Chinese Bank Now Allowed to Take Over U.S. Banks
The U.S. Federal Reserve has given permission to three Chinese state-backed banks to set up branches within the U.S., said Reuters on Wednesday - effectively clearing the way for the Industrial and Commercial Bank of China (ICBC) to purchase a majority stake in the U.S. subsidiary of Bank of East Asia.
According to the report, ICBC, China Investment Corporation (CIC), and Huijin Investment Ltd were approved to be U.S.-based bank holding companies, which would allow them to purchase stakes in American banks.
But in doing so, Karen Petrou, a banking analyst with Washington Research Group, added that the Chinese firms would be "ring fenced" from their home-country supervisors - meaning that their activities would come under U.S regulations and be separate from their Chinese entities.
Chinese banks have long been seeking access to the U.S. banking system in order to provide financial to Chinese companies operating overseas and to increase the exposure of the Yuan to foreign investors. In a statement by the Fed, the U.S central bank said that a comprehensive study was made on the three banks, before they were granted permission to enter the U.S. market.
ICBC will now buy up 80 percent of the U.S. unit of Hong Kong-based Bank of East Asia, which operates 13 branches in New York and California.
The announcement comes just days after high-level US-China economic talks in Beijing, and is said to be a reward for the "encouraging progress" that the Chinese have made towards becoming a more open and market-oriented financial system.
The Fed said on Wednesday that the ICBC acquisition was "relatively small" and would not have that much of an impact on the banking market yet.
"The combined deposits of the relevant institutions in the Metropolitan New York banking market represent less than one percent of market deposits," the central bank noted, as quoted by AFP.
Additionally, the Wall Street Journal noted that the Chinese was still unlikely to make significant inroads into the U.S banking industry anytime soon - with the plan for the moment "to go slow and learn the market," said Ernie Patrikis, a lawyer with White & Case.
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Still, "it's a significant milestone for China and the Chinese banks, which will allow them to engage in further business in the U.S. and Europe as well," said Chris Daniel, a banking lawyer at Paul Hastings LLP. ICBC will pay $140 million to buy its stake, and open the doors to other Chinese acquisitions in the future.
"This unprecedented acquisition of a controlling stake in a US commercial bank by a mainland bank is strategically significant," ICBC chairman Jiang Jianqing said.
This could accelerate M&A as Chinese banks may look to acquire regional banks in order to establish a U.S. footprint," added Jaret Seibert, Senior policy analyst at Guggenheim Securities' Washington Research Group, to Bloomberg News.