Bear finds partner in China's Citic

LONDON (CNNMoney.com) -- Bear Stearns Co. and Chinese investment bank Citic Securities Co. said Monday they will each invest $1 billion in the other as part of a joint effort to develop new products and services for the China market.

Under the agreement, Beijing-based Citic will acquire about $1 billion of securities that will eventually convert into about a 6 percent stake in Bear. Citic also has the right to raise its stake in Bear up to 9.9 percent said.

Bear (Charts, Fortune 500) will seek to acquire a similar stake in Citic through a convertible debt security and options that will allow it to buy additional shares over a period of five years.

The deal is subject to regulatory approval.

"This groundbreaking alliance will give Bear Stearns a unique footprint in one of the world's fastest-growing economies through a strategic partnership with a premier market leader," Bear CEO James Cayne said in a statement.

The companies also said they will form a new firm based in Hong Kong that will offer a broad array of capital markets services across Asia. Bear will contribute its Asia businesses to the joint venture while Citic will contribute its Hong Kong operations as well as pay Bear an undisclosed financial consideration.