August 3, 2011 / 2:50 PM / 6 years ago

Exclusive: American Express to keep ICBC stake: source

* ICBC shares fall 5.7 pct in two days after Monday’s $479 mln block deal

* AmEx hedged its stake via a deal structured by Goldman - sources

* AmEx still owns about $463 million worth of stake in ICBC

(Adds source comments, details, background)

By Denny Thomas and Wei Gu

HONG KONG, Aug 3 (Reuters) - American Express Co (AXP.N) has assured Industrial and Commercial Bank of China Ltd (ICBC) (1398.HK) it wants to keep its stake in the lender after entering into a contract to hedge fluctuations in the stock price, a source with direct knowledge of the matter told Reuters on Wednesday.

Shares in ICBC, the world's biggest bank by market value, have fallen 5.7 percent in the past two days after Goldman Sachs (GS.N) executed a $479 million block deal. Hong Kong's benchmark Hang Seng index .HSI is down nearly 3 percent in the same period.

For a detailed story double click: [ID:nL3E7J11SV].

There has been some speculation that American Express was paring its exposure to ICBC, but two sources close to the deal said American Express was only locking in the value of its ICBC holdings through a hedging contract structured by Goldman.

American Express holds 638 million shares, or less than 1 percent of ICBC’s Hong Kong-listed shares.

“American Express is not selling its shares, they did that to protect the value of their holdings,” one of the sources said. “Their role as a strategic investor in ICBC is unchanged,” the source added.

One of the sources said the hedging deal was struck with Goldman to reduce the impact on earnings from any volatility in ICBC’s share price.

American Express paid $200 million to buy 1.28 billion Hong Kong shares of ICBC for in 2006 as part of a group of strategic investors before ICBC’s IPO. When the lock-up expired, American Express sold half its stake in April 2009 for some $310 million.

It still holds $463 million worth of shares based on Wednesday’s close, which puts it on course to earn five times return on its initial investment.

    Several U.S. and European banks, including Goldman Sachs, American Express, UBS AG UBSN.VX, Bank of America/Merrill Lynch BCA.N invested in Chinese banks as strategic investors before these banks did their initial public offerings.

    Some of these institutions have either sold their stakes or trimmed their exposures overtime.

    Last month, Singapore state investor Temasek Holdings [TEM.UL] sold $3.6 billion worth of stakes in two of China’s top four banks. That sale came a day after ratings agency Moody’s warned of a possible downgrade for Chinese banks due to their higher-than-expected exposure to local government debt. [ID:nL3E7I507Y].

    Temasek’s selldown has sparked concern that other strategic investors might exit Chinese banks. The short-term outlook for Chinese financial stocks is also clouded as an estimated $35 billion worth of banks and insurance stocks are expected to come out of lock-ups. For a related Dealtalk: [ID:nL3E7I618B].

    The sources were not authorised to speak to the media. American Express did not immediately respond to a request for comment, while ICBC was not available for an immediate comment.

    (Additional reporting by Elzio Barreto; Reporting by Denny Thomas, Wei Gu and Charlie Zhu; Editing by Chenyee Lee, Will Waterman and Jane Merriman)

    (( 2843 6358)(Reuters Messaging: Keywords: AMEX/ICBC

    C Reuters 2011. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.

    0 : 0
    • narrow-browser-and-phone
    • medium-browser-and-portrait-tablet
    • landscape-tablet
    • medium-wide-browser
    • wide-browser-and-larger
    • medium-browser-and-landscape-tablet
    • medium-wide-browser-and-larger
    • above-phone
    • portrait-tablet-and-above
    • above-portrait-tablet
    • landscape-tablet-and-above
    • landscape-tablet-and-medium-wide-browser
    • portrait-tablet-and-below
    • landscape-tablet-and-below