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For the exclusive use of M.

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01/02/02

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CSFB's China Unicom Incident

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In late August 2001, Credit Suisse First Boston (CSFB), a major international investment
bank, was removed from the foreign underwriting team that would handle a pending share
offering for China Unicom Group Ltd., the second-largest telecommunications company in
the Chinese Mainland. Only two months earlier, CSFB had been designated to deal with the
US portion of that offering. However, after the bank hosted overseas investment "roadshows"
attended by senior government officials from Taiwan (including the Finance Minister), it was
officially dropped from the list of China Unicom underwriters.

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The incident provoked criticism from governments in the United States and Taiwan. It also
resulted in widespread comment and activity in investment banking circles. China, after all,
was a major source of investment banking deals in 2001 and was likely to become a much
more important market for investment banking services in the future. Several other big
investment banks dropped Taiwan-related activities right away, and many observers
wondered what the incident would mean for the investment banking industry in China and
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elsewhere.

Investment Banks and Roadshows

Investment banks were financial institutions that served as underwriters or agents for
corporations or governments issuing securities. Investment banks were distinguished from
commercial banks or retail banks in that they did not take deposits or make loans. Most
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investment banks provided a range of services, including underwriting, broker/dealer
operations, maintaining markets for previously issued securities, advisory services for
companies, and research and advisory services for customers.

Underwriting was a major function of investment banks. Underwriters were responsible for
raising investment capital from investors on behalf of corporations and municipalities that
were issuing securities. They were the intermediaries that bought the securities from the
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issuers first and then sold them in the investors' market. Investment bankers prepared initial
public offerings (IPOs) and bond issues for companies that wanted to raise capital. They
served their clients through the whole process, from planning the deals up to distribution of
issues in the market. In large transactions there was often more than one tier of underwriters.
The lead underwriter(s) would buy all the issues from the client and then sell them to the
second-tier underwriters, who would in turn sell the issues in different markets. Apart from
bonds and equities, investment banks could also arrange syndicated loans, swap transactions,
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Vincent Mak prepared this case under the supervision of Professor Michael J. Enright for class discussion. This
case is not intended to show effective or ineffective handling of decision or business processes.
This case is part of a project funded by a teaching development grant from the University Grants Committee
(UGC) of Hong Kong.
© 2002 by Centre for Asian Business Cases, The University of Hong Kong. No part of this publication may be
reproduced or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or
otherwise (including the Internet) - without the permission of The University of Hong Kong.
Ref. 01/129C 2 January, 2002

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For the exclusive use of M. Ruiz
01/129C CSFB's China Unicom Incident

and equity-linked issues such as convertible floating rate notes and equity-warrant bonds [see
Exhibit 1 for rankings of the world's leading investment banks, and Exhibit 2 for rankings of

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the leading investment banks in Asia]. Investment banks often were paid a fixed fee plus a

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commission that was typically a percentage of the value of a particular transaction. Good
credit ratings from recognised rating agencies such as Moody's and Standard & Poors would
help investment banks to borrow more money from creditors, enabling them to do bigger
transactions, and would also help in their bond business.

Key success factors for investment banks included their placing power (ability to sell new

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issues to investors), reputation, capital base, ability to make markets in issued securities, and
research support. It was important for investment banks to maintain good relationships with
customers in order to ensure that they would be considered when the customers needed to do
deals. In particular, investment banks sought good relations with customers that might need
to raise a lot of capital in the future -- such as major companies in the growing Chinese
Mainland market in 2001.

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An investment bank could also run "roadshows" for their customers. These were meetings,
conferences, or seminars arranged to promote investors' interests in the client companies or
governments and to enable closer discussions between the clients and individual investors.
Roadshows often involved representatives from the investment bank and the client travelling
to financial hubs worldwide to speak to investors directly. Investment deals could be made
during the roadshow. Before a client issued securities to raise capital, such as holding an
initial public offering (IPO) or a major bond issue, it would often arrange a roadshow with its
underwriter to test the waters and arouse interest in the market.
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China as a Market for Investment Banks

By 2000, the Chinese Mainland ranked eighth among Asia's markets as a centre for issuing
bonds, ninth for syndicated credits, and second for international equities [see Exhibit 3] --
though it should be noted that big Chinese groups often did deals through their Hong Kong-
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incorporated subsidiaries. As the economy of the Chinese Mainland took off and became
more open, more and more Chinese companies were listed in domestic and overseas stock
exchanges. This trend continued in 2001. By late 2001, the combined market value of the
Shanghai and Shenzhen stock exchanges was about US$625 billion (roughly half of the
country's annual gross domestic product), larger than that of the Stock Exchange of Hong
Kong and second in Asia to Tokyo's US$2.5 trillion. Taiwan's stock market was small by
comparison, amounting to around US$200 billion by August 2001 in market capitalisation.1
More than 1,100 companies were listed on the two Chinese Mainland domestic stock markets,
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and nearly 200 securities brokerages were in operation.2

The Shanghai and Shenzhen stock exchanges were set up in the early 1990s. At first, only
shares denominated in renminbi, and which could only be held by the public of the Chinese
Mainland, were traded. These were called A shares. Later, B shares, which were
denominated in renminbi but payable in foreign currency, and which could only be held by
foreign investors, were listed in Shanghai and Shenzhen. Also in the early 1990s, companies
from the Chinese Mainland began to list in overseas markets. "H shares" were Mainland
company shares that were floated and listed on the Stock Exchange of Hong Kong. "Red
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chips" were companies that were incorporated and listed in Hong Kong but were controlled
by Mainland Chinese companies. Altogether, nearly 125 Chinese Mainland companies were

1
Taiwan Stock Exchange Corporation, URL: http://www.tse.com.tw/docs/statistics/marke_statisticsF.htm, November 2001.
2
Beijing Homeway Info.Media Ltd., "Report: China to allow foreign firms to list on stock mart", ChinaWeb, 10 September,
2001; Karby Leggett, "The Bull in the China Shop", Asian Wall Street Journal, 10 September, 2001.

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6 "Asian Equity New Issue -. investors could foresee numerous potential deals originating in the Chinese Mainland. Beijing sought to isolate Taiwan through diplomatic pressure. it was reported that Chinese officials planned to open the A-share market to foreign investors. The relationship between the two governments was described as a rivalry. Far Eastern Economic Review.5 A global economic slowdown meant that stock markets as well as investment banking activities worldwide were weak in 2001. Taiwan was even enjoying an No annual surplus of about US$20 billion in trade across the Taiwan Strait.7 With the opportunities offered by the pending entry of the Chinese Mainland into the World Trade Organisation and the privatisation of more and more state- owned companies.6 But yo analysts seemed to remain optimistic about China. In February. "When it pays to list at home". mostly in Hong Kong. wanted to lead Taiwan to independence. with some listed in New York or other markets. only six new equity issues had been completed in the first quarter of 2001. in non-Japan Asia.. who was elected as Taiwan's president in 2000.9 billion. Moreover. the Kuomintang leadership left the Chinese Mainland and set up in Taiwan as the "Republic of China".783. it allowed domestic investors to trade in the B-share market.harvard. 7 September. 2001.edu or 617. Much of the rest of the tC world as well as various international organisations recognised the government of the People's Republic of China as the official government of "one China". However. 7 Karen Richardson. Taiwanese investors were given preferential treatment by the Mainland government.5 billion. 2001. 2001. Asian Wall Street Journal. saying that there was still much to rP be done to improve the management of the Mainland's stock markets before the country could accept more foreign involvement in domestic trading. op Rivalry between the Chinese Mainland and Taiwan After a civil war that ended in 1949. the Chinese authorities were taking initiatives to merge the different sectors of the country's domestic stock markets and to attract more foreign investors.3 t os In 2001.Political.Markets in Review". 10 September.Media Ltd. the country's economy kept growing rapidly amidst a global economic slowdown. "Mutual Fund Watch: China's Slap at CSFB Illustrates Risk for Funds". 5 Ming Pao. ChinaWeb. according to a Taiwanese official. Xinhua reporter rebuked". 30 March. mainly because it was the biggest market in the world by population. and became the source of most major corporate finance deals in Asia by September 2001. 7 November. raising US$2. the government of the "People's Republic of China" (PRC) had always considered Taiwan as part of China and never recognised Taiwan as anything more than a breakaway province. In September.4 But Premier Zhu Rongji stopped such talk in November 2001. For the exclusive use of M.7860 . On the other hand. 2001. 2001. BBC Monitoring Asia Pacific . 24 May. 2001. the corresponding figures in the first quarter of 2000 were 39 issues and US$10. Beijing also long suspected that the Democratic Progressive Party of Chen Shui-bian. 3 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014. Taipei. "Taiwan: Beijing's action against US banks said regrettable. 4 Beijing Homeway Info. For years. Ruiz 01/129C CSFB's China Unicom Incident listed overseas by 2001. Permissions@hbsp. Credit Suisse First Boston. and vigorously tried to head off any attempts to give the island's government international standing.8 Do 3 Kathy Wilhelm. and that certain types of foreign firms would be allowed to list in the Chinese Mainland by 2002. By 2001. 6 September. According to CSFB. Copying or posting is an infringement of copyright. 8 Central News Agency.

In 1998. CSFB. CEO Allen Wheat stepped down and was replaced by former Morgan Stanley Dean Witter President John Mack. In May 2001. In July. thus CS became the first foreign owner of a major Wall Street investment bank.5 billion and changed its name to Credit Suisse First Boston (USA). A rising bond market in the 1970s helped it rebound. CSFB announced that it would carry out an initiative to cut costs by US$1 billion.5 million to settle a lawsuit relating to the county's bankruptcy in 1994. The company also began expansion to Europe. the company lost ground rP against competition in the 1960s. First Boston merged with CSFB. Meanwhile. Also in 1998. laid off altogether 24 per cent of its employees in March and June. After ups and downs in the 1930s and 1940s. CSFB expanded throughout the 1990s. together with a similarly spun-off subsidiary from Chase National Bank. From 1992 to 1994. government. as demand for on-line trading subsided. or seven per cent of its global workforce. the new company retained the name of Credit Suisse First Boston. CSFB paid back the debt to its parent in 1992. corporate. with drastic devaluation of the ruble. its 75 per cent-owned securities subsidiary Credit Suisse First Boston (India) Securities was listed on the Bombay exchange. CS announced in October that it expected a loss of about US$188 million in the third quarter of 2001. It was restructured in 1976 to become First Boston Inc. In 1997. California US$52. partly by eliminating approximately 2. plus media archives.harvard. CSFB's plans to cut 10 per cent of the combined staff led to a number of key DLJ executives defecting to competitors. the company's on-line brokerage unit. CSFB also bought part of the British group Barclays' equity and investment banking businesses in Asia in 1998 for US$170 million -. Copying or posting is an infringement of copyright. and CSFB's revenue was down 20 per cent from the second quarter. the Russian tC economy collapsed.edu or 617. Permissions@hbsp. Ruiz 01/129C CSFB's China Unicom Incident Credit Suisse First Boston t History and Major Milestones9 os The history of CSFB can be traced back to an underwriting subsidiary of First National Bank of Boston in the nineteenth century. and. In 1990 CS injected US$300 million into CSFB and shifted US$470 million worth of bad loans from CSFB's books in return for control of CSFB. formed First Boston Corp. was a wholly owned subsidiary of the Zurich-based CS Group. Things turned worse in the third quarter of 2001 as worldwide recession loomed. partly because of its conservative strategy. and privatisations of 9 Information for this section comes largely from Hoover's Company Profile Database. In the early 1930s. which was 40 per cent owned by First Boston. In the same month. a global financial services conglomerate. Lufkin & Jenrette (DLJ) for US$11. the Japanese authority revoked the securities licence of a CSFB affiliate there for allegedly obstructing an investigation. CS held its stake in this company through a 44 per cent-owned holding company called Credit Suisse First Boston (CSFB). In yo 1988.000 jobs. it invested in Russian oil and gas stocks and opened an office in Moscow. First National Bank of Boston's securities underwriting affiliate was spun off. based in New York. the next year. and in 1972 the firm focused on increasing foreign business. CSFB acquired the investment bank Donaldson. the company expanded its business in op South Korea and India.7860 . CSFBdirect. and individual clients on mergers and acquisitions. IPOs.783. In 1999. Do Major Businesses by 2001 By 2001. First Boston and Swiss banking group Credit Suisse (CS) created Credit Suisse-First Boston. The bank faced some difficulties too. CSFB advised institutional. it had agreed to pay Orange County. First Boston was hard hit by the stock market crash in 1987 and lost heavily from loans related to mergers and acquisitions. CSFB recruited former British prime minister John Major as a No senior advisor. For the exclusive use of M. In 2000. In 1978. 4 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014.a price that some analysts considered a bargain.

Chinese-related transactions. clearance. and expertise of a major international investment bank.A1. -- AA. Taiwan's United Microelectronic Corporation. Taiwanese finance officials organised a roadshow in 10 Annual Review 2000. Copying or posting is an infringement of copyright. In March 2001.12 No The China Unicom Incident The Taiwan Roadshow Taiwan faced a flagging economy and weak investor sentiment in early 2001. correspondent brokerage services. 4B and 4C].edu or 617. private equity. 2001. Fitch IBCA Ltd. Ruiz 01/129C CSFB's China Unicom Incident government companies. In 2000. as part of the "non-Japan Asia" regional unit of CSFB's investment banking business. It also had a strong presence in Asia. It claimed that its CNOOC deal [see Exhibit 6] represented the largest and most successful new equity offering in non-Japan Asia in the first quarter of 2001.com/company_info/index. sales and trading. Exhibit 5B shows details of award-winning deals for the People's Republic of China. 11 CSFB Website. Standard & Poors -. 12 Credit Suisse First Boston. did not represent a major revenue source for CSFB in 2000. its credit ratings included: Moody's -. accounting for more than half of CS's revenue (about US$23. 31 August. Private Client Services Group. CSFB operated in over 87 locations across more than 39 countries on six continents.shtml. Hong Kong's Pacific Century CyberWorks. it had never been named best firm in the Chinese Mainland. Although CSFB ranked high in the Asian investment banking market and had been awarded for individual.11 yo CSFB received numerous awards from financial publications [see Exhibits 5A. 5B. and Private Equity. However. a brokerage execution. Apart from these. 2001.Bank Says Decision Comes After It Hosted Officials From Archrival Taiwan". and had some 28. But it also followed the worldwide trend in actively seeking opportunities in the Chinese Mainland in 2001. Hong Kong Special Administrative Region. rP The company consisted of four major divisions: Investment Banking. 5 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014. financial advisory services. to speak at an investment conference in Hong Kong. CSFB was among the top 10 leading investment banks in the world in almost all major business fields. Most of its revenue came from North America and Europe [see Exhibits 4A. Business in the Chinese Regions With the stature. and retail on-line brokerage services. and financial technology services provider.harvard. the Chinese regions. prompting its government to promote actively the island's investment opportunities to foreign capital sources. "China Bars CSFB From Future Business Deals -. Permissions@hbsp. Hong Kong. it also had an e-commerce unit called CSFBNext and a Financial Services Group that included CSFBdirect. Wall Street Journal. Its businesses included securities underwriting. and Taiwan raise capital in the aftermath of the 1998 Asian financial crisis. Equity.csfb. including awards specifically related to its Asian operations. and Pershing. CSFB invited two senior Taiwanese officials. Credit Suisse Group. It was a os major component of CS. Fixed Income.7860 . venture t capital. investment banking. including the Minister Do of Finance Yen Ching-chang. CSFB op had helped organisations in the Chinese Mainland.000 staff worldwide. and 6 for some of the major awards CSFB obtained from 1999 to 2001].783. reputation. with only 13 per cent of CSFB's 2000 revenue coming from Asia and Latin tC America [see Exhibit 4C].13 Later. and others.10 As of July 2001. For the exclusive use of M. URL: http://www. or Taiwan in any investment-banking category by mid-2001. 13 Karby Leggett and Phillip Day.25 billion) and some 66 per cent of its total assets (about US$617 billion) in 2000. investment research. 30 March. compared to other investment banks. The event attracted Beijing's attention.AA.

and domestic financial institutions. was registered and listed in Hong Kong.7860 .21 The story went that the PRC government was angry with CSFB for organising a roadshow in which senior Taiwanese government officials.18 tC and later it was revealed that CSFB's secondary underwriting role would be responsible for an expected US$1. South China Morning Post. Permissions@hbsp. said that JP Morgan and CSFB were to have mandates as financial advisors for the deal as well. it planned to appoint three more banks as regional book-runners: JP Morgan for Asia. 2001. in particular Yen. 19 James Kynge. and Deutsche Bank for Europe. South China Morning Post. CSFB for the United States. Accompanying Yen were several government officials and dozens of executives from the banking and insurance industry. China Unicom Ltd. the Wall Street Journal reported that executives at CSFB said that the company had been officially removed from the underwriting team of the China Unicom deal by the PRC government. and San Francisco.has appointed at least five internatioal investment banks to market its planned new shares issue to fund the acquisition of 18 provincial mobile networks from its mainland parent".14 In addition to the forums. 6 September. holding "Taiwan Investment Forums" at each stop. 6 September. Eric Ng. 2001. 6 July.783. They included Benny Hu. In addition.China's No. Hong Kong. and os Zurich. and yo Yen would lead a group to Boston. 6 July. For the exclusive use of M. "Unicom dumps CSFB from offer". 31 August. the Vice Finance Minister. Taipei Times. Yen himself held 18 private meetings with 28 European fund managers during the trip. New York. Yen said afterwards that the ministry estimated that they had raised US$15 billion to US$20 billion in investment in the Taiwan stock market. CSFB arranged the trip. announced plans to market new share issues to fund the acquisition of 18 provincial networks from China United Telecommunications (China Unicom Group). South China Morning Post. Ruiz 01/129C CSFB's China Unicom Incident Europe to help attract foreign investment. Shi Cuiming. 16 "China Unicom appoints financial advisors for loans related to network purchase". 19 October. China Unicom's executive director. 22 June. 2001. Wall Street Journal. Tokyo. went to Milan. Altogether the rP delegation met with over 200 foreign investment institutions in Europe. The Incident In June 2001. its parent. 22 Karby Leggett and Phillip Day. Amsterdam. would lead a delegation to Singapore. Hu held more than 100. "Taiwan: Finance minister says Beijing obstructing overseas 'roadshows'". headed by t Yen. former president of China Development Industrial Bank. AFX-Asia. the Taiwan Finance Ministry announced plans for two further trips in middle and late September 2001 to boost foreign investment to Taiwan. They also planned to have CSFB organise those two trips.8 billion worth of share issues.17 Analysts estimated that the deal would be worth between US$7 billion and US$8 billion. Sean Chen. Financial Times. 2001.15 Soon after the European tour. Copying or posting is an infringement of copyright. According to a No CSFB executive. 17 Hui Yuk-min. 2001. BBC Monitoring Asia Pacific . and Tokyo. which lasted 10 days from late June to early July. "Beijing lifts ban on future CSFB deals: Bank was penalised over Taiwan". 2001. 2001. with Taiwan's Finance Ministry. Kyodo News Service. 2001. 2001. 15 "Finance minister says Europe trip a success". Taipei Times. Frankfurt.19 On 31 August. which it hoped to complete before end of 2001. and Ju Fu-chen. 2001.16 China Unicom also said that it had appointed Morgan Stanley op and China International Capital Corp. 31 August. 18 Hui Yuk-min. as leading managers and global book-runners for the issue. "China Do Unicom .Political. major listed Taiwanese companies. London.harvard. participated. 6 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014. the Minister of Finance.edu or 617. president of the Taiwan Stock Exchange.20 because of the Taiwanese Finance Ministry's European roadshow. the government of the Chinese Mainland "was also angered that some of the literature distributed at the conference [in Hong Kong in March 2001] apparently didn't refer to Taiwan as part of the mainland". but the Mainland Chinese government held a controlling stake in it. 4 September.22 14 "Finance minister says Europe trip a success". 2001. The ministry delegation. 21 Karby Leggett and Phillip Day. Wall Street Journal. 20 China Unicom Ltd. 21 June.. 2 mobile-phone operator . the Chinese Mainland's second-largest mobile phone operator and dominant paging company. Paris.

originally planned to be organised by CSFB. Bank Deal". we have no information about that. Los Angeles Times. but if the companies conduct official activities … then we oppose them … As long as it does not involve political issues. 2001. Taiwan's Yen said:26 op I need to express my regret for the Chinese attitude towards the CSFB for their hosting the country roadshow of Taiwan in Europe.harvard. sabre-rattling. adding that the Chinese authorities had stepped up their efforts to "control Taiwan". South China Morning Post. tC He added that Taiwan had cancelled the impending Japanese roadshow.Did China really slap down CSFB or just demand some respect?". 4 September. Singapore. Ruiz 01/129C CSFB's China Unicom Incident China Unicom. but the China Unicom spokesperson who announced the move did not refer to any political pressure:24 There are too many bidders. but that was only preliminary and not confirmed. He said that the action of the PRC would only hinder the creation of a mutually beneficial situation for both sides. Three days later. "China Balks at Taiwan.Political. 27 Central News Agency. 25 Tyler Marshall. which was responsible for policy towards the Chinese Mainland. because of his tight schedule and had "nothing to do with the attitude of the Chinese government". Nor did anyone from CSFB respond formally. including a diplomatic embargo. Soon after the ban on CSFB was publicised. For the exclusive use of M. 14 September. Some days later. and the State Council Information Office (which handled foreign media inquiries) did not respond to questions from t the Journal. Xiang made more explicit remarks concerning the CSFB incident. the China Securities Regulatory Commission. BBC Monitoring Asia Pacific .783. 28 Tom Hilditch. Copying or posting is an infringement of copyright. then the [PRC] government won't interfere. Tokyo. BBC Monitoring Asia Pacific . 6 September. vice chairman of Taiwan's Cabinet-level Mainland Affairs Council.25 He said yo the PRC government did not object to "unofficial commercial activities" by international financial institutions in Taiwan. 2001. political suppression. China Unicom os finally confirmed that it had dropped CSFB from the share deal. Permissions@hbsp. 2001.23 On 6 September. 2001.edu or 617. "The threat . Wall Street Journal. expressed regret No about the China Unicom incident. and Hong Kong without outside help. 2001. 24 Hui Yuk-min. Taipei. 7 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014. Asiaweek. Henry Chu. Times Staff Writers. rP The spokesperson also remarked that China Unicom once had CSFB on the "preliminary short list" for the deal. Lin Chong-pin. 7 September. 12 September. Regarding Shi's earlier statement that CSFB would have an additional mandate as financial advisor for that deal. and had confidence in doing so without outside help. economic "hollowing out". Do 23 Karby Leggett and Phillip Day. 2001. 26 Kyodo News Service.7860 . the spokesperson said no mandate had been signed. and military threats. He said that he planned to hold further roadshows or lectures in the United States. 31 August. and the competition was too keen … Regarding whether the decision has anything to do with that [political reason]. We understand that [they] have been discouraged strongly by the Chinese government.Political. 27 The Taiwanese government's reaction was best summarised by Yen:28 China combines everything with the so-called one-China issue.

For the exclusive use of M. said:39 29 Karby Leggett and Phillip Day. 6 September. 34 Tyler Marshall. Ruiz 01/129C CSFB's China Unicom Incident Repercussions t After its removal from the Unicom deal. "US Treasury Secretary Paul O'Neill plans to raise China's punitive action against investment bank Credit Suisse First Boston (CSFB) when he meets officials in Beijing this week". No James Campion. 2001. ABN Amro. Copying or posting is an infringement of copyright. it was dropped from one further deal. 2001. 36 James Kynge. 14 September. Los Angeles Times. "CSFB Chief Tries Smoothing Ruffled Feathers in Beijing . 12 September. 2001. Los Angeles Times.36 In addition. some calling it "economic thuggery".783. 2001. This was particularly true as China and Taiwan prepared to enter the World Trade Organisation in November 2001. Henry Chu. In early September. China expects the same respect. Merrill Lynch. 32 Tyler Marshall.7860 . Financial Times. the yo PRC's Vice Minister of Finance. and for the Chinese Mainland. Henry Chu. 2001. the Mainland Chinese Finance Minister. 2001. 19 October.Goldman Sachs. 2001.30 In early September.edu or 617. 14 September. many began to wonder about the implications for investment banks. But CSFB's Hong Kong spokesperson declined to comment on Mack's trip. 39 Karen Richardson. CSFB scrapped plans to organise the September roadshows for Taiwan. 30 James Kynge. Jin said:37 "We also hope that CSFB will continue to contribute to the peaceful reunification of the motherland. 8 September. 2001.34 In mid-October. Times Staff Writers. 19 October. the country's Treasury Secretary Paul O'Neill said he would raise the issue during his pending meeting with PRC officials in Beijing. 2001. Asiaweek. 38 Tom Hilditch. 2001." op Implications As the incident unfolded. JP Morgan Chase. 10 September. 2001. 31 August.31 US officials and politicians voiced their dismay.32 but could not rP make any immediate changes to the situation. Asian Wall Street Journal. and Daiwa Securities -. CSFB's Mack arrived in Beijing. Asiaweek. South China Morning Post. for Taiwan.35 There he held talks with Jin Liqun. 2001. tC One unidentified "leading Asian economist" said:38 Investment banks are about making money and they should accept that China is a client like any other … US companies often drop a bank into the penalty box for a deal or two if they work with a competitor or displease them somehow. he told the Financial Times that Beijing had made "stern representations" to CSFB and had told the bank that its role in organising the European roadshow and Hong Kong conference to which Yen was invited were "not conducive to the reunification" of both sides. Asian Wall Street Journal. Do 33 William Kazer. Jin told the Financial Times that CSFB would not be barred from future deals in the Chinese Mainland provided it did not repeat actions that Beijing believed promoted the Taiwanese government. 35 Matt Pottinger and Karby Leggett. it was reported that at least five other major investment banks -. 8 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014.29 As it turned out.33 but the topic seemed to have been avoided when a talk between O'Neill and Xiang Huaicheng. Later in the same month. A senior CSFB executive said the company feared that it would be os dropped from at least two other potential underwriting deals in the Chinese Mainland. South China Morning Post. 31 "Financial Folly". reportedly to persuade the Chinese government not to impose further bans on CSFB. a US$1 billion offering by China Aluminium.John Mack Wants Firm Taken Off Blacklist". took place later. Financial Times. 12 September. Financial Times. 37 James Kynge. Tom Hilditch.had dropped plans to organise roadshows promoting Taiwanese investments. a regional head of mutual funds at Schroder Investment Management.harvard. Wall Street Journal. Times Staff Writers. 19 October. 15 October. Permissions@hbsp.

42 even the chattiest fund managers and directors of prominent international asset-management firms have had to refrain from making comments op involving China … unless approved by their investment banking counterparts. The Asian Wall Street Journal quoted an unidentified "Asian director of a major fund house with a global investment-banking parent" as saying:45 I like to believe the world will react very strongly to this … The fact that China is strong-arming US businesses over what countries to do business with is. 44 Tom Hilditch. in many ways. 43 Tom Hilditch. 14 September. power of the opportunity of China would mean [the government] would have some leverage to sway the way international fund t companies do or don't do business in Taiwan. You can't present Taiwan as a country. 2001.783. 45 Karen Richardson. But more troublesome was that. 41 Karen Richardson. even before the incident. 42 Karen Richardson. 2001. were not honoured in the CSFB incident. as one analyst said. 6 September.edu or 617. A commentator writing in the South China Morning Post opined that the Chinese leadership's Do action might do it no good:46 40 Karen Richardson. A Hong Kong economist disagreed:44 China drew the line … You can host Taiwan CEOs but you can't host Cabinet ministers. you go to China. which had about US$100 million in investments in Taiwan and US$680 million in the Chinese Mainland. yet this hit them out of the blue. 14 September. 6 September. and legal reasons. 9 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014. 2001. 2001. 2001. yo The Asian Wall Street Journal reported that the so-called "Chinese walls" that supposedly separated the different operations in financial services groups for fiduciary. For the exclusive use of M. Asiaweek. Asiaweek. 2001. os Mark Mobius. said:40 Some people will begin to think about this and perhaps even make strategic decisions regarding where they should be … Some might choose to put their rP eggs in the Taiwan basket while others will put them in China. the CSFB incident was:43 … not a problem of bullying. we have always made more money in Taiwan than we have in China. ethical. 6 September. pretty nasty. Copying or posting is an infringement of copyright. That's where the big fees are … However. In fact. but unpredictability … The CSFB situation is tC worrisome because the bank was careful to keep China happy. Asian Wall Street Journal. Asian Wall Street Journal. Ruiz 01/129C CSFB's China Unicom Incident At some point. 6 September. Banks might think twice about getting involved in China.7860 . No There also was a chance of backlash against the PRC government and Mainland firms. An Asian manager for a major Western investment bank claimed:41 If you're an investment bank looking for the billion-dollar deal. Asian Wall Street Journal. Asian Wall Street Journal. Head of Templeton Emerging Market Fund. Permissions@hbsp. the report said that.harvard.

Ruiz 01/129C CSFB's China Unicom Incident This mixing of finance and politics might hurt Taiwan. For the exclusive use of M. this dispute runs counter to a wide range of other cross-strait ventures. 2001. Beijing is highly os sensitive to matters affecting Taiwanese sovereignty. 10 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014. op tC No Do 46 South China Morning Post. Scaring away skittish bankers is easy to do. In fact. yo It is in China's own interest to have Taiwan prosper. Finance Minister Xiang Huaicheng. Copying or posting is an infringement of copyright. Beijing officials have reminded the world that dealing with them can still be subject to arbitrary political obstacles. rP Curiously. at least temporarily. Permissions@hbsp. Their agenda presumably included proposals to establish direct trade and transport links between island and mainland. with an economy closely connected to that of the mainland. 8 September.783.edu or 617. By injecting that issue into matters which should rise or fall on their economic merits. the Taiwanese official who seemed so objectionable [Yen] was in Suzhou [a city in the Chinese Mainland near Shanghai] last night to meet his Beijing counterpart. but that raises questions about China's own constancy and does no one any good. t but it certainly does China's own reputation no good.7860 . but that wasn't relevant to these strictly commercial events.harvard.

92 8 Mizuho FG 70.edu or 617.381.05 4 Barclays 115.783.374.994. Top bookrunners by volume.15 10 ABN AMRO 273 55.29 6 CSFB 408 105.93 rP 3 Salomon Smith Barney 461 149. Top bookrunners by amount.74 5 Deutsche Bank 87.65 6 Salomon Smith Barney 128 12.16 6 BancOne 81. Permissions@hbsp.35 7 ABN AMRO 76.202.859.578.917.73 9. Top arrangers of syndicated credits by volume: Rank 1 JP Morgan Group Total volume (US$ million) 305.03 7 JP Morgan 307 104.61 8 ABN AMRO Rothschild 54 8.99 7 UBS Warburg 94 10.67 yo 2.504.388.7860 . Ruiz 01/129C CSFB's China Unicom Incident EXHIBIT 1 LEADING INVESTMENT BANKS WORLDWIDE IN 2000 t 1.64 3.782.20 9 CICC 12 6.59 2 Morgan Stanley Dean Witter 576 149.75 6.975.38 9 Lehman Brothers 234 77.42 7.97 8 Goldman Sachs 265 95.93 4 Deutsche Bank 492 118.402.410.970.72 9.793. all international equities: No.392. Copying or posting is an infringement of copyright.26 5 Deutsche Bank 75 14.17 4 CSFB 168 14.90 7.576.412.73 6. of Total volume Market Rank Managing bank or group issues (US$ million) share (%) 1 Merrill Lynch 524 159.24 3.69 3 Morgan Stanley Dean Witter 139 25.05 2 Merrill Lynch 129 26.711.45 10.739.03 op 3 Citibank/Salomon Smith Barney 225.092.44 7.59 2 Bank of America 299.29 5.296. For the exclusive use of M.731.828. of Amount (US$ Rank Name tranches million) No 1 Goldman Sachs 166 31.harvard.198.708.89 10 HSBC 46. all international bonds (all currencies): os No.65 Do 10 Nomura International 53 5.621.745.617.70 tC 9 CSFB 51.58 (cont'd next page) 11 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014.433.88 5 UBS Warburg 449 109.

27 11.22 23.863.90 4 Deutsche Bank 10 4.92 3.96 2 Goldman Sachs 16 6.443. Do 12 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014. bonds with warrants.90 2 UBS Warburg 19 7.608.80 rP 3 Goldman Sachs 16 6.27 7 Societe Generale 9 1.80 tC 6 BNP Paribas 5 2. exchangeables.50 9 CSFB 6 1.07 10 ABN AMRO 5 1.262.65 13.738.00 7 Societe Generale 9 1.edu or 617.443.323.73 14.85 9. 1365.76 4 Deutsche Bank 10 4.7860 . of Total volume Market Rank Managing bank or group issues (US$ million) share (%) 1 Merrill Lynch 14 11.harvard.80 8 Lehman Brothers 5 1.608.55 6. Permissions@hbsp.96 8 Lehman Brothers 5 1.51 3 UBS Warburg 18 5.73 10.908. of Total volume Market op Rank Managing bank or group issues (US$ million) share (%) 1 Merrill Lynch 14 11. and other qualifying equity- 5. Ruiz 01/129C CSFB's China Unicom Incident EXHIBIT 1 (CONT'D) LEADING INVESTMENT BANKS WORLDWIDE IN 2000 t 4.265.65 14.73 10.945. For the exclusive use of M.908.945. Top managing banks or groups by volume.45 3. Copying or posting is an infringement of copyright.43 3.821.95 2.265.783.45 3.85 9. all international equity-linked issuance:* os No.00 5 Salomon Smith Barney 11 4.82 No Source: Thomson Financial Securities Data as cited in International Financing Review.528.42 3.00 10 Morgan Stanley Dean Witter 4 1.821.97 2.40 6 BNP Paribas 5 2.44 5 Salomon Smith Barney 11 4. yo * Including convertibles. all international convertibles: No.863.55 6.96 3. 6 January. 2001.70 9 Morgan Stanley Dean Witter 4 1. Top managing banks or groups by volume.490.90 linked deals. Vol.738.23 22.

90 7 CICC 1 230.436.87 8 CSFB 14 887.77 rP 3 Sanwa 50 12.92 tC 9 UBS Warburg 15 868.531.66 Source: Thomson Financial Securities Data as cited in International Financing Review.65 20.616.29 Do 9 Macquarie 1 790.68 10 ING Barings 8 564.528.32 2 Sumitomo 63 15.72 yo 2.35 6 ABN AMRO 64 6.818.412. 1365. 13 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014.44 6 Salomon Smith Barney 15 1. of Total volume Market No Rank Managing bank or group issues (US$ million) share (%) 1 Merrill Lynch 3 3.79 9 JP Morgan 28 4.238.54 8 Morgan Stanley Dean Witter 1 207. Copying or posting is an infringement of copyright.48 2 UBS Warburg 5 1. of tranches 19 Amount (US$ million) 6.24 8 Bank of America 50 4.68 op 3 Morgan Stanley Dean Witter 16 6.005.06 4 BoT-Mitsubishi 41 12.90 7.00 12.64 6 CSFB 1 352. Ruiz 01/129C CSFB's China Unicom Incident EXHIBIT 2 LEADING INVESTMENT BANKS IN ASIA-PACIFIC IN 2000 t 1. Top arrangers of syndicated credits by volume. Top managing banks or groups by volume. all international Asian convertibles (excluding Japan): No.07 10 Int CBC 12 4.804. Vol.90 3. Top bookrunners of equity deals by amount.38 3 Goldman Sachs 2 1.85 4 Merrill Lynch 19 4.963.173.11 10 JP Morgan 1 150.19 2 CICC 12 6.68 5 BNP Paribas 29 3.00 6. For the exclusive use of M.harvard.00 1. of Total volume Rank Group issues (US$ million) 1 Mizuho FG 142 45.7860 .49 7 HSBC 37 5.288. 2001.75 2.00 2.387.68 5 Citibank/SSB 99 11.54 3.116.75 5 BNP Paribas 1 600. Permissions@hbsp.841.073.080. Asia-Pacific (excluding Australasia): os No. Asia-Pacific (excluding Japan): Rank 1 Goldman Sachs Name No.98 4 Deutsche Bank 1 700.536. 6 January.edu or 617.50 37.01 2.14 7 JP Morgan Chase 14 1.158.432.783.

Copying or posting is an infringement of copyright.551. All international bonds.645.605. Source: Thomson Financial Securities Data as cited in International Financing Review. 14 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014.60 Indonesia 2 103.93 Singapore 39 4. International equities: No.932. 1365.04 Malaysia 40 6.73 Malaysia 3 1.12 South Korea 5 1.35 Thailand 30 4. of Amount (US$ Region issues million) Japan 106 26.423.44 The Philippines 45 4.294.37 Taiwan 12 4.757.750.10 Taiwan 9 1.00 Singapore 8 2.89 Malaysia 3 249.51 India 13 961. of tranches 207 85 Volume (US$ million) 94.136.058.167.869.53 Indonesia 1 403. of Volume (US$ Region tranches million) Hong Kong 71 13.28 Do Note: "China" refers to the Chinese Mainland.572.38 tC 3.783.00 yo 2.harvard.03 No Japan 101 10. Vol.99 China 19 3.698.16 rP Hong Kong 5 5.74 China 2 976.679.412.351. Ruiz 01/129C CSFB's China Unicom Incident EXHIBIT 3 INVESTMENT BANKING BUSINESS IN 2000 OF SELECTED ASIAN REGIONS t 1.edu or 617. 2001.14 South Korea 25 6.75 Singapore 18 2.99 30.929. For the exclusive use of M. Signed syndicated credits: Japan Region Hong Kong No.68 China 31 11.657.81 op South Korea 68 6. all issues: os No.00 The Philippines 3 1.288.161.7860 . 6 January.413. Permissions@hbsp.64 Taiwan 95 19.

681 2.190 yo Gross Profit 2.212 Investment Banking Division 3.368 Execution.464 Equity 5. No Do 47 Before extraordinary/exceptional items and minority interest.harvard. EXHIBIT 4B CSFB'S 2000 REVENUE BREAKDOWN BY REGION op Percentage of total Region revenue in 2000 North America 51% Europe 36% Asia/Latin America 13% Total 100% tC Source: Annual Review 2000.412 1.563 Net Income47 1. Copying or posting is an infringement of copyright.318 Financial Services Group 268 - rP Other 250 (241) Total Revenue 12.919 4.826 2.076 3. Ruiz 01/129C CSFB's China Unicom Incident EXHIBIT 4A CSFB'S INCOME STATEMENTS FOR 2000 AND 1999 t (In US$ millions) os 2000 1999 Revenue Fixed Income Division 2.893 1.192 5. Permissions@hbsp. 15 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014.262 Source: Annual Review 2000.368 7.7860 .edu or 617.753 Expenses Personnel expense 7. Credit Suisse First Boston.194 9. For the exclusive use of M.783.529 Total Expenses 9. clearing and brokerage 283 293 Other operating expenses 1. Credit Suisse First Boston.

805 6.664 43.487 3.551 rP Due from customers 55. For the exclusive use of M. Ruiz 01/129C CSFB's China Unicom Incident EXHIBIT 4C CSFB'S BALANCE SHEET FOR 2000 AND 1999 t (In US$ millions) os 2000 1999 Assets Cash 809 727 Money market papers 16. other deposits 62.7860 .479 Total Liabilities 391.970 4.095 105.577 Accrued expenses and deferred income 13.583 3.515 Other liabilities 33.968 69 op Due to customers.429 tC Total Shareholder's Equity 18.903 1.810 33.526 Bonds and mortgage-backed bonds 27.652 267.224 Source: Annual Review 2000.621 30. No Do 16 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014.738 18.988 6.574 Intangible assets 10.874 Financial investments 6.037 1.434 5.624 409.804 21.877 Mortgages 11.643 76.601 Securities and precious metals trading portfolios 117.795 Total Liabilities and Shareholder's Equity 409.337 1.783.edu or 617. in savings and investment deposits 29.692 226. Credit Suisse First Boston.945 275.782 Due from other business units 1.976 Non-consolidated participations 711 640 Fixed assets 2.086 7.013 Valuation adjustments 2.644 yo Other assets Total Assets Liabilities and Shareholder's Equity Liabilities in respect of money paper Due to banks Due to other business units Due to customers.224 18.848 139.327 Due from banks 150.011 30 26.637 706 Accrued income and prepaid expenses 5. Permissions@hbsp.129 14.harvard.738 275. Copying or posting is an infringement of copyright.

D 17 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014. t For the exclusive use of M. and CSFB Website. Credit Suisse First Boston. Copying or posting is an infringement of copyright.7860 .csfb.783. Lufkin & Jenrette US High Yield Bond House of the Year International Financing Review N Best Bank of the Last 25 Years International Financing Review Best Bond House of the Last 25 Years International Financing Review 1999 Credit Suisse First Boston Investment Bank of the Decade Central European Equity House of the Decade Central European o Source: Annual Review 2000.harvard.shtml. URL: http://www. Permissions@hbsp.com/company_info/html/company_awards.edu or 617. Ruiz s 01/129C CSFB's China Unicom Incident EXHIBIT 5A Po SELECTED MAJOR HOUSE AWARDS WON BY CSFB AND DLJ r Year Company Award Publication M&A House of the Year The Banker o Securitisation House of the Year The Banker 2001 Credit Suisse First Boston The World's Best Asset-Backed House Euromoney The World's Most Improved Debt House Euromoney y Best Debt House Central European Best Equity House Central European M&A House of the Year Insto p Best Project Finance House Euromoney Best Technology House FinanceAsia o Best Lead Manager of Emerging Market Bonds Euroweek 2000 Credit Suisse First Boston Equity Derivatives House of the Year International Financing Review Swiss Franc Bond House of the Year International Financing Review C US Equity-Linked House of the Year International Financing Review Best Underwriter of IPOs Euromoney t Americas Project Finance Loan House of the Year International Financing Review Best Underwriter of Asset-Backed Securities Euromoney o Best Lead Manager of Retail Targeted Bonds Euroweek European High Yield Bond House of the Year International Financing Review 2000 Donaldson.

Permissions@hbsp.783.harvard. Copying or posting is an infringement of copyright. URL: http://www.7860 .Best Debt House Euromoney Korea . and CSFB Website. For the exclusive use of M.Best M&A House Euromoney Best Investment Bank in Indonesia FinanceAsia rP Best Investment Bank in Korea FinanceAsia Best M&A/Restructuring House . op tC No Do 18 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014.Malaysia The Asset Best M&A/Restructuring House . Ruiz 01/129C CSFB's China Unicom Incident EXHIBIT 5B SELECTED MAJOR AWARDS WON BY CSFB'S ASIAN OPERATIONS t os Year Award Publication Indonesia .Best Foreign M&A House Euromoney Best Foreign Investment Bank in Indonesia FinanceAsia yo Source: Annual Review 2000.Best M&A House Euromoney 2001 Singapore .Singapore The Asset 2000 Singapore .shtml.Best M&A House Euromoney Korea .edu or 617. Credit Suisse First Boston.com/company_info/html/company_awards.csfb.

t For the exclusive use of M.M&A (Takeover) US$35.5 billion p Investment Ltd.7860 .783.9 billion o 08/2000 CyberWorks/Cable Hong Kong Financial Advisor (Corporate Finance) merger &Wireless HKT Ltd. Permissions@hbsp. HONG KONG. o United US$1. US$325 million stake Advisor -- Mainland y to an investor group Guangdong US$2.43 billion IPO -- o Mainland and Joint Bookrunner Private placement of Chinese 02/2001 China Netcom Corp.edu or 617. 19 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014. M&A Deal of the Year/Buyout of the Year (Asiamoney) N Mergers & Acquisitions (Institutional Investor) o (cont'd next page) 48 D CNOOC was the Chinese Mainland's third-largest oil company. Taiwan (Asiamoney) 09/2000 Microelectronic Taiwan American Depositary Joint Lead Arranger Techonology-Related Equity Issue of the Corporation Share offering Year (Asiamoney) C Asia M&A Deal of the Year (Euromoney) Best M&A Deal (FinanceAsia) t Best M&A Issue (The Asset) Pacific Century Highly Commended .29 billion Deal of the Year. AND TAIWAN r Date Client(s) Region Nature of the Deal Role of CSFB Award (Publication) Chinese Joint Global Coordinator 02/2001 CNOOC Ltd.48 US$1./GH Chinese 12/2000 acquisition of GH Advisor -- Water Supply Mainland Water Supply (Holdings) Ltd.harvard. Copying or posting is an infringement of copyright. Ruiz s 01/129C CSFB's China Unicom Incident EXHIBIT 6 Po SELECTED MAJOR CSFB DEALS IN THE CHINESE MAINLAND.

and Joint Bookrunner p People's Republic of Chinese US$1 billion Global Asia-Pacific Bond Deal of the Year 12/1998 Joint Lead Manager China Mainland Bond Issue (International Financing Review) o Source: Annual Review 2000. t For the exclusive use of M.783. Credit Suisse First Boston. C o t o N D 20 This document is authorized for educator review use only by Miguel Ruiz Universidad Cat?lica de Santiago de Guayaquil until August 2014.7860 .edu or 617. HONG KONG. URL: http://www. Copying or posting is an infringement of copyright.shtml. AND TAIWAN Date 06/2000 Client(s) Siliconware Precision Industries Co.csfb. Ruiz s 01/129C CSFB's China Unicom Incident EXHIBIT 6 (CONT'D) Po SELECTED MAJOR CSFB DEALS IN THE CHINESE MAINLAND. and CSFB Website.harvard. Ltd. Taiwan Region r Nature of the Deal o US$255 million American Depositary Receipts offering Role of CSFB Sole Global Coordinator and Joint Bookrunner Award (publication) -- y SUNDAY Joint Global Coordinator 03/2000 Hong Kong US$338 million IPO -- Communications Ltd.com/company_info/html/company_awards. Permissions@hbsp.