Bear Stearns, China's CITIC Securities forge alliance
Posted: 22 October 2007 2303 hrs

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NEW YORK : US investment bank and brokerage Bear Stearns and China's CITIC Securities Co. Ltd announced a strategic alliance on Monday in a deal involving investments of at least two billion dollars.

Under its terms, the two securities firms will seek new business opportunities in China's rapidly-growing economy while forging a joint venture company to combine the existing businesses of both groups in Asia.

Bear Stearns will invest one billion dollars in CITIC, and the Chinese company will invest one billion dollars in the storied Wall Street investment firm giving it a six percent shareholding in Bear Stearns.

The firms said CITIC could potentially raise its shareholding in Bear Stearns to 9.9 percent. Bear Stearns is seeking Chinese regulatory approval to acquire a similar stake in CITIC for around one billion dollars.

"This ground-breaking alliance will give Bear Stearns a unique footprint in one of the world's fastest-growing economies," Bear Stearns chairman and chief executive James Cayne said in a statement.

Wang Dongming, the chairman of CITIC Securities, praised the deal's prospects, saying the tie-up would enable the Chinese firm to expand its securities, investment banking and asset management operations.

China's government is CITIC's biggest shareholder through the CITIC Group.

As part of the accord, which has won approval from both companies' boards of directors, Bear Stearns and CITIC will form a new Hong Kong-based company which they said would offer "a broad range" of capital markets services on a pan-Asian basis.

Executives plan to market the companies' services to international companies seeking access to Asian capital markets as well as to Chinese companies looking to expand internationally.

The alliance was unveiled days after CITIC sought to squash market rumours on Thursday that it had entered talks to buy a stake in Bear Stearns.

Bear Stearns, which traces its history to 1923, has had a troubled year.

Earlier this month, it was forced to merge two mortgage subsidiaries and eliminate 310 jobs due to the downturn in the US housing market.

The job cuts came after Bear Stearns in late July disclosed hefty losses endured by two hedge funds it managed for wealthy clients.

It was forced to close down its Enhanced Leverage Fund following losses of hundreds of millions of dollars tied to risky bets in mortgage-backed securities.

A separate fund that Bear Stearns ran, the High-Grade Fund, also floundered because of similar wagers tied to sub-prime mortgages.

Such mortgage loans, granted to Americans with stretched finances, have been plagued by late payments and a rising tide of home foreclosures.

Bear Stearns overhauled its top management ranks in the wake of the hedge fund losses.

Investment funds controlled by British billionaire Joseph Lewis earlier this year amassed a seven percent stake in Bear Stearns for over 860 million dollars.

The tie-up between Bear Stearns and CITIC is subject to regulatory approvals in the United States and China. - AFP/de