mergers and acquisitions at second- and third-tier banks. Consolidation of the nation's 117 third-tier city commercial banks could lead to the creation of a number of joint stock commercial banks with nationwide coverage, while existing second-tier banks could also take over smaller operators in order to expand their coverage into new locations.
Bank deals under pressure
Foreign investment in the finance sector appeared to be in trouble, with a number of deals pairing overseas firms with troubled domestic banks and brokerages delayed, the Financial Times reported. Final approval for the purchase by UBS of a 20% stake in Beijing Securities has been postponed for several months due to government concern about the Swiss bank's detailed provisions. A decision on whether Citigroup or Soci?t? G?n?rale will take over Guangdong Development Bank was also put on hold. Citigroup was thought to be leading the bidding war, but its offer of taking 40% as part of a consortium buying 85% of the bank goes beyond China's cap of 25% stakes for overseas investors in domestic banks.
ICBC book-runners announced
Industrial and Commercial Bank of China added Deutsche Bank to the book-runners for its planned US$15 billion Hong Kong IPO, but former frontrunner Goldman Sachs – which has a stake in ICBC – was excluded due to concerns about a possible conflict of interest. The nation's largest lender said it had also given mandates to Merrill Lynch, China International Capital Corp, Credit Suisse and its own Hong Kong investment banking unit, ICEA. In a bitter twist for Goldman Sachs, rival Morgan Stanley was awarded an as yet unknown role.
Rule change levels field
Regulators will ask foreign banks to incorporate their China operations locally in a move that could see them face higher capitalization requirements and higher taxes. They may also have to make accounting and management changes under the new rules, which the China Banking Regulatory Commission said were necessary to improve regulation and control risk. China's banking sector is due to open up considerably in December according to WTO accession agreements, with all foreign banks permitted to accept deposits and give loans in local currency. Planned changes are intended to level the playing field between foreign and domestic players by making them structurally more similar.
BOC applies for IPO
Bank of China made progress towards its planned Hong Kong IPO as it finalized agreements with foreign investors and filed a listing application with the Hong Kong Stock Exchange. The bank also rebuffed Beijing's calls for a simultaneous initial public offering in Shanghai, which it claimed would have delayed its listing. BOC said it had sealed agreements with all its foreign strategic investors and that no more would be included, ending speculation it might also sell a stake to Japan's Bank of Tokyo-Mitsubishi UFJ.
Mainland push for HSBC
HSBC is planning further expansion in China after Mainland profits surged more than tenfold to US$334 million last year, while pretax earnings from its Hong Kong operations contracted 6.48%. Group chief executive Stephen Green told the South China Morning Post the bank will continue to expand in the Mainland, both with partners and on its own. The market is speculating that HSBC and Bank of Communications, in which HSBC has a 19.9% stake, intend to buy one of the country's distressed securities houses.
Fraud exposes lax controls
China's banking regulator confirmed media reports of a US$53.7 million fraud at the Bank of China and called on domestic banks to strengthen their internal controls. Caijing magazine reported that a businessman allegedly obtained 96 acceptance bills – a form of bill of exchange – from a Heilongjiang province branch and cashed them in at a number of other institutions. Five BOC executives and an executive of a cereals trading house were arrested after the alleged scam was uncovered.