China bank IPOs not as profitable as in 'golden era'

Jamie Dimon and Sergio Ermotti starred in the roadshow promoting Postal Savings Bank of China Co's share sale. Yet the executives' participation in this year's biggest initial public offering also serves as a reminder that investing in Chinese banks isn't what it used to be.

When China's fifth-largest bank priced its $7.4 billion share sale last week, UBS and JPMorgan snared 5 percent paper gains on investments made nine months earlier. The shares will start trading in Hong Kong on Wednesday after being priced near the bottom of a marketed range.

Bank of America Corp and Goldman Sachs Group Inc more than doubled their money with China Construction Bank Corp and Industrial & Commercial Bank of China Ltd stakes respectively in 2005 and 2006 before those firms' shares started trading. History is failing to repeat itself as investors fret at the risks weighing down Chinese lenders.

JPMorgan's first purchase of a stake in one of the biggest Chinese lenders came a decade after a wave of bank IPOs in China generated multibillion-dollar windfalls for foreign banks. Goldman and Bank of America bought in before the global financial crisis when the Chinese economy was booming and sold after post-crisis banking rules made it more expensive to hold minority stakes.

In a video played at roadshow briefings in Hong Kong and London, Dimon, 60, and Ermotti, 56, highlighted "strategic" tie-ups with Postal Savings Bank. JPMorgan will provide advice for the Chinese lender's retail finance business and help it to bolster trade finance capabilities, while UBS will aid efforts to provide wealth management services, according to the share sale prospectus.

Spokesmen for JPMorgan, which is among joint sponsors of the IPO, and UBS, the sole financial adviser to the offering, declined last week to comment further.

Ten strategic investors put 45.1 billion yuan ($6.8 billion) into the bank in December. UBS accounted for the largest share at 13.3 billion yuan, while JPMorgan took a 2.5 billion yuan stake. UBS could syndicate a significant portion of its stock to other investors, people familiar with the matter said ahead of the purchase.

Bloomberg