Elliott Management moves in on Bank of East Asia

Business | 2 Jun 2020 10:39 am

Billionaire Paul Singer's Elliott Management is closing in on victory in its long-running battle with the Bank of East Asia, as the city’s last large family-owned lender starts discussions about a sale of its banking operations, the Financial Times reports.

The two sides in March called a truce in a fierce, six-year conflict for control, announcing a strategic review of the bank’s assets conducted by Goldman Sachs.

Elliott, bought a significant stake in BEA in 2014 and has long pushed for the controlling Li family to sell the business it founded in 1918.

The strategic review has led to early discussions with financial and strategic investors about the sale of the bank’s Hong Kong and China banking businesses, according to people familiar with the matter. BEA owns an insurance unit that is also for sale, the people added.

“Everything is up for grabs,” one of the people said.

A sale of one or both of the banking businesses would be a victory for the hedge fund, which claims BEA has been poorly managed in recent years. In one scenario, the Hong Kong bank and the China-based bank could be sold separately, subject to regulatory reviews in both jurisdictions, the people said.

The review is still under way and discussions with potential investors are at an early stage, they added. Elliott and BEA declined to comment. BEA is one of the largest foreign banks in mainland China and has an expansive branch network in the country. However, in recent years it has faced severe credit quality problems connected to the mainland business.

Hong Kong has been plagued for almost a year by violent anti-government protests that have at times disrupted banking operations and hurt the city’s reputation as a stable financial hub.

Divestment by the Lis would signal the end of an era for family-owned banks in the territory, where hostile takeovers and activist investments are rare. 

BEA is the last large lender in Hong Kong to remain under the control of a tycoon family. The Lis own just 7 per cent of BEA shares but have been able to retain control through a complex family holding structure common to many Asian conglomerates and rarely challenged in court.

Elliott holds about 8 per cent of BEA while Japan’s SMBC and Spain’s Caixa have stakes of 17.5 percent and 16 percent, respectively. The strategic review was scheduled to conclude in June but the outbreak of the coronavirus has pushed that date back to the end of September.

The pause in the hostile takeover battle came just before the scheduled start of a trial due to determine whether BEA had taken on strategic investments from SMBC and Caixa in order to protect itself against Elliott.

Such actions, Elliott has argued, unjustifiably diluted ordinary shareholders. David Li was chief executive of BEA until last year, when he handed the reins to his two sons, Brian and Adrian, who are now co-chief executives.

People familiar with BEA have said Li, who remains executive chairman of the bank, was adamant about retaining control over the family business but that his sons have become more open to a sale after several years of facing off with Elliott.

 



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