Industrial & Commercial Bank of China Ltd., the world’s most profitable lender, agreed to buy control of Standard Bank Group Ltd.’s markets unit to expand in trading spanning commodities and interest rates to currencies.
Standard Bank, based in Johannesburg, sold 60 percent of the London-based business to ICBC for about $765 million and granted the Chinese bank a five-year option to acquire an additional 20 percent stake in the unit, according to a statement yesterday. The option becomes available two years after the deal is completed and if ICBC takes up the right, Standard Bank can require the lender to buy the remaining stake.
The purchase will advance ICBC Chairman Jiang Jianqing’s target of tripling the contribution of overseas earnings to 10 percent by 2016 as the bank follows corporate clients expanding abroad and seeks to tap demand for yuan-denominated goods and services. Since 2007, ICBC has spent about $7 billion on more than 10 acquisitions from South Africa to the U.S.
“ICBC is clearly moving ahead with its strategy of becoming a global bank with comprehensive businesses covering both commercial and investment banking,” said Tang Yayun, a Shanghai-based analyst at Northeast Securities Co. “This is good time to shop around for cheap assets in Europe.”
ICBC’s expansion in London comes after the Bank of England said in November that it’s ready to help create a yuan-clearing bank there as the city seeks to become an offshore hub for trading the Chinese currency.
Further agreements between Britain and China on yuan settlement and clearing are also planned. Talks will begin to enable Chinese banks to establish wholesale branches in the U.K. for the first time, allowing them to scale-up activities, Chancellor of the Exchequer George Osborne said in October.
China also approved an 80 billion yuan ($13.2 billion) quota for investors in London to buy onshore assets, Osborne said at that time in a move aimed at bolstering the Asian nation’s efforts to internationalize the renminbi and helping London further its ambition to become Europe’s leading offshore yuan hub.
Chinese billionaire Wang Jianlin’s property company agreed last week to invest as much as 3 billion pounds ($5 billion) in U.K. developments after a meeting with British Prime Minister David Cameron aimed at bolstering trade between the two nations.
Shares of ICBC fell 2 percent to HK$4.76 as of 9:47 a.m. in Hong Kong, extending this year’s decline to 9.2 percent. The benchmark Hang Seng Index fell 1.7 percent today.
China’s biggest lender bought a 20 percent stake in Standard Bank for $5.4 billion in 2008, making it the Asian nation’s largest overseas purchase at the time. In 2012, Beijing-based ICBC acquired 80 percent of Standard Bank’s Argentine unit. Standard Bank earlier this month named former ICBC President Yang Kaisheng as deputy chairman.
Standard Bank isn’t looking at selling other assets to ICBC, David Munro, head of corporate and investment banking at the South African lender, told reporters in Johannesburg yesterday. The bank’s remaining London assets will be regrouped into a new legal entity, which isn’t for sale, he said.
“The global markets business battled to get sufficient revenues to cover its cost base,” Munro said. “It also needed wider geographic reach.”
The deal will free up about $680 million for use in South Africa and the rest of the continent, chief financial officer Simon Ridley said in an e-mailed response to questions.
The global markets unit formed part of the lender’s corporate and investment banking division. The team, with some staff in London, offered Standard Bank’s clients trading and other services involving foreign exchange, interest rates, credit, equities and commodities.
The sale will help Standard Bank, Africa’s largest lender, renew its focus on its home continent as it withdraws from other emerging markets. The lender has been selling assets outside Africa since 2011 to raise cash for expansion in the world’s fastest-growing region after developing Asia.
The sale “will lead people to possibly re-evaluate their views on Standard Bank South Africa because there will be less drag from capital tied up in London,” Johann Scholtz, head of research at Afrifocus Securities Ltd. in Cape Town, said yesterday by phone. “It’s obviously beneficial from a profitability point of view for Standard Bank and it removes uncertainty.”
Standard Bank shares fell 3.2 percent to 118.01 rand in Johannesburg trading yesterday, compared with a 2.8 percent decline in the six-member FTSE/JSE Africa Banks Index.
The purchase price of about $765 million is based on the unit’s net asset value of $1.41 billion at the end of June, the African lender said. The rand has declined 14 percent against the dollar since then.
“A foreign exchange translation reserve has built up because of the rand’s weakness,” Simon Ridley, chief financial officer of Standard Bank, said in a presentation to reporters. “That means a gain will be recognized on the disposal” of about 2 billion rand ($178 million), he said.