Business Other News 11 Jul 2019 China’s own Goldma ...

China’s own Goldman Sachs isn’t taking off

DECCAN CHRONICLE. | CATHLINE CHEN
Published Jul 11, 2019, 1:56 am IST
Updated Jul 11, 2019, 1:56 am IST
Citic and CLSA declined to comment. It was an awkward marriage from the start.
In a room full of investment bankers, it amounted to a stunning rebuke. (Photo: AP )
 In a room full of investment bankers, it amounted to a stunning rebuke. (Photo: AP )

Hong Kong: The man tasked with building a Goldman Sachs for Communist China was done playing nice. With hundreds of staff gathered to hear him speak at the Beijing Four Seasons hotel in January, Citic Securities Co. Chairman Zhang Youjun called out leaders of his firm's international unit by name and questioned their ability to earn a decent return on capital. In a room full of investment bankers, it amounted to a stunning rebuke.

For the executives at Citic's CLSA unit who sat listening to Zhang in silence, it also marked the end of a tumultuous three-year relationship. Nearly all of them would quit over the next few weeks, kicking off a wave of more than 50 resignations that now threatens to upend China's push to create a global investment-banking powerhouse.

 

The story behind the exodus— pieced together from interviews with almost a dozen current and former executives who asked not to be named—illustrates the difficulties China faces as it tries to project its financial might abroad. It involves bruised egos, lost bonuses and a culture clash that some say was inevitable after Citic Securities bought CLSA six years ago, putting the free-wheeling Hong Kong institution in the hands of a state-owned giant that ultimately answers to China's Communist Party.

"It was only a matter of time before this was going to happen," said Paul Schulte, the Singapore-based Founder of Schulte Research and former Senior Adviser to CCB International, the overseas unit of a state-owned Chinese bank. "I'm shocked it took this long."

Citic and CLSA declined to comment. It was an awkward marriage from the start. Whereas Citic was a product of China's top-down brand of state capitalism, CLSA was founded by two former journalists in Hong Kong and was imbued with its hometown's independent streak. The scrappy firm was best known for its incisive research, some of it critical of the Comm-unist Party, and raucous annual forums that featured offbeat speakers like former boxer Mike Tyson.

The 2013 takeover— orchestrated by then-CEO Jonathan Slone and his Citic counterpart Wang Dongming— hinged on the premise that Citic, China's biggest securities firm, could leverage CLSA's global client list to go head-to-head with global heavyweights like Goldman Sachs and Morgan Stanley.

But it never came to pass. For years after the acquisition, staff at Citic and CLSA mostly stuck to their pre-combination silos. And when Zhang stepped up efforts to integrate the businesses after taking the helm from Wang in 2016, tensions flared.

Money and power were key sticking points. Many from the Citic camp, including Zhang, expressed frustration that members of CLSA's old guard were overpaid relative to the income they produced. The international contingent, on the other hand, chafed at what they considered unnecessary meddling from Beijing and an unwillingness to consult with staff on big decisions. The bulk of the firm's international leaders have left.

One of Zhang's biggest challenges will be pushing CLSA beyond equities trading, a business generates about half its revenue, but is getting pummeled by falling fees.

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