Citigroup seeks higher China investment quota http://today.reuters.com/news/articlebusiness.aspx?type=ousiv&storyID=2006-09-07T112043Z_01_T49624_RTRIDST_0_BUSINESSPRO-FINANCIAL-SUMMIT-CHINA-CITIGROUP-DC.XML&from=business
Thu Sep 7, 2006
By Brian Kelleher and Jack Reerink
BEIJING (Reuters) - Citigroup Inc. (C.N: Quote, Profile, Research), the world's most valuable bank, has applied to raise its Chinese securities investment quota as it seeks to strengthen its foothold in the mainland's developing capital markets.
Citigroup already has a Qualified Foreign Institutional Investor (QFII) quota of US$550 million to invest in Chinese stocks and bonds, and the bank is keen to raise that amount, China Chief Executive Richard Stanley told the Reuters China Century Summit in Beijing.
"The QFII business has been very successful. We have the second-largest quota right now, and we'd love to increase that," Stanley said, declining to give the application amount.
The New York-based financial services giant, which plans to add three China outlets in coming months for a total of 15 locations, also wants to play an active role in China's fledgling securities markets.
"I would look forward to the opportunity to participate in the domestic securities business," Stanley said when asked about the potential of setting up a securities joint venture, but he declined to go into further detail.
Goldman Sachs (GS.N: Quote, Profile, Research), Merrill Lynch (MER.N: Quote, Profile, Research) and UBS (UBSN.VX: Quote, Profile, Research) have struck partnerships in the mainland securities industry, but Beijing put a hold on granting any new licenses late last year.
Citigroup, which has a market value of US$244 billion, is part of a group including Credit Suisse (CSGN.VX: Quote, Profile, Research) and JPMorgan (JPM.N: Quote, Profile, Research) that does not want to be left out of the securities sector.
The bank, which will be allowed to sell local currency products to Chinese individuals when the market opens up under WTO obligations in December, has put high hopes on its retail banking operations, from mortgages and consumer loans to funds.
"All of this to a huge degree is dependent on the development of the capital markets," said Stanley, a New York native who has been in his current job since January 2005.
Indeed, as foreign banks prepare to target local consumers, their efforts are stymied by a lack of derivatives, corporate bonds and funds -- exactly the type of products people need to finance their retirement.
MASSIVE POTENTIAL
JPMorgan estimates that Chinese domestic stock listings will raise about $10 billion this year, which includes a simultaneous Hong Kong-Shanghai listing from Industrial & Commercial Bank of China (ICBC.UL: Quote, Profile, Research) that could be worth a total of $21 billion.
QFII and securities businesses will be parts of the broader China expansion strategy of Citigroup, which has more than 3,000 employees in the country and is hiring about 100 people a month.
Beijing began the QFII scheme about three years ago when it gave UBS the first quota. There are now more than 40 international banks and asset managers with quotas totaling more than $7 billion, which will eventually rise to $10 billion.
Stanley said that Citigroup is focused on growing its own business. But the bank is also leading a consortium bidding for a combined 80 percent stake in Guangdong Development Bank worth more than $3 billion, sources say. It also has announced plans to increase its stake in Shanghai Pudong Development Bank (600000.SS: Quote, Profile, Research), its partner in a venture that has issued about 400,000 credit cards, to 19.9 percent from less than 5 percent.
Stanley declined to comment on both.
The bank, along with partners including top life insurer China Life Insurance Group (2628.HK: Quote, Profile, Research) (LFC.N: Quote, Profile, Research) and buyout firm Carlyle Group (CYL.UL: Quote, Profile, Research), is competing with France's Societe Generale (SOGN.PA: Quote, Profile, Research) for Guangdong Development Bank in a bidding that sources say may be resolved by the end of the month.
China is finalizing rules ahead of its WTO opening that may include requiring foreign banks to incorporate locally, pay higher taxes and put up an additional 1 billion yuan (US$126 million), proposals that have met with some controversy from overseas bankers.
But Stanley said Citigroup, which made only a small percentage of its $735 million in non-Japan Asian profits from China in the second quarter, has worked well with regulators.
"The process has been very open and consultative," he said.
(US$1=7.948 yuan)
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