Goldman exits China's ICBC, 7 years and billions later

Business & Markets 2013
Written by Reuters
Tuesday, 21 May 2013 12:19
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HONG KONG (May 21): Goldman Sachs Group Inc raised $1.1 billion
by selling its remaining shares in Industrial and Commercial Bank of
China, ending a seven-year old investment and handing the Wall Street
firm a return of nearly four times its original stake.
Goldman's relationship with ICBC was similar to that of other big global
financial institutions that purchased stakes in Chinese banks and
insurers. While the relationship was profitable, involved some
cooperation and helped Chinese lenders become some of the world's
biggest banks, few products or strategic benefits emerged.
The selldown also comes at a time when Goldman, like other big
Western banks, is keen to boost its balance sheet ahead of new capital
requirements.
Prior to its 2006 initial public offering, ICBC was a technically insolvent
state institution, reeling from the bad loans that had saddled China's
financial industry.
ICBC's fortunes turned after it went public, and the bank grew along
with China's economic boom. The bank's $240 billion market value is
now just shy of the combined worth of J.P. Morgan Chase & Co and
Barclays.
Goldman agreed to invest $2.58 billion in ICBC in January 2006, using
internal funds that invest a mix of client, employee and corporate cash.
With the final selldown, the last of six, gross proceeds from the sales would be $10.1 billion.
Calculating Goldman's own profit on the stake is tricky because not all of the investment came from its own balance sheet,
and the cost of acquiring and maintaining the ICBC stake is unknown.
Goldman late on Monday sold 1.585 billion Hong Kong-traded shares of ICBC at HK$5.50 each, equivalent to a 2.5 percent
discount to Monday's close of HK$5.64, a person familiar with the matter told Reuters. The deal, which was marketed in a
range of HK$5.47-$5.50 per share, totaled HK$8.72 billion ($1.1 billion).
ICBC shares fell 2 percent to HK$5.53, compared with a 0.6 percent decline in the benchmark Hang Seng index.
China game
Bank of America, Citigroup, UBS and Royal Bank of Scotland all bought into Chinese banks shortly after Goldman's deal, as
Beijing prepared to float its major financial institutions on the Hong Kong and Shanghai stock exchanges.
Goldman began to sell its ICBC stake in 2009. The New York bank, like other foreign financial groups, was able to reap a
hefty windfall from China holdings at the time, when cash was precious post financial crisis.
But unlike other foreign banks that sold out of China quickly, Goldman remained.
Goldman increased its pace of ICBC sales in the last few years, as banks needed to meet tougher capital requirements
under the global Basel III accord, with asset sales one of the quickest ways for them to bolster their balance sheets. U.S.
regulators are still in the process of finalising how they will implement Basel III, though banks are under pressure from
investors to show they can meet the requirements regardless of whether the laws have been finalised or not.
Goldman also has a securities joint venture and a 12 percent stake in Taikang Life Insurance Co.
Other foreign banks still have holdings in Chinese lenders. Among them, HSBC Plc owns a 19.9 percent holding in China's
Bank of Communications Co Ltd and Spain's BBVA's has a 15 percent stake in China Citic Bank Corp Ltd .
Goldman's sale on Monday is its third in about a year. The New York-based investment bank raised $2.5 billion from a partial
selldown of ICBC in April 2012, most of which was bought by Singapore state investor Temasek Holdings Ltd, and another in
January 2013 worth $1 billion.
Since 2006, Goldman has reported $3.5 billion in net revenue related to ICBC in quarterly filings.