Bear Stearns Teams up with China’s CITIC

Bear Stearns has joined hands with China’s CITIC. The two are going to buy about $1 billion of one another’s convertible debt, and upon conversion, CITIC will own about 6% of Bear while Bear will own about 2% of CITIC. Some are disappointed that Bear didn’t get a big equity investor, but CITIC does provide Bear with access to China, where it hasn’t had much of a presence until now. The deal still has to get done, though.

Reuters reported, “As part of the deal, Bear and CITIC will form a new Hong Kong-based capital markets joint venture doing business across Asia. Bear will contribute its Asia operations to the 50/50 venture. CITIC will transfer a Hong Kong unit to the venture and pay an undisclosed amount of cash to Bear.” That is in keeping with a statement from Bear Stearns Chairman and Chief Executive James Cayne, “We are confident that combining our operations in Asia with CITIC Securities will greatly benefit Bear Stearns’ global client base and generate substantial new revenues and growth opportunities for the firm.”

China is booming, and despite being part of a communist country, CITIC has seen its market value soar to $46.8 billion. That makes is bigger than Lehman Brothers and Bear combined. In fact, its stock has gone up 600% in the last year.

Bear Stearns, meanwhile, has lost about 28% of its value in the same period. Its market cap is around $13.4 billion. Two of its hedge funds have collapsed, and trouble in the mortgage business cost former co-President Warren Spector his job.

If this deal gets done, it will give both companies a boost. Bear needs to get out from under the subprime mortgage mess, and CITIC has to do something with all of its money and to develop some kind of global presence. For these reasons, one might expect things to close sooner rather than later.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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