Bank of China drops Rothschild stake deal

State-run Bank of China said it had dropped a planned 2.3 billion yuan ($336.6 million) investment in French bank La Compagnie Financiere Edmond de Rothschild after failing to get approval from Chinese authorities.

China has stepped up its scrutiny of overseas investments by domestic financial institutions since companies such as Ping An Insurance and China Investment Corp (CIC) suffered high-profile losses investing abroad.

Spokesman Wang Zhaowen said Beijing-based Bank of China would not extend a March 31 deadline and the plan to buy 20 percent of the private banking and asset management business of the historic Rothschild family, agreed in September, had lapsed.

"We failed to obtain approval from relevant Chinese authorities for the deal," Wang said. "However, we will continue to seek other forms of business cooperation with Rothschild."

In a notice issued in February, the China Banking Regulatory Commission, the industry watchdog, told the country's five biggest lenders, including Bank of China and Industrial & Commercial Bank of China, that it would step up regulation of their overseas acquisitions and investment.

"The government is getting cautious toward banks' overseas acquisitions, fearing that foreign assets involve unseen risks," said Jin Lin, analyst at Everbright Securities Co.

"It's a frustration for Bank of China, which has been seeking to strengthen its high-end private banking business through foreign partnerships."

Bank of China and Rothschild had said they would cooperate in private banking and asset management in China, France and other strategically important regions once the deal was approved.

Bank of China invested in Geneva-based asset manager Heritage Fund Management (HFM) last year and started operating a private bank and an asset management firm in Switzerland.

The bank also cooperates in private banking with the Royal Bank of Scotland, which sold its strategic stake in the Chinese lender earlier this year.

Chinese regulators have taken a stricter stance on overseas acquisitions since Ping An's failed investment in Belgian-Dutch financial services firm Fortis NV and CIC's high-profile losses on stakes in Blackstone and Morgan Stanley.

The last foreign bank purchase to get regulatory approval was China Merchants Bank's acquisition of Hong Kong's Wing Lung Bank Ltd last year. Merchants Bank said this month it would book a provision against that purchase.

Bank of China shares rose 3.9 percent in Hong Kong on Thursday, lagging a 5.7 percent jump on the benchmark Hang Seng index.

(US$=6.8334 yuan)

[Source: Reuters, Hong Kong, 02Apr07]

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