International investment banks may be preparing to sell their stakes in Chinese mainland banks after the government mandated lockup periods expire to shore up their depleted capital resources, said analysts.
"Investment banks may be in immediate need of capital, forcing them to sell shares in Chinese mainland banks as soon as it is legally permitted. That would put mainland banks under short term selling pressure," said Dick Lee, corporate finance officer, Phillip Securities.
Conita Hung, head of equity markets at Delta Asia Financial, said some of the investment banks, however, may hold their shares, to help secure their future growth on the mainland.
"Unless they have an urgent need for capital, they may hold on to their shares. The mainland market still has good potential for investment banks," Hung said.
Early in December 2008, Switzerland's largest bank UBS AG sold 3.4 billion shares of its holdings in Bank of China. The sales, to professional investors, came as the government mandated, three-year prohibition on sale of shares ended on Dec 31.
UBS reported losses and write-downs totaling almost US$49 billion. By selling its stake in Bank of China, UBS realized a return of about US$400 million. The Zurich-based investment bank purchased a 1.6 percent stake in Bank of China in 2005 for US$500 million.
Hung said the Industrial and Commercial Bank of China (ICBC), China's biggest bank in terms of market value, may be the next Hong Kong-listed mainland bank to be hurt by the market miseries. The lockup period on its shares ends in April.
"However, the other mainland banks may encounter relatively less selling pressure. They already have gone past their lockup periods," she added.
Redford Securities head of research Kenny Tang said the sell off of Bank of China shares will not affect the fundamental strength of the mainland banks. The current impact has been isolated in securities markets.
In mid-December, Bank of America announced it planned to sell US$2.8 billion of its shares in China Construction Bank. Bank of America had previously increased its holdings in China Construction Bank in June and November 2008.
Bank of America's sale of shares, however, fell under prohibitions set by Chinese Securities Law. Under the law, investors holding more than 5 percent of the shares of a local, publicly-traded company are banned from selling their shares within six months from the date of purchase.
Tang said the prohibition reflects the central government's concern over short-term trading by major shareholders.
"Any short-term investment may trigger an impact on the shares in the midst of the sluggish market," Tang said.
Bank of China finished up 1.84 percent yesterday.
(China Daily January 6, 2009)
