As President Hu Jintao was leaving the U.S. after his four-day state visit, Industrial & Commercial Bank of China announced plans to move in. ICBC, the world’s largest bank by assets, has agreed to take control of Bank of East Asia’s U.S. operations, which include 13 retail bank branches in New York and California. ICBC is to pay $140 million for an 80% stake, subject to approval from Chinese and American regulators, Hong Kong-based Bank of East Asia says. The two struck a similar deal last year with ICBC taking 70% of Bank of East Asia’s six Canadian branches.
Chinese investments in American financial services firms by taking minority stakes in the likes of Blackstone and Morgan Stanley have a hapless record, mostly because the last round came before the global financial crisis of 2008 which made a nonsense of the valuations. Buying a network of retail branches is a new tack, and echoes what Chinese banks having been doing elsewhere in the world, if not yet in the U.S.
Jiang Jianqing, ICBC’s chairman, says:
This unprecedented acquisition of a controlling stake in a U.S. commercial bank by a mainland bank is strategically significant. The successful completion of this transaction will not only establish a good foundation for the provision of holistic financial services by a mainland bank in the U.S., but also will mark a new era of open-market co-operation between China and the U.S., and have a positive impact on Sino-US trade relations.
A previous attempt to buy a bank in the U.S. was torpedoed by Washington’s Committee on Foreign Investment in the U.S. (CFIUS), which reviews proposed foreign acquisitions of U.S. firms on national security grounds. The committee will be among the regulators weighing in on ICBC’s deal because ICBC is state-owned. The bank already has a securities business in the U.S., bought from BNP Paribas last year, but the purchase of retail banks comes under closer regulatory scrutiny. That is as much an examination of the acquiring bank’s home regulatory regime as it is of the bank itself.
ICBC can expect to wait a while. It took the bank two years to get a license for its existing commercial banking branch in New York. Whether the process is swifter in this case would be a good barometer of the state of Sino-American relations in the wake of Hu’s visit.