BNP Paribas, France’s largest bank, has pulled out of its pioneering Chinese securities joint venture following disagreements over strategy with its local partner, Changjiang Securities.
It has sold its 33 per cent stake to Changjiang for an undisclosed sum.
In a joint statement, the group said that they had “different views on the future development of the joint venture” and had come to an “amicable consensus” that BNP transfer its entire equity stake to Changjiang. However, a banker familiar with the situation at Changjiang BNP Paribas Peregrine, as the joint venture was named, said that the sides had disagreed from the start over strategy and appointments and that the company had never had a strong chief executive. “It never really got going,” he said.
While several international investment banks are lobbying hard for licences to operate in the Chinese market, the experience of BNP Paribas Peregrine underlines the difficulties that joint ventures can face.
The venture was among the first between a foreign investment bank and a Chinese securities house. Only Goldman Sachs, Morgan Stanley and UBS have so far managed to strike agreements allowing investment in Chinese securities businesses.
Changjiang BNP Paribas Peregrine, which was founded in November 2003, had a licence to underwrite bond and equity issues but was not allowed to establish a broader brokerage business. A slump in the market for initial public offerings in mainland China at the start of the decade held back the business, which lost Rmb2.47m ($300,000) in 2005 before turning a Rmb16.1m profit last year.
The withdrawal marks a setback for BNP’s China strategy, although the bank has a 19 per cent stake in Nanjing City Commercial Bank, an asset management joint venture, and its private bank is targeting the mainland’s millionaires.
The revival in the IPO market, together with a surge in share prices has provided a much-needed shot in the arm for China’s brokerage sector, which recorded losses of Rmb15bn in 2004, according to the industry’s association. Since the end of a year-long ban on IPOs last May, more than 80 new listings have raised Rmb164bn, including the Shanghai flotations for China Life and Industrial and Commercial Bank of China.
State media reported on Monday that the 50 of China’s 100-plus brokerages which have so far reported results for 2006 posted a total net profit of Rmb18.1bn.
Many domestic brokers have lobbied heavily against allowing in too many international firms, for fear that they would quickly dominate the market.