Little gestures matter even for big banks. China Construction Bank's $730 million purchase of a controlling stake in a small Brazilian lender, Banco Industrial e Comercial, is a bit like plans by China's lenders to open wholly-owned commercial branches in the United Kingdom: small enough that global rivals can basically ignore it. But each step overseas brings China's enormous lenders closer to being credible competition.
CCB's move looks as much diplomatic as commercial, given the two countries' growing relations. Brazil's trade with China has doubled in five years, and its fuel exports make it one of the few countries with which China runs a trade deficit. The People's Republic now makes up 20 percent of Brazil's trade volumes. BicBanco has almost no exposure to China's pet sectors of infrastructure and resources, but with CCB's backing that could change.
As for the price, CCB is so big that it hardly matters. The valuation offered for BicBanco is equivalent to half a percent of the combined group's market value. CCB's state shareholders are unlikely to mind that it is paying 1.1 times book value for a bank that, at the end of August, was valued at just 0.5 times. They will see instead a strategic foothold. This is CCB's first foreign acquisition outside of Hong Kong.
One day, China's banks will give Western peers a run for their money. Not only will the country's financial flows continue to increase, but it's likely banks' growing foreign forays will give them a taste for investment banking fees, a pool worth $76 billion this year, according to Thomson Reuters data. Then, China's ample capital, generous acquisition prices and global ambitions will be much more of a distraction.
CCB's move looks as much diplomatic as commercial, given the two countries' growing relations. Brazil's trade with China has doubled in five years, and its fuel exports make it one of the few countries with which China runs a trade deficit. The People's Republic now makes up 20 percent of Brazil's trade volumes. BicBanco has almost no exposure to China's pet sectors of infrastructure and resources, but with CCB's backing that could change.
As for the price, CCB is so big that it hardly matters. The valuation offered for BicBanco is equivalent to half a percent of the combined group's market value. CCB's state shareholders are unlikely to mind that it is paying 1.1 times book value for a bank that, at the end of August, was valued at just 0.5 times. They will see instead a strategic foothold. This is CCB's first foreign acquisition outside of Hong Kong.
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Chinese banks are building their overseas empires in very small steps. They may soon be able to open commercial branches in the United Kingdom; ICBC plans to issue a bond there. For now the numbers are still small. Despite the false start of ICBC's $5.4 billion investment in South Africa's Standard Bank in 2007, the six biggest Chinese lenders have just 8.7 per cent of their total assets overseas, up from 6.5 per cent at the end of 2010.
One day, China's banks will give Western peers a run for their money. Not only will the country's financial flows continue to increase, but it's likely banks' growing foreign forays will give them a taste for investment banking fees, a pool worth $76 billion this year, according to Thomson Reuters data. Then, China's ample capital, generous acquisition prices and global ambitions will be much more of a distraction.