Regulators to watch banks' M&A activity closely
September 04, 2009 | BY
clpstaff &clp articles &Regulators in mainland China have issued new guidelines showing how the country's anti-monopoly enforcement applies to financial institutions. Banks,…
Regulators in mainland China have issued new guidelines showing how the country's anti-monopoly enforcement applies to financial institutions. Banks, securities companies and insurance companies will now need to take extra care when doing M&A deals.
On July 15 2009, the Ministry of Commerce (Mofcom), People's Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission jointly issued the Measures for Calculation of Business Turnover for the Reporting of Concentrations of Business Operators in the Financial Sector (金融业经营者集中申报营业额计算办法). They took effect in mid-August and apply to entities in the financial industry, including securities, futures, fund management and insurance companies, as well as banking financial institutions.
“Financial institutions have had a nice window of opportunity for the past year … it will come to an end soon,” said Nicholas French, a Beijing-based partner of Freshfields Bruckhaus Deringer.
The theoretically covers all industry sectors, but financial institutions have, until now, been able to avoid merger notification due to uncertainties surrounding application of turnover thresholds to those businesses. The publication of measures specifically targeted at the sector means financial institutions must consider the effects of their M&A very carefully.
“Now banks have to start worrying about this if they do deals going forward,” said Chun Fai Lui, a Baker & McKenzie special counsel based in Shanghai. “Banks will be more vigilant than they had been in the past.”
Although the turnover filing thresholds laid out in the new measures are the same as for other sectors, the way turnover is calculated is different. Banks appear to have been granted concessions to prevent them from needing to carry out excessive filing: after deducting tax from revenue, only 10% of the resulting figure will be used toward the threshold.
Lui called this “creative drafting”, and pointed out that it is effectively like multiplying the thresholds by 10. The higher thresholds mean that smaller Chinese financial institutions, and foreign ones with a minimal presence in China, will be less likely required to file, said Lui. According to a recent report by IFLR, this could result in more consolidation in the industry.
Although the pressure on banks and other financial institutions appears to be less than on other types of business, the new measures “should lead to greater caution on the part of financial institutions when they are assessing whether or not they are required to file,” said JSM's Gerry O'Brien.
It will be important for financial institutions to carry out a preliminary analysis to determine how the new measures may impact their future transactions, according to a JSM client alert. The firm also said it would be “prudent” for affected businesses to apply the special calculation rules in the new measures to their revenue for the previous financial year, “to determine whether it is likely that they will achieve any of the Turnover Threshold limbs”.
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