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Old 09-20-2008, 10:38 AM   #1
EYES WIDE OPEN
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Default Bank fo China Takes Stake in Rothschild Bank

http://business.timesonline.co.uk/to...cle4783449.ece

Bank of China took a stake in a branch of the celebrated Rothschild banking dynasty on Thursday, but ruled out a white-knight rescue of crisis-torn institutions in New York or London.

In a deal pitched loftily above the global turmoil engulfing financial markers, the Chinese bank said it would acquire 20 per cent of La Compagnie Financiere Edmond de Rothschild, one of Europe's few remaining independent merchant banks.

Chinese officials said the move would bring them expertise in financial products, whilst their French counterparts said it would open up the lucrative Chinese market.

Both sides portrayed the deal as an encounter between healthy institutions far removed from the crisis which has hit the likes of Lehman Brothers

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Analysts said the tie-up - announced as western banks struggle to avoid meltdown - underscored Chinese financiers' determination to flex their muscles in overseas expansion.

It comes after China Development Bank bought a 3.1 percent stake in Barclay's and the China Investment Corporation took a USD 5 billion slice of Morgan Stanley last year.

“This has nothing to do with the current stock market situation,” said a spokesman for the French bank, which is controlled by Benjamin de Rothschild.

“We are trying to develop our position in China because it is a gigantic market. Bank of China has 115 million customers and 1 million of them have more than USD100,000 in cash in their accounts.

“Those people want to transform the cash in financial products - and that's where we can step in.”

Xiao Gang, Bank of China's chairman, said: “This partnership forms part of Bank of China’s global development strategy. We expect to further strengthen our asset management operations and product design capabilities in private banking business, and widen the product and service offerings to our clients.”

But Min Zhu, the executive vice chairman, said Bank of China did not intend to move for move crisis-torn banks in the west.

“We don't have the capacity yet,” he said.

Bank of China will pay €236 million to buy a 10 per cent stake in the Rothschild bank from the Quebec Deposits and Investment Bank and acquire a further 10 per cent through the issue of new shares.

Mr de Rothschild will retain 75 per cent of La Compagnie Financiere.

His bank was at pains to stress that it had no need to raise cash through a rights issue, but had bowed to the wishes of its Chinese partner. The money will be used for external growth in Europe, a spokesman said.
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