5 Leading Western Banks & Investment Funds in China

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Goldman Sachs

Introduction

The Goldman Sachs Group, Inc. is a leading global investment firm that engages in a wide range of financial services including investment banking, securities sales and trading, investing and lending, investing management and market research. Its client base is mainly financial institutions. Besides, it also provides services to corporations, governments and high-net-worth individuals.

The firm was founded in 1869, and headquartered in New York. At present, it has 53 offices located in 31 different countries mainly in sections including Americas, Europe, Mid East, Africa and Asia Pacific.

GS in China

For a long time, Goldman Sachs has treat China as its most important market. It set the Asia headquarter in Hong Kong in 1984, and then established Beijing (北京) and Shanghai (上海) representative offices in 1994, which means that GS has set foot in Chinese mainland market. Meanwhile, GS was the first foreign investment bank that got B-shares trading permits in SSE(Shanghai Stock Exchange) and was also listed in the first batch of  foreign capital institutions that got QFII permits.

The most significant moment came On Dec 2nd, 2004, when GS announced that CSRC (China securities Regulatory Commission) has approved its formation of joint capital investment bank with Beijing GAO HUA Securities CO.LTD. The new firm was named Goldman Sachs GAO HUA, and GS hold 33 percent of its equity (largest since CSRC approved foreign capital holding equities). From then, GS was entitled to underwrite local A-shares, enterprise bonds and Convertible bonds. It can also provide other financial service to institutional clients, corporations and even Chinese government. The foundation of Goldman Sachs GAO HUA opened the new chapter of GS in China.

GS has set up a very strong business network in Chinese stock and bonds market, and has been playing a key role in helping Chinese enterprise step in oversea markets. Here are some IPOs which are of great significance:

    

Firm                           time (year)           amount raised ($billions)

w     CMCC                          1997                                4

Became one of the biggest private project in Asia ex-Japan region

w      CNPC                           Mar,2003                          2.9

w    Bank of China(HK)         Jul,2002                          2.67

w   Ping An Insurance            2004                                1.84

w   ZTE Corporation              2004                                 0.4

The first A-share firm that was listed in HK stock market

w   Bank of Communications 2005                                 2.2

The first nationalized bank that was listed in oversea market

w   CNOOC                            2006                                 1.98

w   Bank of China(H-share)   2006                                 11.19

The forth biggest worldwide IPO to 2006

In debt financing field, GS has run more than 40 large scale bonds sales transactions, in many of which it has played an important role as a financial consultant and main underwriter.

Here are some investments GS did in China:

Recipient       Investor       Industry          amount invested           time

TAIKANG Life        GS               insurance         USD940million          2011-04-07

DAIFU Waste           GS    environmental protection   non-public          2010-09-04

1HAI       GS, Enrichment Asia, etc   car rental             non-public              2010-08-26

JILI Group          GS                   automobile            HKD 25.86million 2009-09-23

VISN             GS, REMGRO       mobile TV           USD 32million       2007-03

However, as the first batch of investment bank that gets permits of underwriting A-shares in mainland primary market, Goldman Sachs GAO HUA has been behaved less than satisfactory in the recent 5 years(from 2007 to 2011): only three IPOs were run by GS GAO HUA in these five years, amounting  to 22.6 billion RMB. These three IPOs are Ping An Insurance, Merchants Securities and NBCB (Bank of Ningbo).

According to people working in operation department of GS GAO HUA, the reason is that in Chinese mainland, A-share IPO takes high costs (especially human cost) and long time (almost 3 years), less beneficial than bonds transactions and M&A service. Other reasons are low efficiency caused by supervision of inner control and GS’s strict investigate of enterprise qualifications. To GS, mainland IPO is not a wise business.

Level of Business (Recent Situation)

Financial figures (2011):

Revenue: US$ 28.811 billion

Operating income: US$ 6.169 billion

Net income: US$ 4.422 billion

Total assets: US$ 923 billion

Total equity: US$ 72.708 billion

Although being the best investment bank in the world, GS has suffered through a tough time during the first half year of 2012 due to low demand of M&A services. On Jul 17,2012,GS announced that during that period , the turnover of GS group was $16.6 billion,  down by 14% compared with the same period last year and reached the lowest level since 2005. In reaction, GS is planning to slash payrolls and cut wages, with intention to reduce year 2012’s expenditure by $500 million. Besides, GS will recruit more young talented staff to rejuvenate the firm. This move is base on the fact that the salary of young staff is lower, so expenditure will drop. Although GS will sacrifice its short-time profit due to the outflow of talented seniors, in the long run, as the young staff becomes experienced, GS will benefit from its strategy.

 

Morgan Stanley

Introduction

Morgan Stanley is a global financial services provider headquartered in New York City, United States. It serves a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000. The company reports US$779 billion as assets under its management. It is headquartered in Midtown Manhattan, New York City.

MS in China

In 1993, Morgan Stanley became one of the first global investment banks to establish a presence in China. Since that time the Firm’s strategy has been to build a leading, fully integrated financial services firm in China.

In 1995, Morgan Stanley co-founded China International Capital Corporation Limited, the country’s first domestic investment bank, In 2006, Morgan Stanley became the first foreign bank to own a wholly-owned commercial banking license in China, now called Morgan Stanley Bank International (China). Two years later, the Firm announced the formation of a trust joint venture, Hangzhou Industrial and Commercial Trust. In the same year, it partnered with Huaxin Securities to form a fund management company, Morgan Stanley Huaxin Fund Management Company. In May 2011, Morgan Stanley established a RMB private equity investment management firm in Hangzhou. In June 2011, Morgan Stanley partnered with Huaxin Securities to launch Morgan Stanley Huaxin Securities joint venture.

 With offices in Beijing and Shanghai, a commercial banking entity in Zhuhai and a regional office in Hong Kong, the Firm provides a wide range of services including financing, restructuring, M&A advisory, research, fixed income and foreign exchange, to domestic and international clients.

 Morgan Stanley has acted as advisor and underwriter on many of China’s most complex and groundbreaking transactions, such as Agricultural Bank of China’s USD22.1 billion IPO in 2010, China Construction Bank’s USD9.2 billion IPO in 2005, and China Unicom’s USD5.8 billion IPO in 2000.

 Additionally, Morgan Stanley is active in private equity and real estate investments covering a wide range of high growth companies and developing commercial and residential property in select cities.

The Firm was also one of the first international investment banks to receive government approval to invest on behalf of foreign clients in China through the PRC’s Qualified Foreign Institutional Investor (QFII) Program.

Morgan Stanley’s highly regarded economists and strategists provide insights on China’s economy and markets, offering clients local, regional and global perspectives.

 

Level of Business (Recent Situation)

Financial figures (2011):

Revenue: US$ 32.406 billion

Operating income: US$ 6.114 billion

Net income: US$ 4.111 billion

Total assets: US$ 807.69 billion

Total equity: US$ 57.211 billion

On July 19, 2012, Morgan Stanley reported net revenues of $7.0 billion for the second quarter ended June 30, 2012 compared with $9.2 billion a year ago. For the current quarter, income from continuing operations applicable to Morgan Stanley was $563 million, or $0.28 per diluted share, compared with income of $1.2 billion, or a loss of $0.36 per diluted share, for the same period a year ago. The earnings per share calculation for the prior year second quarter included a negative adjustment of approximately $1.7 billion, or $1.02 per diluted share, related to the conversion of the Firm’s Series B Preferred Stock held by Mitsubishi UFJ Financial Group, Inc. (MUFG) into common stock.

 Results for the quarter included positive revenue of $350 million compared with $244 million a year ago related to changes in Morgan Stanley’s debt-related credit spreads and other credit factors (Debt Valuation Adjustment, DVA).

Excluding DVA, net revenues for the current quarter were $6.6 billion compared with $9.0 billion a year ago and income from continuing operations applicable to Morgan Stanley was $338 million, or $0.16 per diluted share, compared with income of $1.1 billion, or a loss of $0.46 a year ago.

 Compensation expense of $3.6 billion declined from $4.6 billion a year ago. Non-compensation expenses of $2.4 billion decreased from $2.6 billion a year ago.

 For the current quarter, net income applicable to Morgan Stanley, including discontinued operations, was $0.29 per diluted share, compared with a net loss of $0.38 per diluted share in the second quarter of 2011.

Business overview:

– Global Wealth Management Group net revenues were $3.3 billion despite the challenging markets. The pre-tax margin for the current quarter was 12% compared with 9% a year ago. Discontinued operations included a pre-tax gain of $108 million from the previously announced sale of Quilter & Co. Ltd. (Quilter) in the U.K. Global fee based asset flows were $4.1 billion. On June 1, 2012, the Firm advised Citigroup Inc. of its intention to exercise its right to purchase an additional 14% of Morgan Stanley Smith Barney (MSSB).

– Investment Banking revenues were $884 million. The Firm ranked #1 in global IPOs, #2 in global announced M&A and #3 in global Equity

– Sales and trading net revenues were $2.3 billion, or $1.9 billion excluding DVA. Fixed Income and Commodities and Equity sales and trading net revenues reflected the challenging global market environment with reduced levels of client activity.

– Asset Management reported net revenues of $456 million and assets under management or supervision of $311 billion and positive net flows of $13.1 billion.

Conclusion:

Although global economic uncertainty remains a headwind, MS is proactively positioning the Firm for success. Its business showed resilience in key areas during the quarter, and made progress against strategic goals. Despite muted volumes of business, MS maintained its industry-leading rankings.

 

Deutsche Bank AG

Introduction

Deutsche Bank AG is a German global banking and financial services company with its headquarters in the Deutsche Bank Twin Towers in Frankfurt am Main Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia-Pacific and the emerging markets.

Deutsche Bank has offices in major financial centers including London, Madrid, Frankfurt, New York, Paris, Moscow, Amsterdam, Dublin, George Town, Cayman Islands, Toronto, Kuala Lumpur, São Paulo, Singapore, Hong Kong, Tokyo, Sydney, Dubai, Riyadh, Manila, Mumbai, Bangkok and Belgrade.

The bank offers financial products and services for corporate and institutional clients along with private and business clients. Services include sales, trading, research and origination of debt and equity; M&A; risk management products, such as derivatives, corporate finance, wealth management, retail banking, fund management, and transaction banking.

In 2011, the assets of Deutsche Bank increased by 14% to €2160 billion (nearly $2880 billion), exceeding BNP Paribas. Deutsche Bank becomes the biggest bank in Europe.

DB in China

Deutsche Bank first established a presence in China in 1872 with the opening of an office in Shanghai. On 1 January 2008, Deutsche Bank (China) Co., Ltd. (“DB China”) was officially established in China, headquartered in Beijing. The original Deutsche Bank branches were converted into DB China Beijing and Guangzhou branches, and a new branch was established in Shanghai.

The original Deutsche Bank AG, Shanghai Branch has been retained as a foreign currency wholesale booking branch. DB China offers financial services in private and commercial banking, corporate and wholesale banking and many other financial and banking services authorized by the regulators. In China, it has the following businesses – PBC(private & business clients), Private Wealth Management, Global Markets, Global Banking and Global Transaction Banking, as well as Commercial Real Estate. Moreover, Deutsche Bank AG, through other businesses, taps on Global Banking and Asset Management opportunities.

Deutsche Bank now holds a 9.9% interest in Huaxia Bank, a nationwide bank listed on the Shanghai Stock Exchange. Deutsche Bank and Huaxia Bank jointly launched a credit card operation in June 2007. Deutsche Asset Management is a strategic investor in Harvest Fund Management and both companies work closely on business development in China.

Related debt and equity market deals (2009-2010) include:

– Oct 2010 – AIA’s USD20.5 billion IPO

– July 2010 – Agricultural Bank of China’s USD22.1 billion IPO – the largest IPO in 2010

– May 2010 – USD600 million high-yield bond issue for Macau gaming operator Melco Crown

– April 2010 – USD900 million for Bank of China via a tap of its 5.55% Lower Tier 2 bond issue that was jointly-led by Deutsche Bank in February this year. The deal is also the largest-ever bank capital reopening transaction in Asia, according to Dealogic

– February 2010 – USD1.6 billion lower Tier 2 subordinated bond issue for the Bank of China, the largest ever single tranche bank capital deal from the Asia ex-Japan region

– January 2010 – USD 1.1 billion China Life Insurance Company Limited’s acquisition of 24.1% stake in Sino Ocean

– November 2009 – EUR1.75 billion bond issue for Hutchison Whampoa, the largest Euro-denominated bond issue from Asia ever and Hutchison’s first Euro bond issue since 2006

Level of Business (Recent Situation)

Financial figures (2011):

Revenue: 33.2 billion

Profit: 4.3 billion

Total assets: 2.164 trillion

Total equity: 2.4 billion

 

On July31, 2012, Deutsche Bank reported results for the second quarter 2012. Net income for the quarter was EUR 661 million, compared to EUR 1.2 billion in the second quarter 2011. Diluted earnings per share for the quarter were EUR 0.68, versus EUR 1.24 in the second quarter 2011. Pre-tax return on average active equity was 6.8%, versus 13.9% in the second quarter 2011.

Group Results

The Group’s net revenues in the second quarter 2012 were EUR 8.0 billion compared to EUR 8.5 billion in the second quarter 2011, a decrease of 6%, benefiting from foreign exchange rate movements, however. Revenues in Corporate Banking and Securities (CB&S) were EUR 3.5 billion, down EUR 451 million, or 11%, versus EUR 4.0 billion in the second quarter 2011. The decline in revenues was primarily driven by Sales & Trading (debt and other products) due to deliberately lower levels of risk incurred to correspond with subdued trading flow volumes and by Origination (equity) as a consequence of the current market conditions as well as strong IPO activity in the prior year’s quarter. Private & Business Clients (PBC) revenues were EUR 2.4 billion in the current quarter, down EUR 138 million, or 5%, versus EUR 2.6 billion in the second quarter 2011. The majority of the decrease was attributable to lower revenues in Post bank which reflect the non-recurrence of positive effects recorded in the second quarter 2011 and an ongoing low interest rate environment. These effects were partly compensated by impairments on Greek government bonds booked in the second quarter 2011. Generally lower market levels and increased market volatility led to decreased Advisory / brokerage revenues as retail clients continue to show a reluctance to invest. Asset and Wealth Management (AWM) revenues declined by EUR 85 million, or 9%, to EUR 891 million, impacted by significant positive effects from the realignment of Sal. Oppenheim in 2011 as well as low asset flows in Asset Management resulting from negative market impacts. Slightly offsetting the revenue decline, Global Transaction Banking (GTB) revenues increased to EUR 972 million, up EUR 87 million or 10% from the second quarter 2011 reflecting continued strong business momentum despite the low interest rate environment.

In the second quarter, the Bank’s performance was impacted by a volatile environment. The European sovereign debt crisis continues to weigh on investor confidence and client activity across the bank.

Blackstone

Introduction

The Blackstone Group is an American-based alternative asset management and financial services company that specializes in private equity, real estate, and credit and marketable alternative investment strategies, as well as financial advisory services, such as mergers and acquisitions (M&A), restructurings and reorganizations, and private placements.

Blackstone’s private equity business has been one of the largest investors in leveraged buyout transactions over the last decade, while its real estate business has actively acquired commercial real estate. Since its inception, Blackstone has completed investments in such notable companies as Hilton Worldwide, Equity Office Properties, Republic Services, AlliedBarton, United Biscuits, Freescale Semiconductor and Travelport.

Blackstone was founded in 1985 as a mergers and acquisitions boutique. It has evolved into one of the world’s largest private equity investment firms. In 2007, Blackstone completed a $4 billion initial public offering to become one of the first major private equity firms to list shares in its management company on a public exchange. Blackstone is headquartered at 345 Park Avenue in New York City, with eight additional offices in the United States and offices in London, Paris, Düsseldorf, Sydney, Tokyo, Hong Kong, Beijing, Shanghai, Mumbai and Dubai.

Blackstone in China

For any sensible global financial institution, China is a required course, not an elective. Here are actions BS took in China:

– May 2007 – CIC (China Investment Corporation) bought a $3 billion stake in Blackstone, holding nearly 9.9 percent. The U.S. private-equity firm continued to work closely with CIC by holding weekly discussions between the heads of Blackstone’s business units and their counterparts at CIC. Blackstone also sent staff to Beijing to help the fund in its early days. That relationship paid off as CIC struck a deal that allowed it to increase its stake in Blackstone to 12.5% through open-market purchases of shares, giving the U.S. private-equity firms a vote of confidence. CIC turned to Blackstone again this year as it dipped its toes into the hedge-fund industry by committing about $500 million to Blackstone’s hedge-fund-of-funds unit.

– September 2007 – Blackstone paid $600 million for a 20% stake in China National BlueStar (Group) Corp., a state-owned specialty-chemical maker. The deal took almost a year to close because of the need for Chinese government approval, giving Blackstone a taste of the difficulty in doing big China deals.

–2009 – Blackstone signs an agreement with the Government of Pudong, China, to establish the firm’s first Renminbi-denominated Blackstone Zhonghua Development Investment Fund.

– March 2010- A consortium led by Blackstone Group invested about $600 million in China Shouguang Agricultural Product Logistic Park ahead of its planned Hong Kong listing, The investment marks Blackstone’s first pre-IPO type deal in China as Shouguang plans to raise about $700 million in a Hong Kong initial public offering in the middle of this year after receiving investments from the Blackstone-led consortium.

– 2011- Blackstone completes the first close of its Renminbi (RMB)-denominated fund for equity growth investments in China, the Shanghai Blackstone Equity Investment Partnership (Limited Partnership).

Level of Business (Recent Situation)

Financial figures (2011):

Revenue: US$ 3.3 billion

Compound annual growth rate: 28 %( net total funds 16%)

AUM (assets under management): US$ 166 billion

On July 19, 2012, Blackstone reported its second quarter 2012 results.

Blackstone’s Second Quarter 2012 Earnings:

–Economic Net Income (“ENI”) was $212 million for the second quarter, down from $804 million in the same period a year ago, as difficult public markets impacted Performance Fees and Investment Income particularly in public and non-dollar denominated investments.

–Fee-Earning AUM reached a record $158 billion in the second quarter, up 22% over the same period last year, as $44 billion of gross inflows (including $10 billion from the Harbourmaster acquisition) more than offset $13 billion of capital returned to investors over the same period.

–Gross fee-earning inflows for the quarter were $5.8 billion, including fundraising for its latest global real estate fund, new private equity energy fund (“BEP”) and strong inflows in Credit Businesses and Hedge Fund Solutions

–Distributable Earnings for the second quarter of $188 million were roughly flat from the year ago period.

–GAAP Revenues of $627 million led to a Net Loss of $75 million after IPO and acquisition-related charges.

Blackstone has declared a quarterly distribution of $0.10 per common unit to record holders of common units at the close of business on August 15, 2012. This distribution will be paid on August 31, 2012

Conclusion:

The underlying business trends remained stable in the second quarter, and its investing businesses continued to generate solid relative performance. In an environment characterized by slowing global growth and heightened investor caution, limited partner investors are entrusting BS with a greater share of their capital. It ended the quarter with total assets under management of $190 billion, up 20% year over year. Its newest global real estate fund is over $12 billion in total size, which is the largest fund of this type ever raised. The firm has substantial dry powder capital to deploy over the next several years, and it remains focused on producing outstanding returns for investors over the long term by investing patient capital, improving companies and creating sustainable value.

 

 

HSBC

Introduction

HSBC is a universal bank and is organized within four business groups: Commercial Banking; Global Banking and Markets (investment banking); Retail Banking and Wealth Management (retail banking and consumer finance); and Global Private Banking. It has around 7,200 offices in 85 countries and territories across Africa, Asia, Europe, and Americas with around 89 million customers. As of 30 June 2012, it had total assets of $2.652 billion, of which roughly half were in Europe, a quarter in the Americas and a quarter in Asia. HSBC Holdings plc was founded in London in 1991 by The Hong Kong and Shanghai Banking Corporation to act as a new group holding company and to enable the acquisition of UK-based Midland Bank. The origins of the bank lie in Hong Kong and Shanghai, where branches were first opened in 1865. Today, HSBC remains the largest bank in Hong Kong, and recent expansion in mainland China, where it is now the largest international bank.

HSBC in China

HSBC Bank (China) Company Limited started operations on 2 April 2007 as a locally incorporated foreign bank. It is wholly owned by its parent, The Hong Kong and Shanghai Banking Corporation Limited, which is based in the Hong Kong Special Administrative Region. HSBC China incorporated the previous Mainland offices of its parent, which retains a branch in Shanghai that conducts foreign currency wholesale banking.

Established in Hong Kong and Shanghai in 1865, The Hong Kong & Shanghai Banking Corporation Limited has since had a continuous presence in mainland China and is the founding and a principal member of the HSBC Group.

HSBC is one of the largest investors among foreign banks in mainland China, having invested over US$7 billion in the growth of its own operations and in select Mainland financial services entities, including a 19% stake in Bank of Communications, a 15.57% stake in Ping An Insurance, and an 8% stake in Bank of Shanghai.

In Feb, 2006, HSBC Jin trust was founded in Shanghai. HSBC held 49 percent of its share, opening the prelude of HSBC’s stepping in fund market of China.

Level of Business (Recent Situation)

Financial figures (2011):

Revenue: US$ 105.804 billion

Operating income: US$ 42.215 billion

Profit: US$ 17.944 billion

Total Assets: US$ 2.555 trillion

Total Equity: US$ 158.725 billion

HSBC Holdings is expected to report stable second-quarter results today, thanks to its strategic divestments amid the volatile economic environment in Europe.

A Bloomberg median estimate puts HSBC’s first-half pre-tax profit at US$12.7 billion (HK$99.06 billion), up from US$11.5 billion a year ago.

Analysts believe the bank’s return on equity needs time to achieve the official 12 percent target. But its involvement in Libor and money-laundering scandals remains an overhang on its share price.

Europe’s largest bank is expected to make a US$200 million provision for costs after the bank was forced to apologize for failing to combat money laundering in its US operations.

Analysts are not in agreement as to how the scandal will affect the bank:

Deutsche Bank said HSBC’s share price was a little shaky recently when its Mexican branch was fined US$27.5 million in relation to the money- laundering control failures. However, the market may have priced in the impact, it added.

But the Swiss bank said compared with HSBC’s US$127 billion of first-tier capital, any fine will not cause long-term constraints. Europe’s largest bank will see worse performance in its investment branch – or global business and banking; – given the volatility in the financial market in the first half.

Deutsche Bank said the Hong Kong and Asia- Pacific business will continue to be the group’s main growth driver in the face of macroeconomic uncertainties, especially after it sold its US credit card business and its New York branch, which was settled in the second quarter.

Merrill Lynch said the slowing loan growth in emerging markets is holding back profit growth.

It estimates that return on equity will be at 9.1 percent by the end of this year, and believes the bank will struggle to achieve ROE as well as cost- efficiency targets.

The American bank added that in order to meet the incoming Basel III capital requirement, HSBC will have to set aside US$30 billion.

References:

Goldman Sachs second quarter 2012 earnings report

Morgan Stanley second quarter 2012 earnings report

Deutsche Bank Group in China& Hong Kong

Blackstone 2011 annual report

Blackstone second quarter 2012 earnings report

www.wikipedia.org

wiki.mbalib.com

finance.sina.com

pedaily.cn

finance.people.com.cn

www.goldmansachs.com

www.morganstanley.com

china.db.com

www.blackstone.com

www.hsbc.com.cn

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