China Construction Bank (CCB), the mainland's third-largest lender, announced on Aug 24 that it will buy Bank of America (Asia) for HK$9.71 billion (US$1.24 billion), the largest ever deal of its kind by a mainland bank. The acquisition of the Hong Kong and Macao business of the world's second-largest bank, expected to be completed by the end of the year, is a "landmark" that reflects the growing global influence of mainland corporate houses, analysts said.
The mainland's financial players are starting to show their muscle in terms of overseas acquisitions. In February, CCB, now the world's 10th largest lender in terms of market value, failed in its bid to buy Hong Kong-based Asia Commercial Bank. Its acquisition of Bank of America's Hong Kong and Macao operations gives CCB a shortcut to enter Hong Kong's competitive banking sector, where cut-throat competition has left few opportunities for the opening of new branches.
"Bank of America (Asia) is equipped with an experienced management team and strong financial performance, and the bank's business has little overlap with CCB's Hong Kong operations. It is a very appropriate choice of acquisition for us," CCB President Zhang Jianguo told a press conference in Hong Kong on Aug 24.
Bank of America (Asia) operates 14 branches in Hong Kong and three in Macao, with 65 per cent of its revenue coming from its personal banking business. It earned HK$537 million (US$68.8 million) in 2005. The bank had total assets of HK$49 billion (US$6.28 billion) and net assets of HK$7 billion (US$897 million).
"It's a breakthrough for CCB," said Kenny Tung, analyst with Tung Tai Securities. He said the bank is eager to catch up with peers such as Industrial and Commercial Bank of China (ICBC) and Bank of China in terms of overseas presence.
All of the CCB officials spoke English at the conference, a rarity for mainland companies. This was a gesture that some analysts said points to the bank's global ambitions. And the deal 1.32 times the book net assets of Bank of America (Asia) is not expensive, compared to 2.5 times in the Asia Commercial Bank deal.
"It's a good deal," said Apoorv Trivedi from Citigroup Investment Research. Smaller banks in Hong Kong such as Wing Lung Bank and Liu Chong Hing Bank could also be targeted by CCB, but may ask for a higher price.
Bank of America, which owns an 8.5 per cent strategic stake in CCB, is more interested in long-term co-operation than arguing about the price. The deal will cheer the mainland's banking sector, with more lenders set to jump on the acquisition bandwagon. "That will certainly be a trend," said Tung.
Mainland lenders have frequently resorted to acquisitions to enter overseas markets, with ICBC, the mainland's leading lender, acquiring Fortis Bank Asia HK through its Hong Kong-listed subsidiary in 2004. Other lenders such as Minsheng Bank and China Merchants Bank are also believed to have similar plans.
However, CCB posted an 18 per cent decline in the first-half profits, mainly due to a big base last year when the bank enjoyed a tax benefit. It earned 23.2 billion yuan (US$2.91 billion) for the six months ended in June.
Source:佚名