First US approval for Chinese bank purchase# Stock
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http://www.ft.com/cms/s/0/26d2c476-9a0d-11e1-accb-00144feabdc0.
Industrial & Commercial Bank of China has gained US approval to purchase an
American bank, marking a watershed moment for Chinese lenders looking to
gain a foothold in the US.
ICBC’s purchase of the US subsidiary of Hong Kong’s Bank of East Asia
marks the first time the Federal Reserve has allowed a Chinese institution
to buy an American bank and industry lawyers said it would spur dealmaking
by Chinese institutions, among the biggest banks in the world by market
capitalisation.
The approval follows the US-China Economic Dialogue earlier this month where
US officials promised to deliver a response to the applications “
expeditiously” and noted they were “encouraged” by a positive review of
Chinese banking supervision by the International Monetary Fund and World
Bank.
Chinese officials had pressed the Fed for the decision, which is the first
time the US central bank has recognised Chinese regulation of banks as
meeting a standard of “comprehensive, consolidated supervision”.
The communique following the dialogue, attended by Tim Geithner, Treasury
secretary, was a “slam dunk”, said Ernie Patrikis, a partner at White &
Case, who acted for ICBC, which agreed to buy 80 per cent of the US
subsidiary of Bank of East Asia more than a year ago.
ICBC, the largest bank in China with $2.5tn in assets, is 70.7 per cent-
owned by the Chinese government and the move is likely to be controversial
in some quarters in the US.
“Is ICBC coming in as a commercial bank or as a bank representing Chinese
interests? That is a legitimate concern,” said Eswar Prasad, a professor at
Cornell University and the former head of the IMF’s China division. He
said the communique “reeks of quid pro quo”, with US financial groups
likely to enjoy better access to Chinese markets.
The Fed said that the decision was “specific to ICBC” but industry lawyers
said it was a clear sign that the Fed was likely to approve acquisitions by
other Chinese banks and future acquisitions from ICBC. Mr Patrikis
predicted more acquisitions but said Chinese banks would “proceed at a
logical, thoughtful pace”.
In giving its approval, the Fed sought to minimise previous criticisms
levied against Chinese banks and their national regulators. For instance, it
dismissed concerns over the quality of Chinese regulation by pointing to co
-operation agreements between the Fed and its counterparts in China and the
continued monitoring of the health of Chinese banks by their regulators.
In its finding, the Fed said that China’s largest banks use the world’s
biggest accounting firms and that “there is no evidence that Chinese
accounting methods or practices at the large Chinese banks, such as ICBC,
are unreliable”.
The Fed conducted discussions with the China Banking Regulatory Commission
before the determination and said it “intends to further its relationship
with Chinese supervisory authorities and continue to develop its
understanding of Chinese banking matters”.
The US central bank previously blocked an attempted acquisition by China
Minsheng, a Chinese bank, of UCB, a San Francisco-based lender that was
ultimately closed by the Federal Deposit Insurance Corp. The bank was seized
by the FDIC at a cost of more than $1bn to the industry’s insurance fund.
The acquisition by ICBC comes as Goldman Sachs has been reducing its equity
stake in the bank. Volatile trading in ICBC’s stock has been producing
significant swings in Goldman’s earnings.
Industrial & Commercial Bank of China has gained US approval to purchase an
American bank, marking a watershed moment for Chinese lenders looking to
gain a foothold in the US.
ICBC’s purchase of the US subsidiary of Hong Kong’s Bank of East Asia
marks the first time the Federal Reserve has allowed a Chinese institution
to buy an American bank and industry lawyers said it would spur dealmaking
by Chinese institutions, among the biggest banks in the world by market
capitalisation.
The approval follows the US-China Economic Dialogue earlier this month where
US officials promised to deliver a response to the applications “
expeditiously” and noted they were “encouraged” by a positive review of
Chinese banking supervision by the International Monetary Fund and World
Bank.
Chinese officials had pressed the Fed for the decision, which is the first
time the US central bank has recognised Chinese regulation of banks as
meeting a standard of “comprehensive, consolidated supervision”.
The communique following the dialogue, attended by Tim Geithner, Treasury
secretary, was a “slam dunk”, said Ernie Patrikis, a partner at White &
Case, who acted for ICBC, which agreed to buy 80 per cent of the US
subsidiary of Bank of East Asia more than a year ago.
ICBC, the largest bank in China with $2.5tn in assets, is 70.7 per cent-
owned by the Chinese government and the move is likely to be controversial
in some quarters in the US.
“Is ICBC coming in as a commercial bank or as a bank representing Chinese
interests? That is a legitimate concern,” said Eswar Prasad, a professor at
Cornell University and the former head of the IMF’s China division. He
said the communique “reeks of quid pro quo”, with US financial groups
likely to enjoy better access to Chinese markets.
The Fed said that the decision was “specific to ICBC” but industry lawyers
said it was a clear sign that the Fed was likely to approve acquisitions by
other Chinese banks and future acquisitions from ICBC. Mr Patrikis
predicted more acquisitions but said Chinese banks would “proceed at a
logical, thoughtful pace”.
In giving its approval, the Fed sought to minimise previous criticisms
levied against Chinese banks and their national regulators. For instance, it
dismissed concerns over the quality of Chinese regulation by pointing to co
-operation agreements between the Fed and its counterparts in China and the
continued monitoring of the health of Chinese banks by their regulators.
In its finding, the Fed said that China’s largest banks use the world’s
biggest accounting firms and that “there is no evidence that Chinese
accounting methods or practices at the large Chinese banks, such as ICBC,
are unreliable”.
The Fed conducted discussions with the China Banking Regulatory Commission
before the determination and said it “intends to further its relationship
with Chinese supervisory authorities and continue to develop its
understanding of Chinese banking matters”.
The US central bank previously blocked an attempted acquisition by China
Minsheng, a Chinese bank, of UCB, a San Francisco-based lender that was
ultimately closed by the Federal Deposit Insurance Corp. The bank was seized
by the FDIC at a cost of more than $1bn to the industry’s insurance fund.
The acquisition by ICBC comes as Goldman Sachs has been reducing its equity
stake in the bank. Volatile trading in ICBC’s stock has been producing
significant swings in Goldman’s earnings.
