John's Feed
Sep 6, 2012
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China’s “guanxi” system may cost Wall Street dear

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By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Do a favor, get a favor. That’s how China works, and banking is no different. In keeping with the country’s “guanxi” system of personal relations, Citi, UBS and Goldman Sachs all helped out troubled financial firms in the past and received privileges for it later. Rivals have not been so fortunate, however. And there’s the risk that one favor leads to demands for more.

Sep 6, 2012
via Breakingviews

China’s “guanxi” system may cost Wall Street dear

Photo

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Do a favour, get a favour. That’s how China works, and banking is no different. In keeping with the country’s “guanxi” system of personal relations, Citi, UBS and Goldman Sachs all helped out troubled financial firms in the past and received privileges for it later. Rivals have not been so fortunate, however. And there’s the risk that one favour leads to demands for more. Citi won goodwill by restructuring troubled Guangdong Development Bank in 2006. In return for such support, it now has 51 branches on the mainland – more than any other U.S. lender. Last month, it became the first global bank to issue its own credit cards in China. Goldman Sachs and UBS have also benefited. Goldman acquired the licenses of failed Hainan Securities in 2004, and was allowed to establish its own brokerage in a structure no competitor has since been allowed to mimic. UBS helped reform Beijing Securities, and got to take a direct stake in the brokerage – a format that also remains uncopied. There are other ways to earn guanxi. Lending banks like Standard Chartered and HSBC have grown in China thanks in part to concessions like running rural banking schemes, or opening branches in economically less attractive locations. HSBC, Goldman and UBS all bought stakes in Chinese banks and helped to transfer skills and technology. The system doesn’t always work smoothly. Nomura accepted Chinese trainees as far back as the 1980s, but is one of the few banks still without a mainland joint venture to issue domestic equities. HSBC recently bought shares in a private placement by partner Bank of Communications, just two years after pumping almost $1 billion in through a rights issue, yet a three-year old credit card venture between the two remains unapproved. Guanxi-based market access can also store up future problems. China’s lenders have doubled their loan books since 2009, and there are signs that overdue loans are now mounting. If small banks get into trouble again, Western banks that were helpful in the past may face demands for a new round of favours.

Aug 13, 2012
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Besieged StanChart needs governance booster

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Standard Chartered needs a governance booster. The UK-based bank is under attack from a New York financial regulator over trades for Iranian clients that could see the bank landed with a huge fine, or worse. A stronger board wouldn’t have prevented the assault, but it might help the bank recover more quickly.

Aug 10, 2012
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Public investors lose in Mongol mining battle

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Mongolia’s treatment of the Chinese bid for coal-producer SouthGobi shows that the state which birthed Genghis Khan has lost none of its warlike spirit. Politicians seem determined to spike an offer from China’s state-owned Aluminium Corp of China (Chalco), which also involves mega-miner Rio Tinto and China’s sovereign wealth fund. A truce is possible, but public investors look likely to lose out.

Aug 8, 2012
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StanChart anti-U.S. rant will resonate

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The stand-out quote in the New York financial regulator’s attack on Standard Chartered is the description of an unnamed banker allegedly railing at “f—ing Americans” who “tell us, the rest of the world, that we’re not going to deal with Iranians”. This charmless F-bomb will rankle domestically, but may resonate further afield.

Aug 7, 2012
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StanChart sanction crisis poses cultural questions

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

(Note strong language in paragraph 3)

Standard Chartered’s true sanctions crisis could be over culture, not cash. The bank has hit back at the claim by a U.S. regulator that it hid $250 billion worth of trades for Iranian clients in order to dodge U.S. sanctions between 2001 and 2010. The denial is robust, but the case still raises worrying questions about how StanChart approached regulatory requirements. Given the limited changes in the bank’s top team, these will be harder to brush off.

Aug 2, 2012
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Olympics a bad metaphor for economic rivalry

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

China breaks the rules. The United States loses its edge. As for Britain, it barely registers at all. It’s easy to see the Olympic Games as a metaphor for economic rivalry. Fortunately, the real world is different, and can be much more harmonious – if everyone basically plays fair.

Jul 26, 2012
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Beijing rains warn investors about political climate

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Beijing’s weekend floods inflicted an unusually high human cost for a modern city. Attempts to squash criticism of the response made matters worse. The lesson isn’t just that Beijing needs better drains, but that anxiety is acute ahead of next year’s leadership change. For investors, the equivocal way China handles crises alters the political risk premium.

Jul 26, 2012
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Nomura resignations pave way for the Lehman unwind

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The resignations of Nomura’s two top executives may close the chapter on the Japanese firm’s plan to become a global player in investment banking. Departing Chief Executive Kenichi Watanabe and Chief Operating Officer Takumi Shibata led the opportunistic swoop on bankrupt Lehman Brothers in 2008. They are leaving mainly due to an unrelated insider trading scandal. But Lehman isn’t working, and the pair’s replacements have a chance for a dignified unwind.

Jul 24, 2012

CNOOC’s state control is a paper tiger

(The author is a Reuters Breakingviews columnist. The
opinions expressed are his own)

By John Foley

BEIJING, July 24 (Reuters Breakingviews) – Opponents of
CNOOC’s (0883.HK: Quote, Profile, Research) $15 billion bid for Canadian oil producer
Nexen (NXY.TO: Quote, Profile, Research) will focus on the idea that the Chinese energy
major is a Trojan horse for the Communist Party. Similar fears
derailed CNOOC’s bid for U.S. producer Unocal in 2005. Such
arguments are unhelpful. State ownership is real, but state
control is a paper tiger.