WASHINGTON - Bear Stearns Cos., reeling from mortgage-related losses, shored up investor support by selling a stake to China's government-controlled Citic Securities Co. and gaining a foothold in the world's best-performing stock market.
Citic, Asia's largest securities firm, will pay $1 billion for the equivalent of 6 percent of New York-based Bear Stearns's shares, and the US brokerage will invest the same amount in Citic, the companies said yesterday. They agreed to team up to sell financial products and services in China, and plan a Hong Kong-based joint venture for other Asian markets.
Bear Stearns chief executive James "Jimmy" Cayne, 73, trails US rivals in China, where he has struggled to build a business since opening a Beijing office in 1992. His company has fallen as much as 37 percent this year in New York trading, beset by the collapse of the US subprime mortgage market. Surging defaults on loans to home buyers with poor credit histories pushed two of the firm's hedge funds into bankruptcy and eroded its fixed-income revenue.
"Bear Stearns has been behind the curve internationally; this will help them catch up," said Rose Grant, who helps manage about $2 billion at Eastern Investment Advisors in Boston. "It doesn't hurt to get an investment from them while investing in China at the same time."
China has gained positions in other financial firms outside its home market this year. China Investment Corp., the nation's $200 billion sovereign wealth fund, paid $3 billion for a stake in New York private equity firm Blackstone Group LP in May. Barclays PLC, the United Kingdom's third-biggest lender, agreed to sell 6.7 percent of itself to China Development Bank in July.
The accord will give Bear Stearns access to Chinese firms looking to raise capital or invest outside of the country, the firm said. Bear Stearns clients will benefit from Citic's relationships in the region, UBS AG analyst Glenn Schorr said in a report yesterday.
The conversion prices will be based on the share prices of the companies in the five trading days before Oct. 19.
Bear Stearns shares gained $1.44 to $117.85 on the New York Stock Exchange.