Citic Securities Set to Acquire CLSA?

Citic will soon acquire all of CLSA if it can offer sufficient assurances that the latter will remain free to operate the way it has up to now. But that could be a big if.


Beijing-based Citic Securities Co., China’s largest brokerage firm by market capitalization, is taking the first step to become one of Asia’s largest regional investment banks. Last Friday it acquired for $310 million a 19.9 percent stake in Hong Kong–based CLSA, formerly known as Credit Lyonnais Securities Asia, from Paris-based majority owner Crédit Agricole. But the final step may be a bit tricky.

Citic Securities announced in a joint release that Crédit Agricole also granted it an irrevocable put option to buy the remainder of the brokerage firm for $941.7 million in cash and that the complete sale is contingent on the French group getting approval from its employee representative institutions. And securing that may not be as easy as it seems.

The deal, if it goes through, would be the biggest and boldest move by a Chinese broker in the international markets — roughly three times the size of the $445 million that Shanghai-based Haitong Securities paid for Hong Kong–based Taifook Securities in 2010. Last November Citic had offered to pay $374 million for a 20 percent stake in both CLSA and CA Cheuvreux, a Crédit Agricole unit that has a footprint in Europe, Middle East, Africa and South America. That offer was priced at 20 times earnings. Citic subsequently changed its mind and decided to buy out all of CLSA, which would give it a trading and investment banking platform throughout Asia. The latest offer, though a bit less in absolute terms, also values CLSA at 20 times earnings.

“This gives Citic Securities a terrific footprint in every important market in the Far East — offices, technology and licenses,” says Paul Schulte, an independent analyst who until a few months ago covered financial institutions at CCB International, the investment banking arm of China Construction Bank. Although Schulte acknowledges that critics think Citic is still paying too much for CLSA, he says he thinks the deal is “very smart.”

Analysts close to both firms say the deal likely will go through, though potential sticking points remain.


Citic Securities, which is sitting on $1.7 billion raised in an initial public offering in Hong Kong in October, has been eyeing global expansion for quite some time.

China’s largest broker has been in talks with Crédit Agricole — the largest retail bank in France — since 2010, when both announced a global strategic alliance. Yet if the past is any indication, negotiations to completely seal the CLSA deal could drag on for many more months.

Potential rifts already began to show in 2010 when both signed the landmark joint venture agreement.

While executives at Citic Securities were eager to form a joint venture that gives them access to new markets outside China, Crédit Agricole’s Asian subsidiary CLSA wanted a marriage that grants it passage into China’s massive brokerage market, where foreign players have been hamstrung by regulatory restrictions.

“They want us to hand over the best of our China businesses, and I can tell you many senior executives here will not just hand over our crown jewels unconditionally,” says one Citic Securities executive who asked not to be identified at the time the joint venture was announced.

Still, Citic’s top management was determined to form the marriage. “The formation of the strategic partnership with Crédit Agricole’s corporate investment bank marks another significant step of Citic Securities toward internationalization,” the firm’s chairman, Wang Dongming, said in an e-mail to Institutional Investor at the time.

This is Citic’s second attempt to find a foreign match. It attempted a similar joint venture with Bear Stearns Cos. in 2007, but talks were aborted when the New York–based investment bank collapsed under the weight of toxic assets in 2008 and was sold to JPMorgan Chase & Co. in a fire sale.

On March 30, both sides jointly announced that they had begun negotiating a tentative deal that would allow CLSA to continue to operate under a management agreement that allows for operational independence.

Just how independent CLSA would be under Citic’s ownership certainly is a concern for the executives at the Hong Kong–based firm and could be a major obstacle to an outright takeover.

CLSA was founded in 1986 by two former business journalists, who prided themselves on their insights into Asian markets. Australian Jim Walker and Canadian Gary Coull as well as other investors later sold majority control of what later became CLSA to Paris-based Credit Lyonnais in 1987. Fiercely independent, the executives built CLSA into a prize-winning equities research house that has won numerous Institutional Investor equities ranking awards in the past 20 years.

If a deal were done, CLSA certainly would give Citic Securities a regional platform to expand. However, analysts remain doubtful that Citic Securities will commit to giving CLSA executives the full autonomy they demand.

“It would be in Citic’s best interest to let management run it,” says Peter Alexander, the Shanghai-based principal of financial services research firm Z-Ben Advisors, “but is Citic going to allow that to happen? That’s hard to say.”

Whether Citic Securities gets all of CLSA is of keen interest to market watchers. The deal, if done, would be the first time a Chinese brokerage firm acquired a foreign brokerage, and certainly plenty of challenges remain in blending the two cultures.

When Haitong Securities — China’s second-largest broker by market cap — acquired Taifook Securities two years ago, few market watchers questioned the cultural challenges as Taifook was owned and managed by Hong Kong Chinese investment bankers. CLSA, on the other hand, is a blend of Anglo-Saxon and French culture, notes Alexander. “This is a deal that everyone is watching carefully,” he says.