Goldman faces tough choice over ICBC stake
Goldman Sachs faces a difficult choice in China. Last April, the Wall Street firm pledged not to sell most of its 5 percent stake in Industrial and Commercial Bank of China for one year. That year ends on April 28. It must be tempting to sell, before the market is flooded with new bank stocks. But certain clients might not like that one bit.
The Wall Street bank won goodwill in China last year when it stuck by 80 percent of its holding in ICBC which is now worth $9 billion. Other Western financial groups, such as capital-starved UBS and Royal Bank of Scotland , unloaded shares in Chinese banks as soon as they had the chance, leaving a sour taste in the mouth of Chinese regulators.
Taking some profit now looks appealing. ICBC shares have risen about 50 percent since last year’s lock-up announcement.
A potential flood of new supply may push down Chinese banking stocks. The country’s lenders may raise about 500 billion yuan ($73 billion) in 2010, according to a banking regulator. One major source of new stock will be Agricultural Bank of China, whose $20 billion initial public offering Goldman itself is arranging.
There may be other pressures to sell. Half of Goldman’s ICBC shares were owned by funds that included staff and some outside investors. They may be eager to cash in now their investment has roughly quadrupled in value. They may also be reluctant to follow any big ICBC capital-raising later in the year.
But Goldman’s hands are probably tied. Chinese banks may interpret a Western bank dumping stock as a threat to their own capital raisings. Even last year, when Chinese lenders were flush with capital, a Bank of China spokesman blamed foreign strategic investors for “extracting the firewood from under the cauldron”. With Goldman already facing accusations from U.S. lawmakers that it puts itself above its clients, the stakes are high.