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ICBC Gets Fed Nod as Chinese Banks Seek US Growth


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Source: Bloomberg

 

Industrial & Commercial Bank of China Ltd won approval to buy a US lender in the biggest opening of the American banking market to Chinese companies, less than a week after economic talks in Beijing.

The Federal Reserve allowed ICBC to operate as a bank holding company, buying a controlling stake in Bank of East Asia Ltd’s US unit. The Fed also allowed Bank of China Ltd and Agricultural Bank of China Ltd to open US branches, the regulator said Wednesday on its website.

The decision, which was reviewed by the Department of Justice, marks the first time regulators have allowed a Chinese bank to buy a majority stake in a US depository institution. ICBC Chairman Jiang Jianqing has spent more than US$6 billion on acquisitions in regions spanning Asia to South Africa and America over the past three years, seeking to triple the share of profit coming from abroad to 10 per cent.

“The deal is insignificant to ICBC’s operations but the implications are profound as it opens up the US market to further expansion from ICBC,” Mike Werner, a Hong Kong-based analyst at Sanford C. Bernstein & Co, wrote in a note. The announcement “is a watershed moment, as it makes possible greater participation from other Chinese banks.”

The US$140-million acquisition of 80 per cent in Bank of East Asia’s US arm gives Beijing-based ICBC 10 branches in California and three in New York, a toehold for US growth. The initial agreement in January 2011 was among as many as 60 signed by Chinese and US firms during President Hu Jintao’s visit for talks with President Barack Obama.

“This will be conducive to Chinese banks’ strategy to go abroad and reduce reliance on the domestic market, where competition is intensifying and growth is slowing,” said Tang Yayun, a Shanghai-based analyst at Northeast Securities Co. “Gaining access to the US market is a breakthrough as Chinese banks normally find it easier to target emerging countries.”

China Construction Bank Corp, the nation’s second-largest, is in talks to buy the South American assets of WestLB AG, the Wall Street Journal reported Wednesday, citing a person it did not identify. The bank seeks the assets to pursue commercial banking in the continent in a deal that may be valued between US$200 million and US$300 million and wrapped up by June, the newspaper said.

A Beijing-based press officer at Construction Bank declined to comment.

Bank of China, the third-largest Chinese bank by assets, received approval to open a federal branch in Chicago, while Agricultural Bank, the fourth-largest, obtained approval to open a state-licensed branch in New York, according to the Fed.