* Wall St bankers jockey for position in Chinese market
* Foreign banks often find themselves on outside of deals
* China' mainland "A Share" IPO market boomed in 2010
* Critics say real estate bubble could hurt banks
By Steve Eder and Denny Thomas
BEIJING/HONG KONG, Oct 26 Morgan Stanley (MS.N)
chief executive James Gorman wasn't going to miss his chance.
It didn't matter that he was on holiday. Gorman dropped
everything and flew to Beijing last April. He wanted to show up
in person to make sure his firm got a piece of what was shaping
up to be the biggest initial public offering in history.
In Beijing, Gorman spent hours rehearsing with his team for
a half-hour pitch to executives of Agricultural Bank of China
(601288.SS)(1288.HK), whose IPO would eventually raise $22
"For a half-hour bake-off, he came all that way," Wei
Christianson, Morgan Stanley's China CEO, said in an interview
last month from her office near Financial Street in Beijing.
As he practiced, the Australian-born CEO debated with
colleagues about whether the Chinese bankers would want to hear
his stories about farming in the outback.
Gorman was not the only top Wall Street executive looking
to get in on the AgBank deal. JPMorgan (JPM.N) CEO Jamie Dimon
and Deutsche Bank CEO (DBKGn.DE) Josef Ackermann also went to
China to make their pitch, and in the end all three banks
secured an underwriting assignment for the bank's Hong Kong
For a while at least, with their eyes dead set on the
AgBank pot of gold, global bankers could set aside concerns
about the challenges they face in China, a market they are
desperately trying to crack but where they are finding more
setbacks than successes.
Global equity market cap share r.reuters.com/jux79p
Global banks flock to China r.reuters.com/kux79p
Why they want in is no mystery.
Economists at Goldman Sachs believe that mainland China's
market capitalization will rise to $41 trillion by 2030 from $5
trillion now. That would make China's stock market the biggest
in the world. U.S. market cap is expected to grow to $34
trillion from $14 trillion over that time.
But with China, American financial powerhouses may have met
their match. Here, government connections and family ties can
trump decades of banking experience and western swagger. So for
all their efforts -- and kowtowing -- this is likely to remain
one tough market Wall Street firms.
In Beijing, where the towering gray headquarters of the
world's largest banks -- Industrial and Commercial Bank of
China (601398.SS)(1398.HK), China Construction Bank (601939.SS)
(0939.HK) and Bank of China (601988.SS) (3988.HK) -- cast a
long shadow, Wall Street banks are still on the outside looking
The towers in and around Financial Street wouldn't look out
of place on Wall Street. But looks can be deceiving.
"You can't just come in here and act like this is New York
and try to operate the same way you would in New York," said
Philip Partnow, who heads China M&A for UBS (UBS.N) UBSN.VX.
Global banks trying to jumpstart their China operations are
tangled in a web of strict regulation, culture clashes and
politics. They worry too that even the sweat equity they are
putting into training their partners in the ways of western
banking will be lost. Some wonder whether China's long-term
plan includes their foreign guests from Wall Street.
"At some point, the Chinese want to get to the point where
they don't need the foreign investment banks," said Michael
Werner, a Hong Kong-based China banking analyst with Sanford C.
China's domestic "A Share" IPO market is especially tightly
controlled. Even though global banks are actively underwriting
listings for Chinese firms on the Hong Kong exchange, they are
being shut out of the mainland IPO market.
The China IPO market has reached $56 billion so far in
2010, more than five times what it was a decade ago. Despite
such torrid growth, major U.S. banks have moved down the
underwriting rankings, while domestic banks have solidified
their spots at the top.
Global banking powers like Goldman Sachs (GS.N), Morgan
Stanley and JPMorgan have an investment banking presence in
China, which connect Chinese companies, often state-owned
entities, with foreign capital. The Chinese banks have not
built up their international distribution networks yet, leaving
the door open foreign banks to get a piece of the market.
But what happens when China's banks and its growing ranks
of regional securities firms are able to shoulder the load?
Some foreign bankers fear they will be sidelined, with
years of investment lost, and invaluable know-how left in the
hands of their Chinese partners.
"Basically, it is a big technology transfer that is going
on here -- and then the Chinese shut the door," said Gordon
Chang, author of the book 'The Coming Collapse of
China'."They've done this so many times."