China
ICBC downplays purchase of US broker
By Lu Chang (China Daily)
Updated: 2010-11-04 11:39
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BEIJING —The recent acquisition of a United States brokerage fi rm by Industrial and Commercial Bank of China (ICBC) indicated that Chinese financial institutions have renewed efforts to make inroads in the Western market, experts said.
ICBC, the world's largest bank by market value and one of the active dealmakers among Chinese banks, reportedly paid $1 for the Prime Dealer Services unit of Fortis Securities from BNP Paribas SA. It is the first Chinese bank to buy a US broker, the Wall Street Journal reported on Monday.
The deal could potentially enable the bank to branch into underwriting securities in the United States through the Fortis unit, which provides clearing and fi nancing services to about 75 clients in the US and Europe, the newspaper said.
"It is the time to fi nd good bargains that is in stark need of capital, which Chinese financials are fluent with," said Jin Ling, an analyst with Orient Securities.
Dong Xian'an, chief economist of Industrial Securities, said that "with more Chinese companies expanding in the US and Europe in various sectors, Chinese banks, which finance these companies at home, certainly want to cash in on outbound investment spree".
"Banks are not going to lose their clients on a foreign turf."
But Dong also said the time is not yet ripe for Chinese banks to acquire overseas counterparts because the US and European countries are tightening their financial regulations.
"Finance is never a strong point for China," said Dong. "If Chinese banks make huge investments without knowing regulations of local markets, it will be a disaster."
An anonymous source from ICBC, who was quoted by 21st Century Business Herald, said the bank only hopes to use the deal as a stepping stone to improve its clearing operations in a foreign market.
"We don't expect to make bigger headways into the US investment banking business at this stage," he said.
Reuters quoted ICBC Chairman Yang Kaisheng on Wednesday as saying that the new firm would focus on fixed-income clearing, not the brokerage business.
"For now it's still a very small case, the media shouldn't pay too much attention to it," Yang told Reuters.
Jin said ICBC's deal was a cautious move to test the waters.
"That is why ICBC acquires a very small brokerage with just $1, which won't bring huge loss to the lender in case the deal turns out to be a failure," he said.
Shi Jiandao, a Chinese economist with the Heritage Foundation, said the deal benefi ts ICBC.
"The only thing that matters is that ICBC wishes to use the operation to cope with the Financial Industry Regulatory Authority, which is an economical way to do it, because there are more rules from the authority than in China," Shi said.
Many of China's State-controlled fi nancial powerhouses are wary of the risks of investing in Western financial markets.
"The financial industry boasts higher risks than other industries," said Zhang Jijing, executive director and vicepresident of CITIC Group. "The advice is being cautious, being more cautious and that you cannot be more cautious."
Chinese financial titans invested big in the US market before the 2008 fi nancial crisis and suff ered as a result. In 2007, China Investment Corporation bought a $3 billion stake in Blackstone, one of the largest US equity firms.
As Blackstone shares slumped amid global financial turmoil, the investment had lost more than two-thirds of its value and has yet to return to the level at which CIC invested.
Another unsuccessful deal was Ping An Insurance's 5 percent stake in European fi nancial powerhouse Fortis, which fell amid the fi nancial crisis and was being bought by the governments of the Netherlands, Luxemburg and Belgium and French bank BNP Paribas in 2008.