In the past few years, hundreds of wealthy Chinese have used Portugal’s “golden visa” scheme to gain a foothold in Europe. Now Haitong Securities is attempting the corporate equivalent by snapping up the investment banking arm of bailed-out Banco Espirito Santo for 379 million euros ($466 million). Though the brand is damaged and many staff have quit, it’s a relatively low-risk way for the Chinese broker to build an international network.
The history of investment banking is littered with disastrous acquisitions. Culture clashes, mass defections and heavy losses are the norm. It’s hard to see why Haitong, which until recently had no meaningful presence outside Greater China, will have any greater success trying to revive a traumatised firm. Besides, BESI, as the business is known, was never much of a player in European investment banking.
Nevertheless, the Chinese broker has several factors working in its favour. Golden visas aside, the People’s Republic is investing heavily in the euro zone periphery. Growing use of the yuan is stimulating demand for investments denominated in the Chinese currency. Most importantly, BESI has offices and all the necessary licences to operate in London and New York as well as Lisbon. Replicating that network from scratch would have cost Haitong a lot of money and time. The 750 remaining staff will probably prefer to work for a solvent Chinese institution than the Portuguese government.
Besides, the costs look under control. Despite its parent’s woes, BESI was marginally profitable in the first half of the year. The purchase price represents just 60 percent of its net assets at the end of June. That’s a manageable financial risk for a firm whose market value has recently soared above $30 billion - making it bigger than Japanese rival Nomura.
Haitong’s cautious approach echoes the tentative steps taken by China Construction Bank and Industrial and Commercial Bank of China, which have made small overseas acquisitions in recent years. At least its global ambitions are starting from a small base.