SATURDAY, JUNE 18, 2005
BoA to pay $3bn for 9% stake in China bank
REUTERS
HONG KONG/SHANGHAI: Bank of America (BoA), the second-biggest US lender, said that it will pay $3bn for a 9% stake in China Construction Bank (CCB), which will be the largest single foreign investment in China’s banking sector. BoA wants to expand beyond its home market, where it has a 10% maximum share of deposits. CCB, one of China’s Big Four state banks and the country’s top property lender, is eager to sign up a foreign investor ahead of a planned $5bn IPO later this year.
The US bank has the option to increase its stake in the Chinese bank over the next five-and-a-half-years to 19.9%, the maximum level allowed under the Chinese law. Citigroup, the world’s biggest bank, was seen as the front-runner to invest in the Chinese bank, but sources said that its offer fell short.
Chinese state banks are seeking foreign investment to bring credibility and know-how to an industry which has been tarnished by the legacy of decades of government-directed lending to bloated state firms. In late ’03, Beijing gave CCB a $22.5bn bail-out, which was part of a vast effort to revamp a creaky financial system that is regarded as a threat to China’s growth.
“CCB has undergone an impressive transformation in the last several years,” said BoA chief executive Ken Lewis. China’s allure is $1.5 trillion in personal savings and a culture that is only beginning to embrace credit. Few Chinese have a mortgage or credit card, but nearly double-digit economic growth has created an expanding class of borrowers.
“Most foreign banks in China would want a piece of the retail action,” said ABN Amro analyst Simon Ho, who said the deal was not expensive for BoA, which posted net income of $4.7bn in its first quarter alone. CCB, considered the healthiest of China’s Big Four, has $472bn in assets and 14,500 branches. BoA, with a market value of $187bn, has $1.2 trillion in assets and 5,800 US branches.