Bank of China (HKEx: 3988; Shanghai: 601988), historically the most outward looking of China’s big 4 state-run banks, may be trying to recapture some of its former glory as a global player, with news that it’s exploring the potential purchase of investment banking assets from Britain’s nationalized Royal Bank of Scotland (London: RBS). Media reports say Bank of China is just one of several potential buyers interested in the RBS assets, and that the process is still quite preliminary. (English article) But at least on the surface, this kind of acquisition looks like a smart move for Bank of China, as the size would be quite manageable and it would immediately gain access to a relatively well established global investment banking business. China bank watchers will recall that Bank of China was at one time the nation’s sole provider of foreign exchange services, and thus was its most outward looking bank in the days when the country’s financial services industry was largely shut off from the outside world. Bank of China also has a small investment banking arm in Hong Kong, but it has lost the title of most outward looking bank in recent years to more aggressive rival ICBC (HKEx: 1398; Shanghai: 601398), which, in the last few years has made a steady string of acquisitions in a number of markets in Africa, Asia and South America, and counts Standard Bank, Africa’s largest bank, as a major partner. (previous post) Bank of China, meantime, has been relatively quiet on the international stage, preferring to focus most of its activity at home. This new interest by Bank of China probably signals its management intends to get more active on the global front, potentially by picking up a lingering trickle of assets being sold off by banks like RBS that took hits during the global financial crisis. Many of those assets have already been sold off, but there are still a few floating around out there that could be attractive targets for Bank of China, which, at least based on this bid and its history as a forex trader, looks more interested in fee-based financial services. By comparison ICBC looks more focused on more traditional retail and commercial banking.
Bottom line: Bank of China’s interest in investment banking assets being sold by RBS show it may want to become more global, and could make more bids for other fee-based global banking assets.
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I’m going to be a bit controversial today and make a bold suggestion that may seem obvious to some, namely that China should privatize its big 4 banks and let them resume their role as the state-owned policy lenders that they were for their first 50 years. The idea may sound extreme, but it’s exactly the approach that Beijing seems to be taking first by forcing its banks to issue billions of dollars worth of new shares to shore up their balance sheets last year, and now by announcing it will buy up even more of their stock to support their sagging shares. The banks’ majority shareholder, the central government-controlled Central Huijin, provided few specifics other than to say it has started buying up shares in the top 4 lenders, ICBC (HKEx: 1398; Shanghai: 601398), China Construction Bank (HKEx: 939; Shanghai: 6019399), Bank of China (HKEx: 1398; Shanghai: 601398) and Agricultural Bank of China (HKEx: 1288; Shanghai: 601288). (
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