April 2 (Bloomberg) -- Bank of China Ltd., the world’s third-largest by market value, scrapped a 236 million-euro ($313 million) investment in La Compagnie Financiere Edmond De Rothschild after failing to gain Chinese government approval.
“The agreement has expired and has automatically become invalid,” Bank of China spokesman Wang Zhaowen said in a telephone interview from Beijing, after a second deadline for state approval expired yesterday. “We may in the future seek cooperation in other areas” with the French firm.
China’s government has tightened scrutiny of overseas investments by the nation’s financial companies following losses on stakes in Barclays Plc, Blackstone Group LP and Morgan Stanley. Premier Wen Jiabao last month called for U.S. assurances that the nation’s investment in Treasuries is safe.
“The regulators continue to be very cautious with acquisitions of Western financial institutions,” said May Yan, a Hong Kong-based analyst at Nomura International HK Ltd. “It’s more likely for Bank of China to complete deals in Asia and emerging markets, which are less affected by the crisis.”
Beijing-based Bank of China was forced to extend an original Dec. 31 deadline for the deal, announced in September, by three months after failing to get state approval. The Chinese bank had agreed to purchase a 20 percent stake in the Paris- based asset manager.
Bank of China President Li Lihui said March 24 he expected to get a response from the government on the Rothschild purchase “very soon.” The stock gained 3.5 percent at 12:30 p.m. today in Hong Kong trading.
‘Cautious’ Stance
Chinese banks should take a “cautious” stance on overseas acquisitions as more losses at financial companies around the world may be disclosed, China Banking Regulatory Commission Vice Chairman Cai Esheng said Dec. 13. Industrial acquisitions at home or abroad present better opportunities, he said.
Bank of China had a wider-than-expected 59 percent drop in fourth-quarter profit on writedowns of U.S. mortgage investments and higher bad-loan provisions. It has lost more on mortgage investments than all other Chinese lenders combined after the U.S. housing collapse drove down the value of the securities.
The bank, which has about one-third of its business abroad, was the only one of the nation’s biggest lenders to suffer a contraction in interest margin for 2008, after the U.S. Federal Reserve cut rates to thaw credit markets, said Liu Yinghua, a Shenzhen-based analyst at Ping An Securities Co.
Asset-Management Venture
“Its profitability remains strong, though, and it certainly has the ability” to make the Rothschild acquisition, Liu said. The company’s net interest margin dropped by 13 basis points to 2.63 percent last year.
Compagnie Financiere Edmond de Rothschild, the French fund- management unit of closely held LCF Rothschild Group, and Bank of China would start an asset-management and private-banking venture to sell Rothschild’s financial products through the Chinese lender’s 10,800 branches, according to a Sept. 18 statement announcing the investment. The French firm managed 29.6 billion euros in assets at the end of 2007.
The last overseas bank acquisition to receive approval from the Chinese government was China Merchants Bank Co.’s purchase of Hong Kong’s Wing Lung Bank Ltd. in September. That deal was completed only after China Merchants twice extended a deadline.