ICBC lays new foundations

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Chinese bank’s London purchase likely to be followed by other acquisitions in foreign markets.

The purchase of the UK markets business of South Africa’s Standard Bank by Industrial and Commercial Bank of China is an important first foray into the UK wholesale banking market by a Chinese bank.

It also raises more questions than it answers. Can a 60% stake in the UK markets business of a South African bank really be worth close to $800 million? If so, are global markets businesses in general greatly undervalued?

Are Chinese institutions paying over the odds for footholds in foreign markets as they seek to play catch-up after decades of largely ignoring the outside world? And are we about to see the long-predicted flood of acquisitions overseas by Chinese banks, particularly those giving them a broader presence in markets, in particular commodities?

At a guess, the answers to these questions are no, yes, yes (but they can afford it) and probably. ICBC’s chairman, Jiang Jianqing, has stated his intention of tripling the contribution of overseas operations to overall earnings by 2016. High-ranking officials from China’s government and financial institutions are thinking publicly along similar lines. As China’s corporate clients expand abroad, Chinese banks need to be able to follow them.

At the very least, ICBC’s move marks a moment in Chinese expansionism with a markets business, particularly with respect to commodities.

China’s importance on a global stage is best demonstrated by the rise of China Development Bank, now the world’s largest financial institution for overseas loans, ahead of both the World Bank and the Asian Development Bank. Other Chinese banks will need to assume similar heft. They have been relatively quiet on the international stage in recent years after making a series of awful investments around 2008 at the height of the global financial crisis.

ICBC has remained the most active, buying the US arm of Bank of East Asia and taking control of the Argentine subsidiary of Standard Bank. With its latest move, it has signalled that the time is right for China’s banks to get down to serious global markets business.