China’s AgBank begets doubts despite strong IPO

Scott Tong Jul 7, 2010
HTML EMBED:
COPY

China’s AgBank begets doubts despite strong IPO

Scott Tong Jul 7, 2010
HTML EMBED:
COPY

TEXT OF STORY

Steve Chiotakis: At the moment, it’s the third-largest initial public offering in history. China’s Agricultural Bank raised $19 billion from investors in Hong Kong and Shanghai. But more shares could be sold tomorrow, and if they are, it could set a world record. From Shanghai, Marketplace’s Scott Tong reports despite the big opening, there are some doubts about the business.


Scott Tong: Big investors gobbled up shares of China’s Agbank. But a lot of the interest was because of the Chinese government, not the Chinese bank.

Victor Shih at Northwestern University says Beijing helps keep banks profitable by keeping deposit rates that banks pay out very low.

Victor Shih: Banks usually have a guaranteed spread. And so that’s the big upside for any Chinese bank.

But what the state giveth, the state taketh away. Also under government direction, Agricultural Bank has to serve farmers and the countryside. Not where the easy money is, says William Hess at the advisory firm China Analytics:

William Hess: It’s been a poorly performing institution, and I think expectations should be realistically, it should be post-mediocre performing in the coming years.

Some fear Chinese banks lent massively in the last two years and are holding tons of bad loans. But despite today’s IPO, the state still owns most shares of the Agricultural Bank. And investors are betting that the government won’t let it fail.

In Shanghai, I’m Scott Tong for Marketplace.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.