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 Deutsche Bank, which has embarked on drastic restructuring under new
CEO John Cryan, becomes the latest Western financial institution to
scale back in China where caps on foreign ownership have made it
difficult to attain the strategic growth many firms first
envisioned.
Reducing stakes in Chinese lenders has, however, often resulted in
multi-billion profits for European and U.S. banks. Deutsche too is
likely to make a tidy profit, with shares in Hua Xia trading at
11.44 yuan as of Monday's close, compared with below 4 yuan per
share in 2006 when it first invested.
Deutsche will gain between 23.0 billion and 25.7 billion yuan, or
3.2 billion to 3.7 billion euros from the stake sale at current
exchange rates, depending on Hua Xia's share price ahead of the
sale's completion.
"As we execute on Deutsche Bank's strategic agenda, now is the right
time for us to sell this investment," Cryan said in a statement on
Monday.
While it is pulling out of Hua Xia, Deutsche continues to run a
securities joint venture and an asset management business in China.
The sale will help boost the German bank's common equity tier 1
capital ratio as of Sept. 30 by about 0.3 to 0.4 percentage points
from 11.5 percent.
Seeking to bolster its finances, Deutsche Bank has also announced
plans to slash 15,000 jobs, shed businesses employing some 20,000
staff and suspend dividends for two years..
Chinese insurers like PICC P&C have been particularly acquisitive
this year, spending a record $12.2 billion on property, banking and
insurance businesses at home and abroad.
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Hua Xia, a relatively small bank in China with around 80 branches
and a market capitalization of $20 billion, offers PICC P&C a new
channel to distribute its insurance products, said Leon Qi, an
analyst at Daiwa Capital Markets.
"The rationale for PICC's acquisition of Hua Xia is to allocate its
investment-growing portfolio," he said, adding that the planned
pricing was in line with market expectations.
PICC P&C, which is partly owned by American International Group <AIG.N>,
said it expected relatively steady investment returns from its stake
in Hua Xia, in addition to the benefits of strategic cooperation.
Shares in the Chinese insurer fell 1.5 percent on Tuesday, compared
with a 0.3 percent rise for the wider market. Hua Xia shares rose
3.2 percent.
(Reporting by Maria Sheahan in FRANKFURT and Daria Hsu in HONG KONG;
Additional reporting by Denny Thomas; Editing by Georgina Prodhan
and Jason Neely)
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