Industrial & Commercial Bank of China Ltd., the world’s biggest lender by market value, agreed to buy a stake in Bank of East Asia Ltd.’s U.S. operations, a person with direct knowledge of the deal said, declining to be identified because the acquisition hasn’t been announced.
The transaction would mark the first purchase of a majority stake in a U.S. depository institution by a Chinese bank. If completed, it may give financial firms in both countries greater access to each others’ markets, said Chip MacDonald, a partner at law firm Jones Day in Atlanta.
“This will break new ground in that it will allow Chinese banks to enter the U.S.,” MacDonald said. “There’s a greater likelihood that U.S. banks will now get equal treatment.”
Chinese President Hu Jintao concluded a four-day visit to the U.S. with a signing ceremony yesterday in Chicago. China’s Commerce Minister Chen Deming said that deals worth $25 billion were being reached among U.S. and Chinese companies during the visit, excluding an accord with Boeing Co.
ICBC’s deal with Bank of East Asia, previously reported by the Wall Street Journal, requires approval by U.S. banking regulators and the Committee on Foreign Investment in the U.S., the newspaper said. It will be a “long process,” the Journal reported, citing a person familiar with the matter.
Beijing-based ICBC and Bank of East Asia, based in Hong Kong, are among as many as 60 companies signing contracts, the Chicago Council on Global Affairs said in a statement. The list of firms didn’t include details on the agreements.
“ICBC is developing a global presence, and an easier way to expand its presence in the U.S. is to buy existing banking operations,” said Dan Rosen, principal at the Rhodium Group, a New York-based economic research firm that specializes in China.
ICBC opened its first branch in the U.S. in October 2008. The Chinese bank bought a 70 percent stake in Bank of East Asia’s Canadian unit for about C$80.3 million last year to gain a “strong platform to further expand our businesses and network across North America,” Chairman Jiang Jianqing said then. ICBC this week opened five branches in Europe, doubling its presence in the region to nine countries.
The Federal Reserve will have to make a determination, under the Bank Holding Company Act, that China’s central bank has enough information on ICBC operations to supervise its financial condition and compliance with the law, MacDonald said.
“Once they make that determination, the Fed will refer back to that for subsequent applications and won’t have to revisit it every time,” MacDonald said. “This opens up the market.”
A spokeswoman for Peng-wah Tang, the chief executive officer of Bank of East Asia’s U.S. operations, declined to comment. A Beijing-based press officer at ICBC wasn’t immediately available for comment after two calls to his cell phone.
The U.S. operations of Bank of East Asia include 13 branches, with 10 in California and three in New York, according to its website. Bank of East Asia is run by the family of Chairman David Li. The U.S. unit held about $425.2 million in domestic deposits at the end of September, according to the Federal Deposit Insurance Corp.
Other Chinese banks have sought to expand in the U.S. An attempt by Beijing-based China Minsheng Banking Corp. to buy a controlling stake in UCBH Holdings Inc. fell through when UCBH collapsed in November 2009. Minsheng, which held a 9.9 percent stake, was unable to complete the deal because it ran out of time and not because the plan was rejected by U.S. officials, a person briefed on the matter said at the time.
In 2007, the Fed cleared China Merchants Bank Co. to open a branch in New York. At the time, the Fed said Chinese regulators had clamped down on money laundering, a key requirement for opening a U.S. operation.
The ICBC deal may be approved, MacDonald said.
“They didn’t make this announcement in a vacuum without having some of those conversations in advance,” he said.
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