Curiouser and curiouser. Shares in Citic Securities, Asia’s largest brokerage, were suspended on Monday.
Why? No detailed reason was given for the suspension, which is expected to last all day, except that it has “undisclosed important information” to share with the market.
This prompted immediate speculation that the mystery nugget could relate to a certain Wall Street outfit that has recently been generating some interest in China?
Citic Bank last week denied it had held talks with Bear Stearns on an investment, and added it had no plans to do so over the next three months. That came just a day after the bank, following comments from China Banking Regulatory Commission Vice Chairman Jiang Dingzhi, confirmed an interest in a stake in Bear but said that there had not been “substantive progress”.
Citic Bank and Citic Securities are both subsidiaries of China’s Citic Group, the state-owned conglomerate. While Citic Bank is wholly owned by its parent, Citic Securities is not. The conglomerate is its largest shareholder, but the brokerage also counts China Life among its investors after the life insurer last year, with its parent, took a 17 per cent stake in the business.
The Wall Street Journal reported that Bear Stearns is close to a deal with Citic Securities that would give each company a stake in the other and pave the way for business partnerships in both the US and in Asia.
Citic would invest about $1bn in Bear Stearns and receive securities that will convert over time into a roughly 6 per cent equity stake in the firm, and get the right to buy a stake of up to 3.9 per cent of Bear Stearns in the public market. On the flip side, says the Journal, Bear Stearns’s $1bn worth of Citic’s debt over time will amount to a 2 per cent stake in the Chinese firm. Bear Stearns will also be given options to buy an additional 5 per cent of the company, exercisable over the course of five years.
A stake buy through Citic’s listed brokerage business, rather than through Citic Bank as previously reported, would have been more complex for the Chinese – but does make sense in the context of a share swap. And a deal with Citic Securities would at least explain the hasty denial from Citic Bank last week.
A further statement is expected to come late in the Chinese day.