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Keeping it simple has proved a profitable formula for China's mid-sized banks. By dint of lending prescribed amounts of cash, mostly at around the official base rate, the sector has racked up impressive growth in the first half.
Huaxia Bank, partly owned by Deutsche Bank, estimates that its net profit rose 90 per cent year on year in the first half. Bank of Beijing is estimating growth of 120 per cent over the same period.
Impressive profitability owes something to the foreign owners who wield greater control over these banks, but monetary policy has been the big help. Swollen net interest margins following last year's run of rate hikes, which saw lending rates rise more than deposit rates, partly inform current earnings.
Two things have changed since, however. This year Beijing has shunned further interest rate rises in favour of increasing the amount of reserves banks must hold (and which yield barely two per cent) to 17.5 per cent. New loan quotas have been pegged flat at last year's rates, putting a cap on rampant loan-book expansion. That may be wise from an anti-inflationary standpoint, but less so for bank profitability.
There are other risks too. Savers decanted funds into bank savings as the stock market slumped at the end of last year; more recently, fears of slowing growth and rising prices have prompted them to tie their money up for longer.
By April, so-called demand deposits had shrunk to 37 per cent of total household deposits from near 40 per cent at the end of 2007.
Since these funds cost a fraction of the 3.3-5.8 per cent for time deposits, this raises banks' overall cost of funding. And exposure to the real estate sector is growing, from less than four per cent in 1998 to nearly 20 per cent in 2007, according to Moody's.
While downpayment requirements on mortgages provide a cushion, some developers' more parlous balance sheets point to some vulnerability. Rabid growth, whatever the product or country, cannot continue forever.
Roche and Genentech
Mixing up the right dose should be any pharmacist's core competence. Roche has underdone it with the cash fix it is offering minority investors in Genentech.
The Swiss acquirer should not need to pay a full control premium - it has owned a majority of the San Francisco-based biotech company since 1990 and consolidates Genentech in its own accounts. But this is not an agreed bid and could yet turn nasty. To push through a squeeze-out of the 44 per cent minority and gain full access to the biotech group's cashflows, Roche needs the support of a majority of the outside shareholders.
Roche's $43.7 billion offer, a premium of just nine per cent to Genentech's share price on Friday, will not do the trick. Genentech's shares were trading at $94 yesterday, far above the $89 Roche is offering. Genentech's outside board members, who will have responsibility for evaluating Roche's offer, may have little hope of soliciting rival bids. But that does not mean they have no leverage: the Swiss group will be reluctant to go hostile on a company it already controls.
Much of the value of Genentech, a company that has grown from a $400 million business in 1990 to one with sales of $11.7 billion last year, lies in the strength of its management team, led by Arthur Levinson, its chief executive and largest individual shareholder, and in its independent-minded scientists.
Roche's success at managing the Genentech relationship to date has been an example to the industry and it was at pains to emphasise its determination to retain both Genentech's management and its successful research teams. But this bid suggests a failure of imagination.
At a time when strategic buyers have a relatively clear field, Roche is simply buying more of what it already owns. The company runs the risk of looking like a one-trick pony.
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