Banking

ICBC, Making First Foray Into U.S. Retail Banking

Industrial and Commercial Bank of China Ltd. will proceed cautiously in its drive into U.S. retail banking as it expands globally, Jiang Jianqing, chairman of China's largest commercial bank, said in an interview with The Wall Street Journal.

"In the foreseeable future, our focus will be mainly on emerging markets, which have good prospects for growth. For the American market, we are walking in a very careful way," Mr. Jiang said on the sidelines of World Economic Forum meeting here.

ICBC, the world's largest bank by some measures, last week agreed to acquire an 80% stake in Bank of East Asia Ltd.'s U.S. subsidiary for $140 million.

The pact puts it in position to become the first Beijing-controlled financial institution to acquire retail bank branches in the U.S. Bank of East Asia, a publicly traded company based in Hong Kong, has a total of 13 branches in New York and California.

Earlier Thursday, Mr. Jiang joined other Asian and European bankers in a meeting with U.S. Treasury Secretary Timothy Geithner in Davos. Mr. Jiang said he told Mr. Geithner that Chinese companies want to invest in the U.S.

A person familiar with the meeting said Mr. Jiang added that he wanted the process to invest in the U.S. to be simpler, to which Mr. Geithner responded that the U.S. welcomes investment as long as it meets regulatory protocols.

The Bank of East Asia acquisition deal was "small potatoes," Mr. Jiang said, considering that Beijing-based ICBC, which is 70%-owned by the Chinese government, has 11 trillion yuan in deposits in China, or nearly $1.7 trillion.

Regulators could still block the deal.

Though small in size, the Bank of East Asia deal marks another sign of China's growing global ambitions, in addition to the slow opening of its own financial system to international finance.

Liberalization of the yuan, which is blocked by currency controls from free movement abroad, is an "irreversible" process, Mr. Jiang said.

He said he believes the yuan eventually can be a global currency, and possibly even a reserve currency, something he said will benefit ICBC, considering the hoard of yuan deposits it commands.

"It will bring us a lot of opportunities if this becomes a regionally or globally important currency," he said. "We are expecting and exploring to see whether there are opportunities of yuan business in America."

Mr. Jiang made his global ambitions clear, though he said the drive would proceed "carefully and cautiously" over a long period.

He boasted of ICBC's market capitalization, the largest of any bank in the world, though only a relatively small proportion of its shares trade, given the government's large stake.

ICBC has become increasingly comfortable venturing outside its home markets, which still account for the bulk of its profit.

In 2008, the bank purchased a stake in South Africa's Standard Bank Group.

Mr. Jiang highlighted African markets as one of his top priorities. "The economies of China and Africa are supplementary," he said. "We think Africa will become a very important driver of global growth."

Mr. Jiang largely dismissed growing international concerns that China's economy and lending markets are overheating, which could lead to an even-steeper surge in already high inflation.

Chinese authorities, including the People's Bank of China, are taking "concrete steps" to control the growth of liquidity in Chinese financial markets, including substantial increases in reserve requirements for banks, he said.

China’s investment banks put their stamp on some big global deals last year, participating in multibillion-dollar fund-raising efforts involving such clients as General Motors, Russia’s Rusal and Global Logistics Properties of Singapore.

But their ambition to take a greater and more lucrative management role in deals has been hobbled by their narrow focus on Chinese investors, prompting expansion plans and efforts to tie up with foreign partners.

BOC International, an arm of Bank of China, was a bookrunner on Russian aluminum producer Rusal’s $2.2 billion Hong Kong initial public offering in January, meaning it was charged with finding investors to buy big chunks of the shares. It was also a bookrunner on Russian miner IRC’s $241 million IPO in October, also in Hong Kong.

Further afield, China International Capital Corp., also known as CICC, and the investment banking arm of Industrial & Commercial Bank of China were co-managers in GM’s $23.1 billion IPO in November, the world’s largest for 2010. The participation helped to bring in government-owned Chinese automaker SAIC Motor, GM’s partner in China, to buy in $500 million of shares, people familiar with the matter have said.

A Chinese property developer's recent record-breaking bond issue highlighted soaring demand for ways to play appreciation of China's currency. It also underscores the limits of China's nascent efforts to create an international market for the yuan in Hong Kong.

Evergrande Real Estate Group Ltd.'s $1.4 billion bond issue, priced a little more than a week ago, was Asia's biggest high-yield corporate debt deal ever. But what made it especially noteworthy was its structure as a synthetic yuan bond.

These debt instruments, which are denominated in yuan but traded using dollars, have become a hot spot in the global market for emerging-world debt, eclipsing, at least for now, the rise of "dim sum bonds." Those Hong Kong-issued yuan bonds are bought and sold in yuan, and took off last year amid a push by China to internationalize use of its currency, which is also known as the renminbi.

Since Dec. 15, new issuers, all of them Chinese property developers incorporated offshore, have sold nearly $2.7 billion worth of synthetic yuan bonds. In the same period, only $648 million of new dim sum bonds were sold.

As American and Chinese energy companies prepare to ink a host of deals during Chinese President Hu Jintao’s visit to the U.S., the financial services industry is reminding President Obama not to forget about their companies.

Engage China, a coalition group that represents the U.S. banks, insurers, and brokers, sent a letter to Mr. Obama urging him to press for greater market access for American firms.

Signatories of the letter include heavyweights such as former Republican Governor Frank Keating, who was appointed as president and CEO of the American Bankers Association in December; Dirk Kempthorne, president and CEO of the American Council of Life Insurers, formerly Interior Secretary in the George W. Bush administration; Lee Ann Pusey, president and CEO of the largest trade group of property-casualty insurers in the U.S., the American Insurance Association, and nine others.

The letter reads: