China banks learn to say no to risky deals: sources

By George Chen

NEW YORK (Reuters) - Chinese banks, widely considered as possible buyers of more U.S. financial assets amid the snowballing credit crisis, are becoming picky and cautious due to increasing concerns about investment risks.

After China's state-controlled CITIC Securities (600030.SS: Quote, Profile, Research) narrowly avoided taking a bath on a proposed investment in the ailing Bear Stearns Cos Inc (BSC.N: Quote, Profile, Research), the Chinese government is insisting that any major foreign investment by state entities gets approval from the cabinet before a final deal can be reached, according to sources with direct knowledge of the situation.

Even before that, there had been increased nervousness about doing bank deals.

China Construction Bank (CCB) (601939.SS: Quote, Profile, Research), one of the country's Big Four banks, has turned down nearly 30 proposals of possible acquisitions over the past year, including opportunities to buy stakes in troubled U.S. home mortgage lender Countrywide Financial Corp (CFC.N: Quote, Profile, Research) and British bank Northern Rock (NRKx.L: Quote, Profile, Research), the sources said.

CCB, China's top real estate lender, was invited by Goldman Sachs Group Inc (GS.N: Quote, Profile, Research) late last year to join bids for Countrywide, the biggest U.S. home loan issuer, said the sources, who declined to be identified because they weren't authorized to speak on the record.

CCB turned down Goldman Sachs' proposal after the Chinese bank decided that an equity investment in Countrywide would be too risky for the Chinese bank to bear.

"It's always a question about how to balance your risk and chance," said one of the sources with knowledge of the Countrywide proposal that was presented to CCB. "If risks are bigger than the chance to make money, why should we go for it?" he said.

Countrywide, based in Calabasas, California, lost $703.5 million last year, its first annual loss in more than 30 years, amid the credit crisis, and its share price sank. It eventually agreed in January to be acquired by Bank of America Corp (BAC.N: Quote, Profile, Research) for about $4 billion in a deal advised by Goldman Sachs.