Bear Stearns, CITIC to swap stakes
Updated: 2007-10-24 19:20
Under the preliminary agreement, Shanghai-listed CITIC Securities would invest about $1 billion in Bear Stearns securities that would convert into about 6 percent of the New York-based investment bank.
Bear Stearns would buy $1 billion of CITIC debt that would over time amount to a 2 percent stake in the Beijing-based firm. Neither company could hold more than 9.9 percent of the other's stock.
The deal is subject to a definitive agreement. The companies said they have agreed to negotiate only with each other. Cayne said he expected the deal to close within 120 days.
The deal needs approval from China's State Council and securities regulators and CITIC Securities' shareholders.
CITIC Securities, the largest brokerage in China, would continue an outward push by China's cash-rich financial services firms after the industry drew an influx of billions of dollars in foreign investment in recent years.
"It's a good opportunity for CITIC to expand overseas and learn from global players," said Qiu Zhicheng, an analyst at Haitong Securities.
In a statement, the companies said the alliance will include broad collaboration in China and the development of new securities for the rapidly growing Chinese market.
As part of the deal, Bear and CITIC Securities will form a new Hong Kong-based capital markets joint venture doing business across Asia. Bear will contribute its Asia operations to the 50/50 venture. CITIC Securities will transfer a Hong Kong unit to the venture and pay an undisclosed amount of cash to Bear.
Bear and CITIC said they expect to have representation on each other's boards of directors.
Boosted by a feverish rally in mainland stocks, CITIC Securities has a market value of $46.8 billion, bigger than Lehman Brothers Holdings Corp. and Bear combined. CITIC Securities shares have risen 600 percent over the past year.
Bear Stearns' market value has tumbled to $13.4 billion. Plunging values in US mortgages and derivative securities led to collapses at two of its hedge funds, losses in its flagship mortgage business, and the ouster of co-president Warren Spector.
Those struggles fueled speculation that Bear Stearns would sell all or part of itself to a larger bank.
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