Placing its chips

10 May 2010 By Wei Gu

The German bank is paying $840 million to raise its stake in Hua Xia Bank. Chinese bank stakes have scarcity value, and Deutsche wants to diversify away from investment banking. But its ability to influence Hua Xia looks limited. Besides, Deutsche is hardly flush with capital.

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Hua Xia Bank, a midsized Chinese lender, is raising up to $3.1 billion in a private share placement to three investors, including Capital Steel, Deutsche Bank and State Grid.

After the placement, Deutsche Bank's stake in Huaxia will rise from 17.12 percent to 19.99 percent, the maximum allowed for foreign investors. Capital Steel's holding jumps to 20.28 percent from 13.98 percent.

Capital Steel had been Hua Xia's biggest shareholder until March, when Deutsche Bank increased its holding through an acquisition of another Hua Xia shareholder.

Most foreign banks question whether strategic stakes in Chinese banks have been successful in the context of a broader market development, according to a recent PricewaterhouseCoopers survey on foreign banks. Many foreign lenders have been unable to exert any meaningful degree of management control.

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