China's CITIC Securities Co. is to cancel a deal to buy into Bear Stearns after news that the fifth largest investment bank in the United States is to be bought out by JPMorgan Chase & Co.in a bid to save the troubled lender.
"We will not carry out the deal -- the situation has changed," Tuesday's China Daily news quoted CITIC Group chairman Kong Dan assaying.
JPMorgan Chase & Co.'s agreement to buy Bear Stearns for 236.2 million U.S. dollars represents a stunning collapse for one of the world's largest investment houses.
The newspaper also reported that CITIC Securities, the country's largest securities firm in term of market value, had also scrapped plans for a joint venture in Hong Kong with Bear Stearns.
Sources with CITIC Securities would not confirm the report and refused to comment when contacted.
China's CITIC Securities Co. said in a prospectus on Monday that it could not guarantee that it would sign a final agreement to buy shares of Bear Stearns, and it had not yet paid the lender.
"Deals between CITIC Securities and Bear Stearns are very likely to be aborted. If the lender can't tide over the financial risks, cooperation will certainly fail," said Dong Siyi, an analyst with China Galaxy Securities Company.
Wu Youhui, an analyst from GF Securities, expressed the same concern, saying the proposed failure was a signal that Chinese companies were being more cautious toward overseas investment.
As part of the deal with CITIC, Bear Stearns was expected to invest 1 billion U.S. dollars in CITIC Securities. Kong would not say whether that investment would be canceled too.
Bear Stearns and CITIC Securities agreed in October last year to a cross-investment plan.
Under the agreement, CITIC was to invest 1 billion U.S. dollars for about 6 percent of Bear Stearns, while Bear Stearns would take a 2-percent stake in CITIC Securities. They also planned to set up a joint venture in Hong Kong.
The share price of CITIC Securities was 105.93 yuan and Bearn Stearns shares were priced at 120 U.S. dollars when they sighed the deal. They had dropped to 58.50 yuan and 30.85 U.S. dollars respectively on Monday.
CITIC Securities' final earnings reports of 2007, released on Monday, showed a fivefold increase in net profit to 12.39 billion yuan (1.77 billion U.S. dollars), or 4.01 yuan per share.
"Compared to Bear Stearns's bleak financial prospects, CITIC Securities has many other good investment opportunities. It is wise for CITIC to withdraw form the deal," said Dong Siyi.