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CCB mulling Bear Sterns stake

China's state-run China Construc-tion Bank (CCB, 中國建設銀行) has begun talks on a deal to take up to a one-fifth stake in US investment bank Bear Stearns, a report said yesterday.

The move, which would make the Chinese lender the US bank's largest single shareholder, is designed to give Bear Stearns access to the growing but difficult Chinese market through a tie-up with a local financial institution.

Although no deal was imminent, the Financial Times said the talks were likely to raise concerns in the US as they had the potential to see for the first time Chinese interests becoming a significant shareholder in a major Wall Street player.

The newspaper, citing "people familiar with the matter," said the two sides were discussing how a deal would work.

It said one possibility would see the Chinese bank buying convertible bonds in Bear Stearns that could later be turned into a 20 percent equity stake.

The deal would also give CCB a seat on the US bank's board, the report added.

The Wall Street Journal in a similar report said the deal could be worth as much as US$4 billion.

If such a deal were to go ahead it would make it the largest Chinese investment in a US company since Beijing-based computer group Lenovo (聯想) completed in May last year its US$1.75 billion acquisition of IBM's personal computer (PC) unit.

The prospect of a Chinese firm buying into a reputable Wall Street firm could again make regulators nervous, just like when China National Petroleum Offshore Oil Corp (CNOOC, 中國海洋石油) attempted the acquisition of Unocal, ending in a dramatic failure last July due to political opposition in Washington.

It also comes as Chinese President Hu Jintao (胡錦濤) visits the US where trade and protectionist issues will be high on the agenda.

Nevertheless a potential agreement between the banks may not spark the same level of concern on Capitol Hill given that Bear Stearns was a smaller Wall Street firm, one analyst said.

"If there were a deal it would be a major investment and not a controlling stake," Chen Xingdong (陳興動) at BNP Paribas in Beijing said.

"As long as there were no misunderstanding between both sides then I think the possibility is there," said Chen, adding that neither could the US afford to be seen as overly protectionist of domestic assets.

Meanwhile, a spokesman at the Chinese bank headquarters in Bei-jing denied the talks were taking place.

"We have confirmed that no such plan is underway," he said.

Bear Stearns in Hong Kong refused to comment.
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