Shenzhen Development Bank

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Shenzhen Development Bank Weijian Shan, a Managing Partner of TPG Newbridge Capital (Newbridge), an American Company founded in 1994 by the Texas Pacific Group (TPG); was traveling and negotiating in China with Shenzhen Development Bank’s (SDB) board members, government officers, and banking regulators to reach a deal to invest in SDB. In June 2002, the final touches and twitches to the deal were being made; and Newbridge signed an agreement to buy 18% of SDB from four state-owned sellers of the SDB. Unfortunately after several rounds of negotiation, in September 2002, SDB announced that the deal was not going to take place, with no further disclosure. Now Shan and his team have to decide whether they should try to find way to renegotiate or just to move on, forget about the deal and find new ventures. Something really important to consider in this case is the way that the Chinese financial services work. In China everything is under the control of a State Council and all Commercial Banks are under the control of the Central Bank, the People’s Bank of China (PBOC). This governing body is responsible for all monetary policies for investment banks in China. This causes that several banks understate (or overstate, depending on the condition) their numbers and ratios to appear stronger. Another important policy the PBOC has stated is that no foreign investor can own more than 20% of one bank’s stake or 25% of all the banks in China. Among other things to consider is the fact that most of the bank board members are appointed by the government and most of the times they tend to lack managerial abilities, which can increase the bank’s risk. SDB is not the one of the largest banks in China; the “Big Four” was composed by the 4 biggest banks in China (ABC, BOC, CCB, and ICBC) which where all State-owned Banks. In fact SDB was not even one of the biggest banks of

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