China’s finance firms target Europe’s distressed assets

Beijing is urging Chinese financial institutions to push beyond emerging markets and buy up distressed banking assets in Europe.

In a landmark deal announced last week, Haitong Securities bought Portuguese Banco Espirito Santo de Investimento from bailed out bank Novo Banco for €370m. This is the first purchase of a European investment bank by a Chinese company.

According to Reuters, this marks a shift towards smaller deals with bigger controlling stakes on the part of China’s finance giants. According to its data, out of the $3.2 billion worth of overseas deals that China made last year, three three-quarters were majority stake purchases.

This change of approach helps Chinese firms to acquire European banking licences that accelerate growth and market penetration for the wider group, as well as gaining invaluable expertise, particularly in debt markets.

“Increasingly, Chinese financial firms are seeking control deals as a way to expand their global footprint,” said Mayooran Elalingam, head of Asia-Pacific M&A at Deutsche Bank. “Several distressed opportunities are available in euro zone economies and we expect the Chinese financial services sector to be active in these situations.”

The push is reported to be actively encouraged by the Chinese government as part of a strategy to increase overseas banking outlets and establish RMB as a key currency in international trade.

For now, the superpower’s finance industry appears to be testing the water with lower-value deals. Whether they will soon have the confidence to bid for Europe’s flailing commercial banks remains to be seen.

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