Industrial & Commercial Bank of China Ltd. agreed to the first Chinese takeover of a U.S. retail bank, boosting financial ties between the two largest economies as President Hu Jintao concluded a four-day visit.
ICBC, the world’s biggest lender by market value, will buy 80 percent of Bank of East Asia Ltd.’s U.S. unit for $140 million, the two companies said in an e-mailed statement yesterday. Both banks are seeking regulatory approval in the U.S. and China for the transaction, according to the statement.
The acquisition would give Beijing-based ICBC 10 branches in California and three in New York as a platform for growth in the U.S. The deal was one of as many as 60 signed between Chinese and U.S. companies during Hu’s visit as he met with executives from both nations to promote closer economic relations.
“It’s no coincidence that the timing of the announcement of this deal comes while President Hu Jintao is visiting the U.S.,” Mike Werner, a Hong Kong-based senior analyst at Sanford C. Bernstein & Co., wrote in a note. “From a political standpoint, it will be an interesting development to see if ICBC is granted approval” to buy the assets, he said.
Hu concluded his trip with a signing ceremony in Chicago on Jan. 22. 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 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.
Securing Bank of East Asia’s U.S. operations symbolizes ICBC’s efforts to expand abroad and will have “minimal” earnings potential, adding about 0.02 percent to total deposits, according to analyst Sheng Nan.
“This is a strategic move for ICBC to move further in global expansion,” said Sheng, who covers banks at UOB Kayhian Investment Co. in Shanghai. “ICBC has a long way to go before it wins local U.S. customers in such a competitive and liberalized market, rather than just serving the Asian demographic.”
ICBC fell 0.3 percent to HK$5.87 by the 4 p.m. close of trading in Hong Kong, limiting gains in the past year to 2.3 percent.
The deal may give financial companies in both countries greater access to each others’ markets, said Chip MacDonald, a partner at law firm Jones Day in Atlanta. 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.
ICBC opened its first branch in the U.S. in October 2008. The Chinese lender last week opened five branches in Europe, doubling its presence in the region to nine countries.
The acquisition “will enable us to establish a solid presence in the U.S.,” ICBC Chairman Jiang Jianqing said in the statement. “With this commercial bank license in the U.S., ICBC can further expand its retail banking business and operating network across the nation.”
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.