August 06,2008

CDB Wants to Acquire Dresdner Bank, But Regulators Are Hesitant

By CSC staff
 

After upping its stake in Barclays last month, China Development Bank (CDB) is set to make another overseas acquisition move. It has submitted a report to supervisory departments concerning the acquisition of Germany-based Dresdner Bank.

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CDB will bid jointly with another German bank, Commerzbank AG, for Dresdner, and has already conducted due diligence. 

A source told China Business News that supervisory departments are cautious towards CDB’s investment in Dresdner Bank. The deal may be suspended until rules governing overseas acquisitions of financial institutions, now being drafted by the Ministry of Finance, People’s Bank of China, China Banking Supervisory Commission, China Securities Supervisory Commission, and China Insurance Supervisory Commission, are released.

This is CDB’s third stab at buying into an overseas financial firm. In July, 2007, CDB bought 201.4 million shares for a 3.1% stake in UK-based Barclays with £1.5 billion and became one of Barclays?biggest shareholders. Last month, CDB increased its investment in Barclays by £136 million, out of Barclays?new round of financing totaling £4.5 billion, to maintain its 3.1% stake.

In March, 2008, CDB signed a contract with Citigroup to take a 1% stake in the US mega-bank by buying $2 billion of its priority convertible bonds, but the deal was canceled when supervisory departments disagreed.

CDB governor Chen Yuan has dreams of developing CDB into a global bank. Accelerating overseas development has become CDB’s development strategy. However, the yet on-going sub-prime crisis has supervisory departments paying close attention to potential risks to Chinese financial firms brought on by overseas investments. Supervisory bodies are drafting rules governing overseas acquisitions of financial companies, according to which supervisors can tell Chinese firms to cancel overseas acquisitions if sufficient losses, financial or personnel, befall the targeted overseas financial firm.

Due to sub-prime troubles, Barclays?share price has ebbed since the second half of last year, at one point to a ten year low of 293 pence/share, and closed at 339.25 pence/share on August 4. CDB’s purchase price in July, 2007, was 720 pence/share, so its initial investment in Barclays had suffered a 50+% loss by August 4.

Dresdner Bank, consisting of personal, corporate and investment banking sectors, is one of Europe’s biggest banks. The company’s branch network in Germany totals 1074, the country’s most extensive. Allianz Group acquired most of its shares for ?3.5 billion in 2001.

Dresdner Bank saw a 53% decline in its net profit last year, pulling down Allianz Group’s share price. Since it declared to acquire Dresdner Bank on April 1, 2001, its share price has lost over 60% of its value.

   

 

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