Goldman Sachs Must Defend Its Gains in China
Published in Le Monde
(France) on 12 May 2010
by Wei Gu (Christine Lahuec translating to French) (link to
original)
Always eager to jump at anything suggesting foreign conspiracy, the Chinese press leapt at accusations of fraud made against Goldman Sachs by the American regulatory authorities.
Particularly decried were the exceptional results of Goldman Sachs in China. They would prove that the dice are loaded: The bank has succeeded in controlling a brokerage firm of which it owns only 33 percent; its investments have borne astronomical profits; it has quadrupled its stake in the Chinese bank ICBC, and the value of its stake in Shenzhen Hepalink Pharmaceutical, which made its market debut on May 5, has grown by more than 250 times …
Most of these complaints will not be damaging to Goldman Sachs. The bank has been selected to prepare the IPO of the Agricultural Bank of China (ABC), which could rise to as much as $30 billion (24 billion euros). Some of its rivals have unofficially admitted to working to convince ABC to not appoint Goldman Sachs as the leader.
Goldman Sachs should take this seriously. Its difficulties in the United States could affect its investment opportunities in China, where the profits of Western banks are increasingly made on direct investment rather than on the traditional commissions made on consulting services. It must prove its investment skills and engender the goodwill of China’s regulatory authorities, who may prove reluctant to grant new permissions to an institution which has already seen stunning success in their country.
Brand image
The greatest danger for Goldman Sachs? Customers deciding to profit from its weakness. Chinese regulators are already accusing some foreign banks of having sold overly-complex products to local firms. And, since 2008, Goldman Sachs has been pursued by Shenzhen Nanshan Power, which is claiming $80 million in damages. The accusation made by the Securities and Exchange Commission (the U.S. stock market watchdog) could encourage other Chinese firms to terminate disappointing contracts.
Goldman Sachs’ reputation in China is solid. The privatization operations that the bank has carried out — China Mobile and PetroChina — have asserted its credibility. But it cannot rest on its laurels and must work to preserve its brand image.
Particularly decried were the exceptional results of Goldman Sachs in China. They would prove that the dice are loaded: The bank has succeeded in controlling a brokerage firm of which it owns only 33 percent; its investments have borne astronomical profits; it has quadrupled its stake in the Chinese bank ICBC, and the value of its stake in Shenzhen Hepalink Pharmaceutical, which made its market debut on May 5, has grown by more than 250 times …
Most of these complaints will not be damaging to Goldman Sachs. The bank has been selected to prepare the IPO of the Agricultural Bank of China (ABC), which could rise to as much as $30 billion (24 billion euros). Some of its rivals have unofficially admitted to working to convince ABC to not appoint Goldman Sachs as the leader.
Goldman Sachs should take this seriously. Its difficulties in the United States could affect its investment opportunities in China, where the profits of Western banks are increasingly made on direct investment rather than on the traditional commissions made on consulting services. It must prove its investment skills and engender the goodwill of China’s regulatory authorities, who may prove reluctant to grant new permissions to an institution which has already seen stunning success in their country.
Brand image
The greatest danger for Goldman Sachs? Customers deciding to profit from its weakness. Chinese regulators are already accusing some foreign banks of having sold overly-complex products to local firms. And, since 2008, Goldman Sachs has been pursued by Shenzhen Nanshan Power, which is claiming $80 million in damages. The accusation made by the Securities and Exchange Commission (the U.S. stock market watchdog) could encourage other Chinese firms to terminate disappointing contracts.
Goldman Sachs’ reputation in China is solid. The privatization operations that the bank has carried out — China Mobile and PetroChina — have asserted its credibility. But it cannot rest on its laurels and must work to preserve its brand image.