Summary of Key Points
Recently, Great Wall Asset's increase in its holdings of China Construction Bank was approved by the regulatory authorities (with the total holding not exceeding 5%), marking the first instance this year of a national AMC (Asset Management Company) increasing its stake in a listed bank. Since 2023, the four major AMCs—CITIC Financial Assets, Cinda Asset Management, Orient Asset Management, and Great Wall Asset Management—have gradually made moves to acquire stakes in national banks such as China Bank, Everbright Bank, Shanghai Pudong Development Bank, and Minsheng Bank, with most of them appointing directors on the boards of these banks. This trend reflects a convergence of challenges for AMCs (lack of stable profit sources and scarce high-quality non-performing assets) with the needs of banks (capital replenishment and non-performing asset disposal). Additionally, regulatory encouragement of "patient capital" entering the market has created a win-win situation. However, the 5%holding limit set by regulators means that AMCs will not take control of banks, and their investments will mainly focus on large state-owned and joint-stock banks, with no significant expansion expected.
I. Why Are AMCs Buying Bank Stocks in Such Large Numbers? Both Sides Have Their Challenges and Complement Each Other
AMCs' purchases of bank stocks are not a spur-of-the-moment decision; there are clear needs on both sides:
- Challenges for AMCs: In recent years, regulators have required AMCs to return to their core business of non-performing asset disposal, and their previous diversifications into unrelated areas (such as setting up their own banks) have been phased out. However, the supply of high-quality non-performing assets has decreased, leading to significant profit fluctuations. Bank stocks offer stable returns with high dividends (for example, large banks can pay around 5% annually), providing a reliable source of income.
- Needs of Banks: Banks are also facing difficulties, with slow profit growth and the need for capital replenishment, especially core capital. For instance, Everbright Bank faced an issue with its convertible bonds nearing maturity, making it difficult to convert them into shares at market prices. CITIC Financial Assets' timely purchase of these bonds helped alleviate the repayment pressure and provided much-needed capital. Moreover, banks require AMCs' expertise in non-performing asset disposal.
- Regulatory Support: Regulators are promoting "patient capital" (long-term, stable investments) to stabilize the market. As licensed institutions, AMCs' purchases of bank stocks align with these policy objectives.
II. A Win-Win Situation: AMCs Earn Stable Income, and Banks Gain Reliable Investors
This arrangement benefits both parties:
- For AMCs:
1. Stable Dividends: Holding a significant stake in banks like Everbright Bank allows AMCs to receive substantial annual dividends, which helps smooth out the fluctuations in their non-performing asset disposal profits.
2. Business Synergy: By appointing directors on bank boards, AMCs gain better insight into the banks' non-performing asset situations and can secure more disposal projects, thereby supporting their core business.
3. Potential for Value Appreciation: Currently, bank stock valuations are low; if market conditions improve in the future, AMCs could profit from price increases.
- For Banks:
1. Reliable Investors: AMCs are long-term investors who are less likely to sell their shares abruptly, especially during sensitive periods like convertible bond maturities, preventing sharp drops in stock prices.
2. Risk Management: AMC directors with expertise in non-performing asset disposal can assist banks in better managing risks and identifying potential bad debts.
III. Differences from Past Practices: This Time It's About Joint Investment, Not Control
Some may wonder if AMCs have previously owned banks directly. The difference lies in the current approach:
- In the Past: During their expansion phase, AMCs controlled smaller banks (such as Huarong Xiangjiang Bank and Great Wall Huaxi Bank), but these were later divested due to regulatory requirements.
- Now: AMCs are only purchasing minority stakes in larger banks. For example, even after increasing its holdings in China Construction Bank, Great Wall Asset's stake will not exceed 5%. Regulations specify that a holding of more than 5% qualifies as a major stake, and there are restrictions on multiple participations (a maximum of two participations and one controlling stake in any single bank). Therefore, this is a cooperative relationship, not one where AMCs have complete control.
IV. The Trend Will Continue, but There Are Limits
Will this trend continue? Yes, but with certain constraints:
- Continuation: Regulators are supportive of patient capital, and AMCs have the funds from non-performing asset disposals to invest in banks. Banks need capital, so there is a mutual interest.
- Limits:
1. Holdings Limits: There are strict limits on the maximum stake that any single AMC can hold (e.g., 5% for Great Wall Asset's investment in China Construction Bank).
2. Target Banks: AMCs' capital capacity is limited, so they will mainly invest in large state-owned and joint-stock banks.
3. No Control: AMCs do not have sufficient capital to take control of banks, and regulators do not allow this.
Conclusion
AMCs' increasing holdings of bank stocks reflect a strategic shift: AMCs need stable income, banks need capital and risk management support, and regulators want patient capital to stabilize the market. This is a mutually beneficial situation that will not lead to uncontrolled dominance by AMCs. While we may see more such cases in the future, it will remain within defined boundaries. The regulatory framework ensures that no single entity gains too much influence, and banks will continue to have stable shareholders with AMC investments as long as these investments align with regulatory requirements. For the general public, this development indicates that bank ownership is becoming more secure, and AMCs' financial performance will be better protected, which is positive for the financial market.