9 billion posted in 2007, but back then only 4.3 per cent of the deals were for majority stakes.
In 2007, just before the global financial crisis erupted, Mainland financial firms and sovereign wealth funds bought stakes in publicly listed global financial companies, including a US$5 billion investment in Morgan Stanley.
The stock market losses from the ill-timed deals created a headache for executives back home.
“Chinese financial institutions are likely to shy away from large transformational deals as they have learnt valuable lessons from the investments made during the financial crisis,” Teo said. Their main goal now, he said, was to serve Chinese corporations expanding globally.


Chinese financial firms chase controlling stakes in Europe

Haitong Securities agreed to pay €379 million for Portugal's Banco Espirito Santo de Investimento. Photo: Bloomberg

Haitong Securities to buy Portuguese bank for HK$3.6b

A man walks past an office of Portuguese bank Banco Espirito Santo. Photo: Reuters

Haitong Securities' talks with Portuguese bank may mark start of China's European rush

Haitong International Securities buys pan-Asian broker in overseas push

Shares in Japaninvest are expected to be delisted from the Japanese stock market after the Haitong deal receives regulatory approval. Photo: Reuters

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Analysis | Chinese financial firms chase controlling stakes in Europe