Reborn, back to a small county town to become a wealthy family

Chapter 696 A Vision for Acquiring Banks

The money harvested from the US crude oil futures market is considered unplanned funding.

In fact, both Luo Shengtang's and Zhengyang Group's accounts have ample cash flow.

Although the second quarter financial meeting has not yet been held, Luo Yang has a general idea that the money from the two sources combined will not be less than 10 billion yuan. If these two sums of money can be included, he will have more funds at his disposal.

Moreover, this money wasn't all spent at once.

For example, the money for acquiring the headquarters building will not be used until the end of this year. With two more quarters, Luoshengtang and Zhengyang Group can earn at least 15 billion yuan.

For example, the investment in new energy vehicle manufacturing is planned to take place two or three years from now.

Over that long period of time, Luo Yang's businesses must have earned him several more billions.
"Mr. Luo, I don't know how to answer your question so suddenly."

Although she heard what she wanted to hear, Dong Xuan said she really didn't know the value of Yang City's commercial banks.

But not answering isn't an option.

Dong Xuan thought for a while before continuing, "To assess a bank's assets, you need to look at its deposit data, loan business, and net assets, which are just basic data. More detailed assessments require a professional team to evaluate each item one by one."

"For example?"

"For example, a bank's capital adequacy ratio is an important indicator for measuring a bank's ability to repay risks; and the non-performing loan ratio is an indicator used to measure the quality of a bank's loans. These two are very critical indicators."

When talking about her professional field, Dong Xuan became much more fluent: "There's net profit margin, which measures a bank's profitability; return on equity, which measures a bank's ability to generate returns using capital; return on assets, which reflects the profitability of a bank's overall assets; economic value added, which measures the economic value created by a bank, taking into account the cost of capital; and profit growth, which assesses a bank's net profit growth rate to determine whether its profitability is steadily improving."

The following indicators, while not as crucial as the first two, still determine a bank's asset value.

"This is still a bank that is not yet listed. If it is listed, there are some evaluation indicators."

Seeing the slight confusion in Luo Yang's eyes, Dong Xuan stopped explaining her professional knowledge and simply concluded: "Anyway, the local commercial bank in your hometown can't be a listed company, so I won't go into too much detail here."

"To sum it all up in one sentence."

Luo Yang curled his lip and said, "You don't know how much it would cost to acquire the commercial bank in my hometown. We need to hire a professional team to conduct an assessment first."

Dong Xuan: "."

"I don't need precise numbers."

Luo Yang persisted: "Give me a rough estimate."

So all that talk was completely useless?
Dong Xuan was so angry that her chest hurt.

"I was hoping he would acquire a bank and make me the bank manager."

She comforted herself, saying, "I'm not angry. I made this choice myself, so I can't be angry."

After calming herself down, Dong Xuan smiled at Luo Yang and said, "A local commercial bank in a fourth or fifth-tier city was very likely formerly a credit cooperative. Twenty years ago, it absorbed a high proportion of rural deposits. However, with the advancement of urbanization, the main source of income for rural families moved out of the countryside. In addition, the four major banks also began to set up branches in towns and villages. The survival ability of credit cooperatives was reduced to the minimum. Many places even dissolved when they could not be sustained, or were acquired by other commercial banks after restructuring."

A discussion of the history and development of credit cooperatives would be a long paper.

However, Dong Xuan said all this simply to analyze the scale of the credit union's assets for Luo Yang.

“Within our banking system, everyone knows that the financial functions of the remaining credit unions are very weak. Whether it is deposits or loans, they are mostly helping the local government to perform some functional roles, and their own market competitiveness is almost non-existent.”

Dong Xuan's words were sharp, but true: "With the support of local governments, 'credit unions' have been able to survive. It's conceivable that local social security, medical insurance, and other accounts will be mobilized and set up in 'credit unions.' Without these, the functions that reflect the strong financial attributes of banks have been weakened or disappeared."

She went on and on, explaining at length, all to ensure the credibility of her final conclusion.

"Based on my experience, the local commercial banks or credit unions in Mr. Luo's hometown have net assets of no more than 10 billion yuan, and a considerable portion of those assets are in the form of fixed assets."

"Only 10 billion?"

Luo Yang was stunned: "Then I only need to put up 5 to 6 million yuan to take control of it?"

"more or less."

"How can a bank be so worthless?"

Upon hearing Dong Xuan's conclusion, Luo Yang was somewhat skeptical.

He asked with a puzzled look, "As far as I remember, a few years ago, the rural credit cooperative commercial bank in my hometown even put up a banner to celebrate that the bank's deposits exceeded 200 billion yuan. Is a bank of this size only worth 10 billion yuan?"

"Mr. Luo."

Dong Xuan clicked her tongue in exasperation, but still had to explain the most basic financial concepts to Luo Yang in detail.

"For banks, deposits are liabilities!"

Luo Yang: "."

If he hadn't graduated in June, his eyes would now be described as clear yet tinged with foolishness.

"Deposits are liabilities for banks!"

Dong Xuan reiterated: "Banks promise to safeguard depositors' funds and provide payment and withdrawal services according to depositors' requests. In addition, banks need to repay depositors' deposits and deposit interest, so deposits are considered a liability of banks."

Eh?
It seems so.
Luo Yang was practically scratching his head in exasperation.

"The reason why banks advertise their deposit records is to indoctrinate most people who do not understand finance, in order to create the impression that they are financially strong."

Before Luo Yang could ask any more naive questions, Dong Xuan spoke up first: "At the same time, we're also promoting our bank to people who need loans, saying that we have money and they can come and borrow!"

"Loans are assets, aren't they?"

Luo Yang applied this analogy to other situations: "Because the money lent out earns interest from others, the difference between that interest and the interest paid to depositors is the bank's profit, right?"

"If you understand it that way simply, that's also correct."

Dong Xuan breathed a sigh of relief. Although Luo Yang didn't understand financial expertise, he was good at logical thinking, even quite strong.

"Speaking of lending, I am reminded of a financial product."

Seeing Dong Xuan's expression, Luo Yang decided to shock her to avoid being looked down upon in the future. "What financial product?"

You should try your best to cooperate with your future boss.

Dong Xuan showed a "curious" expression.

"Loans for commodities."

Luo Yang began to show off the knowledge he had gleaned from his fragmented memories: "For example, a house worth 100 million yuan, with a down payment of 70 yuan and the remaining 140 yuan in a 30-year commercial loan. At the current commercial loan interest rate, it would take about 30 million yuan to pay off the principal and interest in 30 years. Doubling the money in 30 years is obviously not in line with the nature of finance. So, some people with ideas designed a model. The bank packages this 140 million yuan loan into a financial product and sells it to a secondary financial institution for 120 million yuan, allowing it to cash out 120 million yuan in the shortest time. Then, it conducts a second round of lending, and so on. By making the most of the 70 yuan principal, it can be worth several million yuan."

"Mr. Luo actually knows this?"

Dong Xuan said in surprise, "This kind of financial product design originated in the United States and was also the culprit that caused the 08 subprime mortgage crisis."

"Aren't domestic banks doing the same thing?"

Luo Yang curled his lip and said, "It's not just mortgages, car loans and the like are done the same way, right?"

"He copied the homework, but not all of it."

Dong Xuan explained, "The subprime mortgage crisis in the United States wasn't just about what banks did. The subprime packaged financial products they released were then sold off cheaply in the tertiary market. Using your previous analogy, it's like a product worth 120 million being sold for 100 million to the next level of financial institutions, and so on, down to 70 below the principal. Taking over at that point would result in a loss. But the next level of financial market would break down these packages, repackage them, give them new names and content, and then sell them at a higher value. In this situation, if any link in the chain breaks, the entire chain collapses."

As she said this, she clenched her small fist and then suddenly opened it.

"Oh!"

Dong Xuan uttered two words: "Thunderbolt!"

Good guy!
Luo Yang thought to himself, "Wow!"
Can you still play like this?
No wonder it ended in disaster, dragging the whole world down with it.

“In China, we only go up to the secondary securities market. When the price of an asset package drops to a certain level, it is no longer allowed to be resold to the next lower level.”

Dong Xuan is a true industry insider and knows far more than Luo Yang, who only has a superficial understanding of gossip.

"If I want to evaluate the credit cooperative commercial bank in my hometown, do I need to set up a special team?"

After that casual chat, Luo Yang knew that continuing would be even more embarrassing.

So he decisively abandoned his shortcomings and changed the subject, saying, "You are currently the deputy branch manager of a branch of Yongcheng Bank. You are usually very busy with your work. Do you have time to take care of the acquisition business?"

"There's no need to waste resources by building a dedicated team like this."

Dong Xuan's thoughts also revolved around Luo Yang: "We can hire a professional third-party agency to conduct an evaluation. Of course, before hiring a professional agency, Mr. Luo needs to negotiate with the local government in his hometown, and even sign a framework agreement for the acquisition."

"Negotiations with local governments also require the involvement of professionals, right?"

"Don't worry, Mr. Luo, I don't need to get too involved in the initial negotiations."

Dong Xuan gave Luo Yang a reassuring look, and then said, "When the acquisition enters the substantive stage, I can resign from Yongcheng Bank."

With this guarantee, Luo Yang fell into deep thought once again.

If the value of the local credit cooperative commercial bank is really only a few billion yuan, then with my father-in-law Jiang Yuanshan and a few other small shareholders investing tens of millions of yuan, we can easily achieve the goal of controlling a commercial bank with relatively little capital.

The key question is, what happens after acquiring control of such a local commercial bank?

"I need a professional acquisition plan, including but not limited to post-acquisition development plans."

After thinking it through, Luo Yang raised his head and said, "Just like you said before, the credit cooperative commercial bank in my hometown only has a small amount of financial functions left. It is only surviving now thanks to the empowerment of the local government. What are the further development plans after taking over? How much capital needs to be invested? These all require a detailed plan."

If you acquire a company and it continues to operate on its original trajectory, that's a good deed.

"Of course, there must be a complete development plan."

Dong Xuan smiled and said, "Isn't Yongcheng Bank just a small local bank that has gradually developed? Besides, our requirements are simple: once it's up and running, it needs to be in good condition and become an engine to support President Luo's industrial expansion and healthy development."

"Yes, there are many templates that can be copied."

Luo Yang nodded in agreement, saying, "I wholeheartedly support this cautious development approach, because we don't intend to pursue a career in the financial industry. The ultimate goal of acquiring the bank is to support the development of our other businesses."

"Indeed, it's better to be more cautious in the initial stage and focus on Yang City."

Dong Xuan offered some insights: "With President Luo's connections and reputation back home, we can establish a strong reputation for the renovated commercial bank, seize the deposit and loan market, and gradually restore other financial functions, preparing for the next step of setting up a branch in Shanghai."

Does your own financing project count?

After thinking for a moment, Luo Yang asked, "I invested in a wind power project in my hometown. The first phase of investment was about 50 billion yuan, but so far, the actual investment is less than 10 billion yuan. The subsequent financing is provided by the bank I control. Would that be considered a good business?"

"Of course it counts!"

Dong Xuan smiled and said, "As the saying goes, 'Don't let the good stuff go to outsiders.' Besides, isn't President Luo's purpose in acquiring the bank to facilitate financing for his own businesses?"

"that's true"

Luo Yang stroked his chin and said, "The upcoming commercial complex projects and real estate development projects will require loans of up to several billion yuan. In the last wave of the real estate market boom, this will definitely be high-quality business for banks."

Dong Xuan's eyes lit up as well.

"Mr. Luo, if you have so many high-quality loan businesses in your hands, our bank will soon be able to expand beyond Yang City and establish a presence in Shanghai."

She now has a premonition that as long as a branch is set up in Shanghai, the initial financing business of Luo Yang's own industries alone will be enough to make a good living.

As for deposit business...
Even Dong Xuan felt a headache, because the layout of branch outlets was of no use before the bank's reputation was established. In the early stages, it mainly relied on large corporate deposits brought in through connections, which depended on Luo Yang's network of connections.

"The first step out of Yangshi is not just to set up a branch in Shanghai."

Just as Dong Xuan was lost in thought, Luo Yang suddenly spoke up: "At the same time, we also need to set up a branch in Hong Kong!"

Dong Xuan: "."

(End of this chapter)