ICBC: China’s largest bank is making a small but adventurous acquisition in America. ICBC is set to buy a controlling stake in the Bank of East Asia’s US subsidiary for $140 million, testing US regulatory boundaries. It could open the door for a flurry of similar deals by Chinese lenders. Yet ICBC’s path to a bigger US presence may not be smooth.
The US market remains the ultimate prize for Chinese lenders. While they may be among the world's biggest banks when measured by branch network or market capitalisation, their presence outside China is tiny. ICBC has been cutting its teeth on small minority stakes in East Asia and South Africa. But its ambitions to capture a bigger slice of global trade finance and to harness the lucrative potential of yuan internationalisation make the United States a key target.
US regulatory approval will be the big hurdle. This market has previously been largely off the limits for Chinese lenders. Bank of China is the only Chinese bank that has been allowed to have a retail presence in America. ICBC has a branch in New York, but this can provide commercial banking only, as US regulators have yet to be persuaded that China offers adequate supervision of its banks.
One imagines that ICBC ran the BEA transaction past Washington before signing. The deal was clinched on the last day of Chinese President Hu Jintao's state visit, the Wall Street Journal reported. But there is no guarantee that the US Federal Reserve, which operates independently, will approve the deal.
And if it gives ICBC the green light, a slew of smaller Chinese banks may also follow with similar bids for U.S. banking assets.
It is hard to know what US regulators would make of the rush to put capital to work lending to American consumers. Even China’s big state-owned lenders - ICBC included - were technically insolvent a decade ago.
The omens for the deal’s financial prospects aren’t great either. China’s Minsheng bank lost its $130 million investment in San Francisco-based UCBH Holdings when the lender failed in 2009. But ICBC needs to start somewhere in the United States. This toehold could mark a historic new dynamic.
