INTERVIEW-Bank of America bets on 2007 China card venture http://today.reuters.com/news/articlebusiness.aspx?type=bankingFinancial&storyID=nSP136835&from=business
Sun Sep 17, 2006
By Brian Kelleher, Asia financial services correspondent
SINGAPORE, Sept 17 (Reuters) - Bank of America (BAC.N: Quote, Profile, Research) plans to issue a joint Chinese credit card with partner China Construction Bank (0939.HK: Quote, Profile, Research) next year, part of an Asian expansion plan that will increase its regional staff by up to 20 percent in the next two years.
The No. 2 U.S. lender, which is planning a slow but steady entry to the region's roaring equity underwriting and M&A businesses, will join rivals Citigroup (C.N: Quote, Profile, Research) and HSBC (HSBA.L: Quote, Profile, Research) in the fast-growing but highly competitive Chinese cards market. "I'd be disappointed if we didn't have something up and running sometime next year," Chief Executive Ken Lewis told Reuters on Sunday in an interview at its regional headquarters in Singapore.
The Charlotte, North Carolina-based bank said in March it wanted to issue cards this year, but Lewis said it is still working out the structure of its arrangement with Construction Bank, which sold Bank of America a $3 billion stake last year.
The investment is now worth more than $8 billion.
Some rival bankers have questioned Bank of America's China strategy, as it has agreed to abandon its own organic consumer banking business on the mainland as part of its agreement with Construction Bank.
It also agreed to sell its Hong Kong business to Construction Bank for $1.24 billion last month, but Lewis said that move is not an indication that the bank does not consider Greater China a high priority.
"We had 16 branches (in Hong Kong), a minor market share and I did not see a way for us to be a major player," he said, adding that the bank's goal is always to be one of the top lenders in any individual market.
It has its work cut out for it selling Chinese credit cards -- one of several areas in which it is working with Construction Bank -- as Citigroup and HSBC (0005.HK: Quote, Profile, Research) have already issued cards with their local partners and domestic players like China Merchants Bank (600036.SS: Quote, Profile, Research) aggressively target that business.
Banks are pinning their hopes on credit cards and wealth management in China, which has nearly $2 trillion in personal savings, an economy growing at faster than 9 percent and a bank sector opening fully to foreign competition in December.
Bank of America, which became the top U.S. credit card issuer when it acquired MBNA for $34.2 billion in January, is expanding its cards businesses in Canada, England and Spain while it considers entering other European markets, Lewis said.
In Asia outside of China, issuing cards will be the second stage of expansion for that business, he said.
NO BIG M&A PLANS
Bank of America, which has built equity capital markets and merger and acquisitions operations in the United States to complement its fixed income and corporate lending operations, is not rushing to boost those businesses in Asia despite an ever-increasing number of IPO and M&A deals. "That's always a dangerous game," Lewis said. "We're not going to try to play the market."
Lewis said the bank will take more than three years to build out its Asian investment banking capabilities, with equity underwriting and M&A advisory the final pieces of expansion.
But it will increase its total Asian staff by 15 to 20 percent from 2,000 people in the next two years, Asia and Australia President Colm McCarthy said.
"We are already a large commercial bank," he said. "It's just a matter of building bench strength."
Bank of America, which also bought rival FleetBoston Financial in recent years, is frequently mentioned as a potential buyer of rivals like ABN AMRO (AAH.AS: Quote, Profile, Research) or Standard Chartered (STAN.L: Quote, Profile, Research) (2888.HK: Quote, Profile, Research) to fill out its European and Asian operations.
But Lewis said there are no imminent plans for large takeovers or direct investments in Asia or the rest of the world.
"We do not think another acquisition as far as we can see is a strategic imperative," he said.
The bank hold stakes in Mexico's Groupo Financiero Santander Serfin and Brazil's Itau (ITAU4.SA: Quote, Profile, Research) (ITU.N: Quote, Profile, Research), and Lewis said he does not see any other compelling investments at the moment.
In its home market, where Bank of America's 10 percent market share of U.S. deposits prevents it from making any acquisitions that would increase its share above that level, Lewis is confident that the economy will have a soft landing and grow at about 2 to 2.5 percent next year.
"If there's going to be pressure we see it manifesting itself in the sub-prime lending sector," he said, noting that Bank of America does not have a presence in that business. "The debt service levels seem to be very manageable."
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