Lex: Buying minority stakes in Chinese banks requires optimism
Minority wrongsSamuel Johnson, the 18th century man of letters, said optimism was worth “more than a thousand pounds a year”. Western banks eyeing a minority stake in Bank of China must hope it pays out a bit more these days. BoC and its compatriot, China Construction Bank, are the flagships of China's efforts to reform its large but creaking financial services industry. Until now, foreign banks have invested cautiously there, dipping in their toes with investments in mid-size regional banks. But now they are being offered stakes in the multi-billion dollar flotations of BoC and CCB. And, with China's pool of deposits estimated at over $2,500bn, it is no wonder the likes of Bank of America and UBS are tempted.
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China's big numbers are always difficult to argue with. But paying billions of dollars for a minority stake in a business plagued by corruption scandals requires rose-coloured spectacles of the brightest hue. Supporting listings of state enterprises in return for gaining entry to China's vast market makes sense on paper. But pulling it off has often proved tricky. BP, Shell and ExxonMobil all sold their stakes in Chinese oil companies Sinopec and PetroChina hardly a ringing endorsement of the strategy. Vodafone has absorbed a ￡300m write-off awaiting the big pay off from its 1997 China Mobile investment. There is speculation that the timetable to float BoC and CCB is slipping. Let us hope that that means foreign banks are thinking long and hard before making any great leap forward.
KarstadtQuelleKarstadtQuelle is unveiling another muddle designed by committee. The German retailer has appointed yet another new chief executive, who once again will probably prove a transitional figure. Christoph Achenbach, the outgoing boss, made some progress on divesting assets, refinancing the struggling company and getting employees to agree to pretty radical cost cuts, at least by German standards. Karstadt's next boss will no doubt promise more of the same. But it is hard to see exactly where swift improvements will come from.
Not so long ago the retailer's main problem was that its revenues were shrinking faster than costs, no matter how much it tried to chop the latter. Now, however, fears that it may become too cash constrained to order sufficient merchandise for the next Christmas season no longer seem outlandish. It remains unclear how much money will be left over from property disposals, once the pledges to Karstadt's creditors are honoured.
What is clear is that the group lacks the resources to make the investments needed for its department stores to draw in the crowds again, as its once solid mail-order business has lately also suffered. Mr Achenbach, who once led that business, must bear part of the blame. But he had barely 10 months in the top job and was dogged by rumours of his imminent departure for much of the second half of his term. This can hardly have strengthened his hand during asset sale negotiations.
PfizerPharmaceutical investors have come to dread the name cox-2. There was more bad news yesterday as Pfizer agreed to suspend one of its painkillers, Bextra, after regulators asked for its withdrawal. In financial terms, this comes at a sensitive time. This week Pfizer outlined big cost cuts to keep earnings moving forward amid a difficult patch for sales. Now sales will have to manage without Bextra, assuming it does not come back on the market.
But the loss of Bextra is hardly heart-stopping. Sales for this year were forecast to come in under $600m. It is hard to see the lost profits between now and the expiry of the patent exceeding $1bn to $1.5bn in present value terms, assuming margins of roughly 50 per cent. Pfizer's stock, however, lost far more than that slipping more than $3bn in early trading. Furthermore, there may even be a silver lining, which investors are not ready to appreciate yet. Celebrex, Pfizer's bigger painkiller drug, has been spared a suspension. So some Bextra sales may migrate to Celebrex. Indeed, there are tentative signs that the controversy surrounding the cox-2 class of drugs may have passed its worst moment; new prescription data for Celebrex from the past four weeks show an increase on the previous four weeks, according to AG Edwards. Furthermore, the regulator also asked for other painkillers, known as NSAIDs, to include a more prominent warning about potential side-effects. Sharing some of the regulatory pain could provide relief for Pfizer.
BootsThere is a distinguished tradition of newish chief executives putting the boot into their inheritance. Abiding by this, Richard Baker, after 19 months of running Boots, has concluded that the high street chemist was “operating an unsustainable model”.
Just how unsustainable is clear after a series of profit warnings over the past six months. New guidance for next year implies profits will decline for the third year in a row, leaving consensus operating profit estimates some 15 per cent below where they sat last autumn.
Gross margins, which have fallen as Boots has cut prices to compete with supermarket rivals, are expected to be flat. But other costs are rising sharply as aged infrastructure is replaced. And Mr Baker was gloomy about sales, promising a “much more difficult trading environment” for “the foreseeable future”.
All this appears to have led Boots to indulge in some financial tinkering, the merits of which are unclear. The proposed sale of BHI, Boot's successful over-the-counter medicines business, could raise about ￡1bn, or a fifth of Boots' enterprise value. But without BHI, Boots could be a business with declining sales. And, given that the residual business is investing heavily, BHI's sale will knock a disproportionate chunk from operating cash flow. If the proceeds are returned to shareholders, questions should be raised about the sustainability of Boots' dividend, which, offering a 4.9 per cent yield, is one of its few remaining positives.
Lex专栏：入股中国银行需要“乐观”
两百多年前，塞缪尔?约翰逊(Samuel Johnson)说，“乐观”二字“一年值一千多英镑”。目前在排队收购中国银行(Bank of China)少数股权的西方银行，必定希望这两个字更值钱一些。
中国力图改革其庞大但不稳定的金融服务业，而中国银行及其同行中国建设银行(China Construction Bank)是这一努力的主要部分。外国银行迄今在中国的步伐相当谨慎，它们只收购中型地区性银行的少数股权。
但预计中国银行和建行的上市将于今年晚些时候或明年进行。据报道，两家银行的上市总规模将达140亿美元。美国银行(Bank of America)和瑞士银行(UBS)等银行受到吸引，个中原因很容易看出，即它们可以进入一个全国储蓄价值超过2.5万亿美元的系统。坚定的乐观人士或许会补充说，到本世纪中叶，中国将成为世界最大的经济体。谁敢忽视中国呢？
怀疑中国的巨大数字总是很难。但支付数十亿美元，以在一家受贪污丑闻困扰的企业获得少数股权，需要投资者有最乐观的态度。还有，对许多国外企业来说，支持中国国有企业上市以换取较早在中国获得立足点，这种做法已证明很棘手。
英国石油(BP)、壳牌(Shell)和埃克森美孚(ExxonMobil)都抛出了它们持有的中国石油企业中石化(Sinopec)和中石油(Petrochina)股权。这些做法很难看成坚定支持。中国移动(China Mobile)也一直没有成为沃达丰(Vodafone)最令人信服的投资对象。人们猜测，中国银行和建设银行上市的时间表正在推后。但愿这意味着，国外银行在采取任何重大行动前，在进行长时间的慎重考虑。
Lex专栏是由FT评论家联合撰写的短评，对全球经济与商业进行精辟分析。
