It was second time lucky for Bank of America on Wednesday as it raised $2.8bn after placing 5.6bn of its shares in China Construction Bank with institutional investors.
The US lender first tried to offload the chunk before Christmas but shelved the placing at the last minute, mystifying investors who had signed up to purchase the shares. BofA on Wednesday declined to shed any light on the reasons for postponement, although dealmakers believe that Beijing objected to the precise timing.
Even after Wednesday’s sale, BofA is still left with a near 17 per cent stake in CCB, so there’s no harm in maintaining warm relations with Beijing.
What is clearer is that the move by foreign investors to divest their stakes in Chinese lenders – largely acquired in 2005 and 2006 – is in danger of turning into a stampede. UBS last week sold its entire stake in Bank of China, yielding $835m – on the day that its three-year lock-in expired.
The market is betting many other overseas lenders, including cash-strapped Royal Bank of Scotland, will soon press the sell button, to help repair battered balance sheets.
However, there are not enough investors to absorb every Chinese bank share that could potentially be sold in the coming weeks. So the rush to exit by UBS, and the chunky share sale by BofA, are likely to appear even smarter in three months time.
The heads of Europe’s automotive and car components industry appear more worried than they have ever been. In spite of promises from various governments of support, they all claim to be driving in a fog of uncertainty.
None even dare to give the slightest indication of how the first quarter of this year will shape up. “We have absolutely no visibility,” says the chairman of one large manufacturer. The latest car sales statistics from around Europe point to a gloomy picture – even in markets such as France that held up better than expected last year.
All European car and components companies are continuing to tighten the screws by stopping night-working shifts, overtime or by extending temporary factory closures. Investments have been put on hold and all are looking to governments for help.
Unlike their distressed US competitors, they are not so concerned with getting direct government cash injections. Rather they want quick intervention with decisive support to stimulate demand for new cars. One way would be to crack down even harder on the banks, which are still seen as reluctant to provide the credit that will encourage consumers to buy new cars; two out of three new cars are bought on credit.
Second, car manufacturers also want governments to give big incentives to potential buyers to scrap their old cars for new, more environmentally friendly ones. France has done this and the move is expected to boost domestic sales. But this will not stop the French market as a whole declining again this year. Nor will it provide a significant lifeline for the two domestic manufacturers – Peugeot-Citroën and Renault – given the French market accounts for only about a third of their sales.
Germany is now also considering such a plan, while Italy and Spain have done practically nothing to help their auto markets, which are struggling. Spain, one of Europe’s top five car markets, saw its car sales drop last year to their lowest level in a decade.
The Swedish government has reluctantly agreed to provide support to its two car manufacturers but many consider the aid package to be insufficient. Efforts by the US owners of Volvo (Ford) and Saab (General Motors) to sell these businesses have proved fruitless. Daimler is understood to have decided only last week it was not interested in Volvo.
European governments are in a bind. Governments do not have a great deal of money to spare after their other stimulus packages. And there is also strong resistance to state intervention willy-nilly for the car sector. But the problem is the car industry remains too big an employer to ignore. It accounts for about 20 per cent of jobs in Germany and 10 per cent in France.
The problem is even more acute in the US where the possible demise of Detroit’s Big Three could lead to as many as 3m job losses. European governments and the Brussels Commission are clearly waiting to see how the Obama administration deals with the US car crisis. The president-elect has already indicated his determination not to let the auto industry go to the wall.
But Europe should worry just as much about Detroit’s survival as Mr Obama. For if the Big Three go, the repercussions for European car suppliers will be drastic. Equally, if the US does intervene with a massive bail-out, Europe can hardly afford not to follow suit. Of course, it would be far better for competition to let the European and American car markets slug it out on their own, but in reality there seems little option.
The choice is between competition and jobs. For governments, keeping people in work must be the lesser of the two evils.