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Deutsche Bank/Sal Oppenheim: looking for the early mover advantage

18th October 2005

Deutsche Bank and Sal Oppenheim's move to take a stake in Huaxia is the latest in a string of deals agreed between Chinese institutions and growth-hungry foreign players. While the financial services market, particularly wealth management, remains relatively undeveloped, foreign investment is increasingly welcome, and those taking early chances will be best placed to reap the rewards.

Deutsche Bank and Sal Oppenheim, Germany's largest independent private bank, have signed an agreement with China's Huaxia Bank to pay E272 million for a combined 14% stake in the business.

Huaxia is a relatively small player in China with less than a 1% share of the banking market. It does however, have an established branch network, with 250 outlets across 27 cities.

Under the terms of the agreement, which has yet to gain regulatory approval, Sal Oppenheim will gain a 4.1% share in the Chinese bank, giving it its first presence in this expansive market.

Deutsche Bank's 9.9% share on the other hand, will extend its existing foothold in the country, which was achieved via a joint venture with Chinese asset manager Harvest Fund Management in March.

Deutsche has also disclosed its intention to focus specifically on China and India for growth opportunities in the Asian market for the time being. As an accompaniment to the deal, Deutsche Bank and Huaxia will enter into a co-operation agreement covering credit cards, wealth management, the distribution of investment products and cash management services.

The agreement marks the latest in a range of aggressive acquisitive moves by foreign financial firms. While regulation governing the size of foreign stakes in Chinese banks remains tight, global financial institutions such as UBS, RBS, Bank of America and Goldman Sachs have been looking to exploit every opportunity to gain a first vital foothold in this booming, but still embryonic, market.

In terms of wealth management however, the relatively low sophistication of Chinese investors means that there are few dedicated offerings available. While there will no doubt be significant opportunities in the long term, Datamonitor believes the focus for players now should be on their retail and investment banking strategies to create a firm base on which to build. In this sense, partnership opportunities taken on now will pay dividends in the long run.

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