Author: CHUNG Yoon Ngan
Date: 05-11-12 05:49
Three banks to grow in US
By Wang Xiaotian
May 11, 2012 - 9:18am http://www.chinadailyapac.com
An Industrial and Commercial Bank of China Ltd office in Shanghai. The US Federal Reserve Board approved an application by the bank to purchase up to 80 percent of the Bank of East Asia Ltd's US unit. (Photo by Shao Chang/China Daily)
The US Federal Reserve Board on Wednesday announced that it had approved a move that would allow three major Chinese State-owned banks to extend their footprint in the country, viewed as a major breakthrough after last week's bilateral strategic and economic dialogue.
The Fed approved an application filed a year earlier by Industrial and Commercial Bank of China Ltd, the world's largest lender by market value and the most profitable, to purchase up to 80 percent of the Bank of East Asia Ltd's US unit.
It is the first time that a Chinese bank has been allowed to buy a majority stake in a local depository institution, which signals a substantial opening of the US banking market to Chinese lenders, said analysts.
The Fed also approved an application by Bank of China Ltd, the third-largest Chinese bank by assets, to establish a branch in Chicago and an application by Agricultural Bank of China Ltd, the fourth-largest, to establish a branch in New York.
In addition, the Fed allowed ICBC, Central Huijin Investment Ltd and sovereign wealth fund China Investment Corp to become bank holding companies.
Under US regulations, a bank holding company may, directly or through subsidiaries, engage in non-banking activity determined by the Fed to be closely related to banking.
These activities could include mortgage banking, consumer and commercial finance and loan servicing, leasing, collection agency, asset management, trust company, real estate appraisal, financial and investment advisory activities and certain insurance-related activities.
A bank-holding company can also make limited investments in companies not engaged in activities closely related to banking.
"The board has concluded that consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in any relevant banking market," the Fed said in a statement on its website.
Guo Tianyong, director of the Research Center of the Chinese Banking Industry at the Central University of Finance and Economics, said the move was a response to China's opening for foreign banks and showed that Chinese lenders' performance and the competence of China's banking regulators had been fully recognized by major economies.
"US financial institutions routinely request that China remove its restrictions on foreign investment in the financial industry. But Chinese financial institutions also highlight the difficulties they face in trying to enter the US market," said Huang Yiping, chief economist for emerging Asia at the investment banking division of Barclays Bank Plc.
The Fed's action came after Chinese officials said earlier last week they would raise the ceiling on foreign banks' investment in stakes in ventures with domestic securities companies to as high as 49 percent from the current 33 percent.
Wang Li, a US researcher at the Chinese Academy of International Trade and Economic Cooperation, which is affiliated with the Ministry of Commerce, said he believes the US will further open up to Chinese State-owned enterprises in some sensitive areas, including finance.
"That's not only because the US would like to trade that for China's increased opening up to foreign companies.
"More importantly, it realized that under current conditions, foreign investment is crucial for its efforts to shore up the economy, and investment from China into certain fields actually would not mean as much trouble as it thought previously," Wang said.
"This could accelerate mergers and acquisitions, as Chinese banks may look to acquire regional banks in order to establish a US footprint," Bloomberg quoted Jaret Seiberg, senior policy analyst at Guggenheim Securities' Washington Research Group, as saying.
In the United States, ICBC operates an uninsured state-licensed branch in New York City and owns Industrial and Commercial Bank of China Financial Services LLC, a registered broker-dealer that engages in securities brokerage and riskless principal activities.
ICBC has stated that it will devote adequate financial and other resources to address all aspects of the post-acquisition integration process for this proposal, the Fed said.
The lender has spent more than $6 billion on overseas acquisitions in the past three years.
"In the long run, the internationalization of Chinese lenders will become inevitable and we would see more M&As outside China conducted by those banks," Guo said.