Chinese takeover of European bank could be first of many

A move by Haitong Securities, China’s second-largest brokerage, to take over Portuguese investment bank Banco Espirito Santo de Investimento (BESI) may herald a series of Chinese takeovers of Europe-based investment firms and banks, say experts.

A lackluster outlook for Europe’s economy and booming revenue for Chinese securities and financial firms will likely prompt Chinese companies to take an increasing share of the European market through takeovers during the next year.

Europe faces the prospect of recession and possible deflation, affecting profit outlooks of securities firms on the continent, while the euro has also weakened, making European valuations cheaper than those in other currencies. Banco Espirito Santo, the parent of BESI, was itself bailed out earlier this year after it reported losses on loans to its parent companies.

Meanwhile, rapid gains in Shanghai’s stock market and a surge in trading volumes have driven average valuations of Chinese securities to their highest in four years, according to data from Bloomberg News. Gains are expected to continue, too, with analysts forecasting an average 34 percent increase in earnings growth for Chinese brokerages over the next year as the country’s regulators continue to open up stock trading accounts at an accelerated pace.

Shares of the state-owned Haitong Securities surged more than 12 percent on Friday, with intra-day gains of more than 21 percent recorded the day after it announced it was in talks to take over BESI, as investors cheered the prospect of diversification and added value. The stock has gained almost 40 percent this year.

‘I’m surprised it’s not happening faster,’ says Lawrence Chen, an equities analyst at CCB International Securities, in an interview with the South China Morning Post, referring to Chinese takeovers of European financial companies. ‘I think this has been China’s intention since 2007.’