China's largest stockbroker Citic Securities and French firm Credit Agricole have inked a deal to combine their global brokerage and investment banking businesses.
As per the terms of the alliance, CLSA and Citic will enter a joint venture for the research, broking and equity capital markets businesses in China, putting the Hong Kong-based brokerage in a good position to become the dominant foreign player in the China brokerage business. CLSA is 65%-owned by Credit Agricole.
Financial terms of the deal have not been disclosed and details of how the JV will be managed in China and the exact representation of Citic and CLSA on the board of the JV are still being ironed out. This suggests the alliance is not yet a done deal. However, the decision of both parties to publicise the memorandum of understanding they have signed suggests a high level of confidence that the remaining issues are close to being resolved.
CLSA already has a China joint venture with smaller Chinese brokerage Fortune Securities (under the name of China Euro Securities), which it initiated in 2003. Citic will take a stake in China Euro and the businesses which the two firms have agreed to partner on will be folded into China Euro over time, said the source.
CLSA and Citic will start working together shortly to ensure that international best practices are imported to Citic's China operations, said a source close to the development. Citic will continue to do the other businesses which are not being transferred to the JV.
Citic will collaborate with Credit Agricole when it comes to global equity capital markets, derivatives and investment banking. The Chinese securities firm will also merge its offshore businesses, which is principally its Hong Kong operations, into CLSA. All Citic employees outside China will over time be absorbed into CLSA, said the source, though exact modalities are yet to be ironed out.
CLSA will continue to operate independently in terms of management and decision making and its focus will remain on the product which has driven its high industry standing -- independent research. Credit Agricole will continue to be the controlling shareholder of CLSA, with a 65% stake, meaning nothing will change for CLSA's customers in terms of counterparty risk.
The deal brings together the origination skills of Citic in China and the distribution skills of CLSA, which should create a very strong player in the global broking arena.
Citic has been shopping for a joint venture partner for a while, as it seeks to leverage its dominant position in China to grow its business offshore. In October 2007, Citic and Bear Stearns entered into a $1 billion alliance and an investment banking joint venture to cover Asia, with specific emphasis on China. However, J.P. Morgan's subsequent bailout of Bear Stearns in March 2008 scuppered those plans. Media has reported that Credit Agricole and Citic have been in discussions since the Bear Stearns deal collapsed, but sources close to the development refute this, saying discussions have been ongoing for a while, but not for as long as two years.
The deal is still subject to regulatory approval in China.