Bear Stearns Cos, a U.S. investment bank badly hit by the mortgage crisis, and China’s CITIC Securities Co agreed to swap stakes in each other and form a broad alliance, Reuters reports.
The deal will give Bear Stearns access to the China market, a financial hotspot, and Citic more western presence. Bear Stearns is known to lag behind other rivals in international presence.
Peter Goldman, a portfolio manager at Chicago Asset Management, which invests $500 million and owns Bear stock, told Reuters investors might be disappointed that Bear did not land a large equity investor.
“It’s different than what most people were looking for. It may be a little disappointing,” Goldman says. “People thought there would be a huge capital infusion, not a quid pro quo business partnership.”
Jimmy Cayne, chairman and chief exectuive at Bear Stearns, reiterated that his company does not need a capital infusion. “We’re in a very good position,” Cayne says.
Bear shares were up $1.07 to $117.48 in afternoon trade on the New York Stock Exchange. The stock is down 28% this year amid the collapse of two Bear-run hedge funds and disruption in its fixed-income business, which has been hurt by widespread deterioration in the mortgage market.
The preliminary agreement has CITIC investing about $1 billion in Bear Stearns securities, which is about 6% of the New York-based investment bank.
The companies in a statement said the alliance will include broad collaboration in China and the development of new securities for the rapidly growing Chinese market.
As part of the deal, Bear and CITIC will form a new Hong Kong-based capital markets joint venture doing business across Asia. Bear will contribute its Asia operations to the 50/50 venture. CITIC will transfer a Hong Kong unit to the venture and pay an undisclosed amount of cash to Bear, Reuters says. Bear and CITIC said they expect to have representation on each other’s boards of directors.
Bear Stearns’ market value has tumbled to $13.4 billion. Plunging values in U.S. mortgages and derivative securities led to collapses at two of its hedge funds, losses in its flagship mortgage business, and the ouster of Warren Spector, co-president. Those recent struggles fueled speculation that Bear Stearns would sell all or part of it self.