Jan 232011

H/T Patriot Update

ICBC Signs a Deal for Bank of East Asia’s Retail Outlets

The timing of this is not accidental. They’re testing us. If we want concessions on business practices from China, we’re going to have to let them buy assets in the U.S.—Jonathan Murray

CHICAGO—China’s biggest bank signed an agreement that would make it the first Beijing-controlled financial institution to acquire retail bank branches in the U.S., though regulators could still block the deal.

Under the deal, Industrial & Commercial Bank of China Ltd., by some measures the world’s largest bank, agreed to acquire a majority stake in Bank of East Asia Ltd.’s U.S. subsidiary. ICBC will pay $140 million for an 80% stake. Bank of East Asia, which is a publicly traded company based in Hong Kong, has a total of 13 branches in New York and California. ICBC and Bank of East Asia have talked to U.S. regulators about the deal, these people said.

China’s largest bank, Industrial & Commercial Bank of China Ltd., is the first Chinese bank to acquire a U.S. deposit-taking bank. Ken Brown explains why it could be the start of big expansions by Chinese financial institutions in the U.S.

The move represents what could be the start of big expansions by Chinese financial institutions in the U.S.

Business leaders with Chicago mayor Richard Daley, third from right, and his his wife Maggie, pose for photographers with China’s President Hu Jintao, fourth from left, before a meeting Thursday, Jan. 20, 2011 in Chicago. Standing from left are W.James McNerney, Chairman of the Board and CEO of The Boeing Company, Douglas R. Oberhelman, Chairman and CEO of Caterpillar Inc, Thomas J. Pritzker, Chairman of the Board of Directors, Hyatt Hotel Corp. President Hu, Maggie Daley, Mayor Daley, Jes Staley CEO Investment Bank, J.P. Morgan, and Greg Brown, President and CEO Motorola Solutions Inc. (AP Photo/Charles Rex Arbogast)

Signed in Chicago on the last day of Chinese President Hu Jintao’s state visit to the U.S., the move, comes as both Beijing and Washington are calling for greater commercial ties between the two countries.

The transaction is expected to be carefully scrutinized by U.S. regulators, including the Committee on Foreign Investment in the U.S., known as CFIUS, because of the state-controlled nature of the Chinese bank. A previous deal by a Chinese bank to acquire a bank in the U.S. was rejected by regulators. “It is going to be a long process,” a person familiar with the matter said.

If ICBC’s deal to acquire Bank of East Asia’s U.S. subsidiary goes through, Americans could walk into the retail branches, open check and savings accounts and, most significantly for many investors, open yuan accounts to trade the currency.

ICBC, as the bank is known, is based in Beijing and is 70% owned by the Chinese government. It has become increasingly comfortable venturing outside its home markets, which still account for the bulk of its profit. Last year, ICBC got into the broker-dealer business in the U.S. with a symbolic $1 purchase of the U.S. brokerage unit of Fortis Securities, controlled by France’s BNP Paribas SA. That deal didn’t subject ICBC to tight U.S. regulatory restrictions on foreign purchases of retail-banking operations.

The agreement was signed at the Hilton Chicago as part of a slew of pacts announced by roughly 60 U.S. and Chinese companies at a giant “signing ceremony” organized on Friday by China’s Commerce Ministry and its U.S. counterpart.

Bank of East Asia is led by prominent Asian banker Sir David Li. Mr. Li drew unwanted attention to himself in the U.S. and Hong Kong in 2007 when the former board member of Dow Jones became the target of an insider-trading case involving News Corp.’s buyout bid for Dow Jones. Mr. Li later agreed to pay $8.1 million to settle the civil charges. Mr. Li couldn’t be reached for comment.

So far, most Chinese investments in the U.S. financial sector have involved the Chinese taking passive, minority stakes in firms such as Blackstone Group LP and Morgan Stanley. Taking a majority stake in Bank of East Asia is a change of tactic for ICBC

The decision by Bank of China is the latest move by China to allow the yuan, whose value is still tightly controlled by the government, to become an international currency that can be used for trade and investment.

Chinese banks have encountered uphill battles to gain access to the U.S. market in the past. For instance, it took almost two years for ICBC to get the approval from the Federal Reserve to open its New York branch, which has so far focused on commercial lending. That green light was given shortly before President George W. Bush’s trip to Beijing for the Summer Olympics in 2008.

Full article @ WSJ

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