Bear Stearns, Chinese bank to swap stakes

Bear Stearns Cos. and China’s government-controlled Citic Securities Co. agreed Monday to invest $1 billion in each other, giving the U.S. firm an entrance into the insular Chinese financial sector.

Under the agreement, Citic would invest about $1 billion and receive securities convertible into a roughly 6% equity stake in Bear Stearns. The Beijing-based investment bank would also get an option to acquire up to a 9.9% stake, which would make it one of Bear’s largest shareholders.

Bear Stearns would invest $1 billion in Citic’s debt, which would later be converted into about a 2% equity stake. Bear also would get options to buy an additional 5%.

The companies also agreed to jointly offer capital markets services across Asia. The 500 bankers, traders and analysts that Bear Stearns employs in Asia would join the 50-50 venture.

The two-way nature of the alliance surprised some analysts, who speculated that Bear Stearns was seeking a cash infusion after the firm posted a 62% plunge in third-quarter earnings.

Citic this year has underwritten 16 securities offerings, including initial public offerings, worth about $10.8 billion, according to Thomson Financial.