HSBC bought 19.9% of Bank of Communications (BoCom), China’s fifth largest bank, for $1.75bn last month, demonstrating the country’s continued allure for major foreign banks eager to invest. Goldman Sachs is also due to follow with an investment of $170m in a planned joint-venture securities firm with Chinese partners.
HSBC bought 19.9% of Bank of Communications (BoCom), China’s fifth largest bank, for $1.75bn last month, demonstrating the country’s continued allure for major foreign banks eager to invest. Goldman Sachs is also due to follow with an investment of $170m in a planned joint-venture securities firm with Chinese partners. Meanwhile, Standard Chartered Bank is said to be interested in acquiring a stake in China Everbright Bank, one of China’s joint-stock banks. Bank of East Asia, a leading bank in Hong Kong, is considering investing in China Minsheng Banking Corporation, the country’s first private bank. David Eldon, chairman of The Hongkong and Shanghai Banking Corporation, described the BoCom purchase as “the largest investment by a foreign bank in China in recent times”. What his bank gets out of the deal is access to BoCom’s 2700-branch retail network in 137 Chinese cities and a strong client base to launch HSBC’s various products. HSBC gets two seats on the bank’s 18-member board. In return, BoCom will benefit from HSBC’s expertise in auditing, risk assessment, governance, risk-management and other weak areas common among Chinese banks. Prior to the deal, the Chinese government injected Rmb19bn ($2.3bn) of new capital into BoCom, transferred Rmb41.4bn of its bad loans to asset management companies and replaced a few of the bank’s senior executives. HSBC is expanding in China by establishing its own branches and by acquisition. Later this year, it will open its 10th branch, in the city of Suzhou, close to Shanghai. It also has an 8% stake in the Bank of Shanghai, 10% of Ping An Insurance and another minor stake in Ping An Bank, in the southern province of Fuzhou. China Banking Regulatory Commission is keen to see more foreign investment, having recently raised the ceiling of total foreign shareholding allowed in a Chinese bank from 20% to 25%. High on the commission’s sales list are the country’s 112 city commercial banks, which need outside help to grow and to improve their management. The International Finance Corporation, the investment arm of the World Bank, has invested in several of these small institutions. In May, Citigroup formed a life insurance venture with Shanghai Alliance Investment – its second major China investment, after acquiring a 5% stake in Shanghai Pudong Development Bank. Also in May, Newbridge, a US-based venture capital fund, paid about $150m for 20% of Shenzhen Development Bank.
