June 5 (Bloomberg) -- Industrial & Commercial Bank of China Ltd. agreed to buy control of Bank of East Asia Ltd.’s Canadian unit, gaining a foothold for expansion in North America with its first acquisition on the continent.

ICBC is making the Canadian foray to “learn the lay of the land and decide whether or not to make a bigger push,” John Aiken, an analyst with Dundee Securities Corp., said in an interview. “ICBC has the potential to deploy a ton of capital within the domestic marketplace if they so choose.”

ICBC, which has more customers than Russia has people and $247 billion of cash and equivalents, has spent more than $6 billion on acquisitions in Indonesia, Macau and South Africa during the past two years. Chairman Jiang Jianqing aims to triple the share of profit coming from abroad to 10 percent.

The bank, the world’s largest by market value, has an option to raise its holding to 80 percent one year after completing the transaction, the Beijing-based company said in a statement late yesterday. Bank of East Asia, the third-largest lender in Hong Kong by assets, will hold the balance of the unit.

The purchase “will enable ICBC to establish its banking business and customer base in Canada, which will provide a strong platform to further expand our businesses and network across North America,” Jiang said in a separate press release. ICBC opened its first U.S. branch in New York in October.

Threat to ICBC

ICBC is taking a 70 percent stake in Bank of East Asia Canada for about C$80.25 million ($72 million).

“They’ve managed to get a banking license in Canada at a minimum cost and that’s serving well for their North America expansion,” said Lu Xiaojiu, a Beijing-based analyst at BOCOM International Ltd. “By buying the operation from a Hong Kong bank, it’s also minimized the hassle of cultural integration.”

The Richmond Hill, Ontario-based bank, which was established in 1991, had about C$556 million of assets and C$482 million of deposits at the end of 2008. The lender offers consumer and business banking at two branches in Vancouver and four branches in Toronto, as well as online banking.

“The Canadian marketplace, considering that you’ve had a massive exodus of competition, is probably reasonably fertile grounds for foreign banks to come in,” Aiken said.

Canadian banks won’t have much to worry about from ICBC’s move in the near term, Aiken said, although “the one who should be concerned the most is HSBC Canada: They’re going after the same client segment.”

HSBC Canada is a unit of London-based HSBC Holdings Plc, Europe’s biggest bank.

Overseas Strategy

State-owned ICBC’s overseas expansion began in December 2006 with the purchase of 90 percent of PT Bank Halim Indonesia for 90 billion rupiah ($8.9 million). The Chinese lender bought 79.9 percent of Macau’s third-biggest bank for almost 4.7 billion patacas ($588 million) and in March 2008 acquired a fifth of South Africa’s Standard Bank Group Ltd. for $5.4 billion, in the largest overseas acquisition by a Chinese bank.

As part of a connected transaction, ICBC will sell its 75 percent stake in ICEA Finance Holdings Ltd., a Hong Kong-based brokerage, to Bank of East Asia for HK$372 million ($48 million).

ICEA, which had HK$451 million of net assets as of Dec. 31, was established in 1998 by ICBC and Bank of East Asia, which currently holds 25 percent of the venture.

The two transactions are subject to regulatory approvals from China’s Ministry of Finance, the China Banking Regulatory Commission, the Hong Kong Monetary Authority, the Securities and Futures Commission in Hong Kong, Canada’s Ministry of Finance and Canada’s Competition Commission, ICBC’s press release said.

To contact the reporter of this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

Last Updated: June 4, 2009 23:44 EDT