Best Bank – Industrial & Commercial Bank of China
Best equity house – China International Capital Corporation
Best debt house – CITIC Securities
Best M&A house – Morgan Stanley
The big four banks in China still carry the burden of their years as instruments of government policy lending, most notably non-performing loans. However, it is fairer to judge them on their performance after being allowed to operate as conventional commercial banks. On this basis the choice is between Bank of China and Industrial & Commercial Bank of China. In terms of sheer size, ICBC comes out on top. With Rmb4.1 billion ($495 million) in deposits, 25,960 branches and 405,558 employees (down from a peak of 570,000), ICBC operates on a scale that dwarfs all but a few companies in the world.
However, size is not a criterion of quality and Bank of China, though it has only half the deposits and branch network, has a superior cost income ratio (39.65% versus ICBC’s 56.37%) and similar profitability before provisions (Rmb42.7 billion compared with ICBC’s Rmb44.8 billion). The two are neck and neck in terms of NPL ratios – Bank of China’s is 22.49%, ICBC’s 25.69%.
However, this year ICBC is the institution on the move. Its aggressive adjustment to modern commercial banking began in 2002. In the past year Bank of China has reduced its domestic branch network by 3%; ICBC has reduced its by 9%. In 2002, ICBC grew deposits by 13.5%; Bank of China’s grew by 11.2%. ICBC has the most modern IT infrastructure of any bank in China (in the past 12 months IT spending, not including the purchase of fixed assets, hit Rmb1.45 billion). Much of this money has been spent on centralizing of data centres – crucial in managing such a vast branch network.
And ICBC has so far managed to avoid some of the problems experienced by Bank of China in the difficult period of transition to modern commercial bank. After a fraud in New York and then, in early 2002, the misappropriation of around $480 million via the bank’s Kaiping branch, the latest difficulties involve Liu Jinbao, former head of the Hong Kong branch of Bank of China, who suddenly left his post for Beijing last month at the same time as the branch’s former deputy general manager of corporate banking and financial institutions was arrested by Hong Kong’s Independent Commission Against Corruption.
China International Capital Corporation has again shown that it is the most successful firm in China at equity capital raising for Chinese corporates in the domestic and international markets. It takes the award for best equity house in China. Although several Chinese investment banks are snapping at CICC’s heels and are being chosen by the government to represent China’s interests in deals, in the past 12 months CICC still seemed to get involved in the high-profile transactions. It was involved in deals with China United Telecom Corp Limited ($1.4 billion) and Guangzhou Baiyun International Airport ($283 million) as well as international offerings such as China Telecom Corp’s Hong Kong listing. The last deal got a mixed reception since it was downsized by 55% but CICC gained valuable experience. It also learnt that Chinese privatizations are not guaranteed success. The bank’s equity pipeline for the rest of 2003 looks promising and it could mean it stays the leader of the pack. It includes a $1 billion IPO and ADR for PTIC and PICC’s $500 million IPO.
More and more multinationals are piling into China. They are aware, though, that it’s hard to make good returns. Chinese companies are also starting to spread their wings and look for acquisitions overseas. Investment banks based in Hong Kong are positioning themselves to get in the flow of such business. And for the past 12 months Morgan Stanley was the most successful and so takes the best M&A house award, having closed deals to the value of $5.3 billion across many industry sectors. In technology it advised in Huawei’s and 3Com’s joint venture, a ground-breaking partnership between Chinese and US corporates in the communications equipment industry.
In the consumer market Morgan Stanley helped Anheuser-Busch, the world’s largest brewery, increase its investment in China’s most successful brewery, Tsingtao. And in the financial sector, alongside Goldman Sachs, Morgan Stanley advised Ping An Insurance as HSBC looked to take a stake, paying $600 million for 10%. Other ground-breaking deals in this pivotal industry sector include Newbridge Capital’s investment into Shenzhen Development Bank, the first time that a foreign investor will have gained de-facto control of a domestic commercial bank.
