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Battle of the bulge

5 May 2015 By Peter Thal Larsen

Just when the world appeared to be running low on investment banks with global aspirations, along comes Haitong Securities. The Chinese broker plans to hire hundreds of international bankers to help fulfill its aim of becoming a “world leading investment bank”, its deputy chief executive has told the Financial Times. The notion of China producing a rival to Goldman Sachs or Morgan Stanley is not as far-fetched as it once may have seemed. But the challenge is huge, and the rewards less enticing than they were.

Haitong, which has a market value roughly the same as Credit Suisse, is one of several Chinese firms pushing overseas. CITIC Securities on May 4 launched an Asian-focused corporate finance and capital markets business with CLSA, the brokerage it bought two years ago. As more capital flows into and out of the People’s Republic, it makes sense for Chinese firms to set up shop in other financial centres. The mainland stock boom is helping to fund the expansion: Haitong raised $3.9 billion from investors last December. Smaller rival China Galaxy Securities has just completed a $3.1 billion share placing. Moreover, the domestic market is largely closed to Western groups, which are forced into cumbersome joint ventures.

The sight of eager upstarts waving their chequebooks will be depressingly familiar to anyone who remembers European banks pushing into Wall Street in the late 1990s, or Asian groups expanding after the 2008 financial crisis. The likes of Dresdner and CIMB have since retreated, with little to show for their splurge. Even established global investment banks are now struggling to earn an acceptable return on equity. That diminishes the appeal of trying to join the bulge bracket.

It’s true that the Chinese brokers are starting small. Haitong is hardly betting the firm with last year’s 379 million euro ($422 million) acquisition of bailed-out Banco Espirito Santo de Investimento. CITIC’s corporate finance venture will employ just over 100 people, mostly in CLSA’s long-established Hong Kong base. China’s economic rise will give domestic firms a natural boost. But it will take years – and probably several false starts – before a Chinese investment bank can claim its place at the global top table.

 

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