Scoop has an Ethical Paywall
Work smarter with a Pro licence Learn More

Search

 

Cablegate: Guangdong Development Bank: A Benefit or a Burden?

VZCZCXRO6160
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #2315/01 3260914
ZNR UUUUU ZZH
R 220914Z NOV 06
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 5488
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 02 GUANGZHOU 032315

SIPDIS

USDOC FOR DAS LEVINE AND ITA/MAC/AP/MCQUEEN
TREASURY FOR OASIA/ISA KOEPKE AND DOHNER
STATE PASS CEA FOR BLOCK
STATE PASS FEDERAL RESERVE BOARD FOR JOHNSON/SCHINDLER
STATE PASS SAN FRANCISCO FRB FOR CURRAN
STATE PASS NEW YORK FRB FOR DAGES/CLARK
STATE ALSO PASS USTR STRATFORD/WINTER/MCCARTIN
PACOM FOR FPA

SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON EINV WTRO CH
SUBJECT: Guangdong Development Bank: A Benefit or a Burden?

REFERENCE: Guangzhou 30413

(U) This message is sensitive but unclassified. Please handle
accordingly.

1. (SBU) SUMMARY: Citibank's Guangzhou branch manager said the
Citibank-led bid for Guangdong Development Bank (GDB) is a "done
deal" and that Citibank will gain significant management control
over GDB as a result. Bank of America and Deutsche Bank
representatives said Citibank would benefit from GDB's extensive
branch network in the Pearl River Delta, but differed on whether it
would gain the management control it wants. Media commentators
opined that GDB was one of the last good investments for foreign
banks and doubted that China would raise its foreign ownership cap
anytime soon. END SUMMARY.

Advertisement - scroll to continue reading

Are you getting our free newsletter?

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.

Background on the Deal
----------------------

2. (SBU) GDB was founded in 1988 by the Guangdong provincial
government and was one of the earliest joint-stock commercial banks
to offer a full range of financial services nationwide. The bank
reportedly has over 500 branches, primarily in Guangdong's booming
Pearl River Delta, and total assets of almost RMB 400 billion. The
bank's non-performing loan rate is reportedly close to 20 percent.
In 2004, GDB offered up 85 percent of its shares to outside
investors. Citigroup originally aimed to take 40 to 45 percent of
the bank, but later revised its proposal to 20 percent after the
State Council refused to make an exception to the foreign ownership
cap of 20 percent.

Citibank's Guangzhou Branch: Guarded but Optimistic
--------------------------------------------- ------

3. (SBU) Milson Lau, Citibank's Guangzhou Branch Manager, said that
although the November 16 agreement reached between the Citibank-led
consortium and Guangdong Development Bank is a preliminary
agreement, it represents a "done deal" and has the tacit approval of
the Guangdong and central governments. The signed agreement
includes a list of terms that must be met before a final agreement
is reached in December 2006, including capital transfers, but Lau
did not see them as barriers. He characterized the deal as the
first time a foreign bank has taken significant management control
of a domestic bank. He was careful to note, however, that he was
not part of Citibank's GDB task force, nor is he closely acquainted
with GDB managers. Regarding impending management changes in GDB,
Lau did not provide specifics but did say they would likely take
place at high levels.

Other Foreign Banks: Mixed Reviews
----------------------------------

4. (SBU) Julia Yu, Bank of America's Guangzhou branch manager, said
she expects that Citibank will have significant management control
over GDB. She contrasted this with Bank of America's relationship
with China Construction Bank (of which Bank of America owns nine
percent). According to Yu, Bank of America is not involved in CCB's
management, but rather provides training to branch-level offices on
issues such as retail business. She noted that China Construction
Bank is a national-level bank, and thus less flexible than a
regional bank such as GDB. She expressed some surprise that Chinese
authorities approved the deal, characterizing Citibank as a "tiger."
She said Citibank's primary objective in the deal is to obtain
GDB's extensive branch network.

5. (SBU) Myron Shi, Deutsche Bank's Guangzhou branch manager, said
GDB will prove to be an enormous burden for Citibank and will not
generate the profits that some expect. With new foreign banking
regulations released on November 15 (see septel), Shi said foreign
banks are better off opening wholly foreign-owned branches and
sub-branches on their own terms. He noted that Deutsche Bank bought
10 percent of regional bank Huaxia in early 2006 but has not gained
significant management control. In addition, he cited conversation
with managers from the Bank of Communications in which they downplay
the role of shareholder HSBC in day-to-day operations.

Media: Time to Look Further Afield
----------------------------------

6. (SBU) According to an article on China Finance Net, (a news

GUANGZHOU 00032315 002 OF 002


website that is overseen by the People's Bank of China and the China
Banking and Regulatory Commission) GDB is one of the last
significant Chinese banks without a foreign partner. Most joint
stock commercial banks with assets of between RMB 300 billion and
RMB 500 billion already have foreign stakeholders. In the future,
it says, foreign banks may look to agricultural commercial banks as
new investment targets. The article cites sources close to the
bidding process saying that 2006 will not see China ease the 20
percent cap on a single foreign investor in a domestic bank.

ROCK

© Scoop Media

Advertisement - scroll to continue reading
 
 
 
World Headlines

 
 
 
 
 
 
 
 
 
 
 
 

Join Our Free Newsletter

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.