With Wednesday’s Federal Reserve approval, China’s biggest bank will now have an entry into a United States financial institution.
The Industrial and Commercial Bank of China (I.C.B.C.) (SHA:601398) (HKG:1398), along with two other institutions, the China Investment Corporation and Central Huijin Investment, will purchase an 80 percent share in the Bank of East Asia’s American arm. The three Chinese companies will receive bank holding status, enabling them to conduct business in the United States.
Historically, the Chinese market has been relatively isolated from international investors, but much is changing there now, making China virtually impossible for the diversified investor to ignore. Earlier this year, CNBC pointed to signs that Chinese regulators may start easing up on their scrutiny of companies after months of clamping down on tech firms. That Read More
This ruling is a big deal for I.C.B.C. as the Chinese government is its majority owner and it is the first large Chinese-state owned bank (about 71 percent) to purchase an American business. At the end of last year, ICBC stood as China’s biggest bank with its $2.5 trillion in assets. The Hong-Kong based Bank of East Asia is overseen by the Chairman David Li’s family.
I.C.B.C. minority owners are the Singaporean sovereign wealth fund, Temasek and Goldman Sachs (NYSE:GS).
For the bank, it isn’t their first purchase out of China. In the last three years, Chairman Jiang Jianqing has made acquisitions for more than $6 billion across the world including ones in Asia, South Africa and the U.S.
Why all the acquisitions by I.C.B.C? The bank has trying to increase profits threefold to 10 percent abroad, reported Bloomberg.
Who is the Bank of East Asia?
America’s branch of The Bank of East Asia had been created in 2001 and oversees about about $780 million in assets. According to The New York Times, deposits come to about $621 million and there’s 13 branches across California and New York.
With Wednesday’s order by the Fed, it decided that the I.C.B.C. and its parents do have the requisite resources to sustain the American Bank of East Asia unit, and that after the purchase, the institution would stay well-capitalized.
The Fed wrote in its order, “Based on all the facts of record, the board has concluded that considerations relating to the financial and managerial resources and future prospects of the organizations involved in the proposal, as well as access to information by the board, are consistent with approval.”
In addition to the Fed’s action with I.C.B.C. on Wednesday, it also has granted two additional Chinese institutions, the Bank of China and the Agricultural Bank of China, to open branches in Chicago and New York, respectively.
The three proposals had received unanimous approval by the Fed’s board.
And if you’re wondering if this is something new, the allowance of Chinese banks with U.S. branches has been around for five years. In 2007, the Fed approved China Merchants Bank Co. to open a New York branch. This represented the first Chinese bank with a U.S. presence in over 15 years.