By Zhang Ran (China Daily/Bloomberg)
Updated: 2007-10-23 07:31

US major Bear Stearns Cos and China's CITIC Securities Co have reached an agreement to invest $1 billion in each other in an alliance to pool their businesses in Asia.

CITIC will buy the equivalent of 6 percent of New York-based Bear Stearns' shares as they will collaborate to develop financial products and services in China, said a statement issued by the two sides Monday. They will also form a Hong Kong-based joint venture.

On the other hand, Bear Stearns' $1 billion worth of CITIC's debt over time will amount to a 2 percent stake in the Chinese firm. Bear Stearns will also be given the option to buy an additional 5 percent of the company, exercisable over the course of five years.

The two sides said successful completion would depend on governmental and regulatory approval from their respective countries.

Bear Stearns, the fifth biggest US securities firm, fell as much as 37 percent this year in New York trading. The collapse of the subprime mortgage market hit the company harder than larger rivals, pushing two of its hedge funds into bankruptcy.

The deal puts Bear Stearns, an 84-year-old US securities firm, right in the center of the lucrative securities business in China, following in the footsteps of its Wall Street competitors Morgan Stanley, Goldman Sachs and UBS.

Shares in CITIC Securities were suspended Monday pending the announcement. The Chinese brokerage's market value has more than quadrupled this year to $50 billion, making it Asia's largest securities firm.

The brokerage, which is among the first batch of comprehensive securities firms approved by the securities regulator, received a qualified domestic institutional investor (QDII) license on October 12. The QDII program allows securities firms and other financial institutions to raise funds at home and invest overseas.

"The QDII program has motivated CITIC Securities to expand overseas, either via expanding its existing subsidiary in Hong Kong or cooperating with international companies to explore other global markets," said Li Han, an analyst with Sinolink Securities.

The partnership with Bear Stearns will help CITIC Securities gain advanced investment experience before it sets out to explore overseas markets, according to industry insiders.

The Chinese brokerage firm forecast a net profit of 8 billion yuan in the third quarter, more than seven times that of the same period last year.