Morgan Stanley's Toughest Competitor In China example essay topic

Morgan Stanley, one of the top giants of U.S. financial corporations, recently paired with China Construction Bank (CCB), one of China's four sizeable commercial banks. This partnership is the first ever for China's economic sector. It also marks a milestone toward banking reform. For Morgan Stanley, they are now notorious to be the first foreign bank to have a direct joint venture to dispose of China's nonperforming loans. It will also be China's chance to gain Western banking aptitude and to cleanup its bad loans. Standard & Poor's calculates the onslaught may cost $500 billion.

The financial sector of China is still under government grip causing a sloth movement toward a free market economy. Morgan Stanley now has a notch over its competition. It, undeniably, will have the first-entry edge. According to Stephan Newhouse, chairman of Morgan Stanley International, the venture is only "part of a step-by-step development in the opening of Chinas marketplace... The direction forward is clear". For the past nine years, Morgan Stanley already had its hand in China.

It was experimenting in an investment banking joint venture with China International Capital Corporation (CICC). This partnership with CICC made Morgan Stanley the only Western bank permitted to deal in China until another received permission this year. Over the decade, Morgan Stanley has helped market numerous acquisitions and initial public offerings in China. It recently advised a $1.5 billion offering of shares of China Telecom Corp. (provider of wireline telephones), helped Anheuser-Busch purchase a larger stake in Tsingtao Beer at $182 million. Morgan Stanley is bold and gutsy as it has momentous plans for investments, stocks, real estate, private equity, foreign exchange, and insurance. Morgan Stanley's advantage and expected profits is not guaranteed.

For the past couple years, China has opened its financial markets to oblige with the World Trade Organization. Competitors are trying to advance ground by teaming with local partners and creating new businesses. Additionally, other countries are entering China. The French formed the China Euro Securities Limited and the Bank of China International. The Swiss began investing in China's domestic "A" share stock markets. Goldman, Sachs & Co.

(GSC), Morgan Stanley's toughest competitor in China, is gaining ground through more initial public offerings, mergers, and acquisitions. GSC's Asia president Richard Gnodde states, "China still holds all the promise... Every six months we are able to do a deeper and broader range of business". China's goal of the CCB and Morgan Stanley consummation "is to create a commercially sound industry that begins to efficiently allocate capital".

As its government slowly progresses, it is relying on private enterprises to create jobs. One major drawback is releasing the hold of communist bureaucracy. They do not allow selling below the book value and most sour loans are with government-run companies. Morgan Stanley's contribution of the "bad loan deal" must still be cleared by the bureaucrats. On the brighter side, CCB is requesting government for only "trial permission" to sell at below the par value. If this is approved, the new partnership will be split 70-30, majority - Morgan Stanley.

It will deal with 700 troubled loans to companies with combined book value of $519 million. Rather than liquidating assets, they plan to reorganize the companies through debt restructuring, debt forgiveness, and refinancing. If not, they will try the inexperienced Chinese court system. Now that the scare of the SARS virus (severe acute respiratory syndrome) is fading, the Chinese economy is "roaring back to life."Expansion of the capital and financial markets is a high priority for the Chinese government... We want to be a part of that", says Newhouse. GSC is doing its share of positioning by joining Nissan with Dong feng Motor Corp. and vying for its own venture to relieve the bad debt of the Industrial & Commercial Bank of China.

No foreign bank in China discloses its profit or revenue figures. So are they making money? Despite the cynics, Newhouse thinks waiting is not a problem because "China is one of the great opportunities anywhere in the world... Its a place to put ones bets for the next 25 years.".