Buying an investment bank is a notoriously difficult task, so we asked our readers last week what chance they gave to Citic Securities acquisition of CLSA, the respected Hong Kong-based broker.
The Chinese investment bank is paying just over $1.25 billion in the first big acquisition of a foreign broker by a Chinese competitor. It will be a challenging integration. CLSA, founded by two former journalists, has gained a reputation for strong, independent research and canny marketing — from the celebrity speakers it invites to speak at its annual investment forum, to its witty feng shui report.
Citic Securities, on the other hand, was founded by the state-owned Citic Group. It is China’s leading investment bank and has won plenty of plaudits, but maintaining CLSA’s enviable reputation (let alone its top talent) will be no mean feat.
What are the chances Citic Securities can make a go of it? We asked our readers last week in our online poll, and more than half gave it a fair-to-good chance, while the rest gave it a poor-to-nil chance.
CLSA is certainly not the Chinese bank’s first choice of foreign partner. It almost paid $1 billion for a stake in Bear Stearns after subprime losses in late 2007 made it seem like a bargain buy. It also considered buying Morgan Stanley in 2008 before Japan’s Mitsubishi UFJ agreed a deal to rescue the troubled US bank.
Citic Securities has been talking to CLSA for three years, during which time the two brokers have presumably worked out a deal that they believe will strike the right balance — creating a platform for the Chinese bank to gain a global presence, while retaining CLSA’s senior staff and its reputation for independence.
Even so, the odds seem stacked against Citic Securities. Banking acquisitions are challenging even for established global players such as Citi, which has been doing business overseas for more than 100 years. The learning curve is steep.