China Bank Mergers & Acquisitions (Bank of China)

Photo: Bank of China (Hong Kong)'s main branch in Central district, Hong Kong.


Bank of China Ltd. (中國銀行, 中国银行)
China’s banking history clearly reflects the country’s turbulent history in the 20th century. In 1905, the sickly and backward Imperial China established the Da Qing Hubu Bank (which means the Great Ching [Dynasty] Finance Ministry Bank) in a largely failed attempt to better manage the country’s fiscal and monetary policies. At the time, modern commercial banking and trade financing in China was typically provided by foreign banks, with British, French, German, Russian, Japanese and American banks dominating the marketplace in major port cities.

On October 10, 1911, forces led by Dr. Sun Yat-Sen overthrew the Qing (Ching) dynasty, ending two thousand years of imperial rule and establishing the Republic of China. In 1912, the defunct Da Qing Bank was re-born as the Bank of China and given central bank functions. The new bank established its headquarters in Da Qing Bank’s former premises in Shanghai’s Bund district. The new entity was a dual state-owned commercial bank and a central bank.

However, the establishment of the new republic did not quell China’s political unrest. Quite the contrary, fighting between various fractions and warlords continued and worsened for the next four decades. Despite this political instability, Bank of China opened a Hong Kong branch in 1917, which eventually evolved into Bank of China (Hong Kong).

In 1928, Bank of China re-located its head office back to Beijing, and was granted the power to handle China’s foreign exchange transactions. To accomplish this new task, the bank opened a London office in 1929, marking the first time a Chinese bank had opened an office outside of Asia.

Meanwhile, from 1927 onward, the Kuomintang (Nationalist) forces and the home-grown Communist forces fought for the control of China, further sickening its national health and economy. The Chinese Civil War coincided with the rise of Japan’s imperial militarism, which aimed to dominate and colonize the entire Far East. Japan invaded China in July 1937, plunging the country into a lengthy and bloody war for the next eight years. The Japanese invasion, ironically, suspended the Civil War between the Kuomintang and the Communists as they joined forces to fight off the Japanese army. The Sino-Japanese War became part of the larger World War II in 1941, when Japan bombed Pearl Harbor in Hawaii and invaded other countries in the Far East.

Between 20 million and up to 35 million casualties in China were attributed to the Sino-Japanese War by the time Japan was defeated in 1945. Sadly, the Chinese Civil War resumed as soon as Japan was defeated. Over the next four years, the Communists gained more and more ground and drove the losing Kuomintang to the island of Taiwan in 1949. This important event split China into two: with the original Republic of China founded by Dr. Sun Yat-Sen in 1911 now controlling the island of Taiwan, and the Communists controlling the mainland and establishing the People’s Republic of China in October 1949.

Bank of China itself was also split. The fleeing Kuomintang brought with them the bank's liquid assets and bullion to Taiwan while the Communists seized the bank's mainland Chinese operations and branch network. The two sides confusingly retained the name Bank of China initially, due to both regimes’ claims of legitimacy and false hope that they would retake the other’s territory soon.

Subsequently in 1971, the Republic of China (Taiwan’s) Bank of China was privatized and renamed the International Commercial Bank of China, which became today’s Mega International Commercial Bank, which is still based in Taipei, Republic of China in Taiwan.

Meanwhile, Communist China’s Bank of China lost its central bank status to the newly-created People's Bank of China, but held on to its foreign exchange bank designation status. Throughout the 1950s, all foreign banks were gradually evicted from China as it rid itself of foreign powers.

Under Chairman Mao Zedong’s regime, Communist China then plunged into three decades of horrific social turmoil, famines and class struggles during which citizens spied on and terrorized each other as they accused each other as being Kuomintang supporters, capitalists, small business owners, intellects, political dissenters or whatever groups were out of favour at the time. The Chinese banking industry during this period was bureaucratic, backward and corrupt. It was only in 1979, three years after the death of Chairman Mao, that China finally adopted an “Open Door Policy” as it opened up to foreign trade, investments and tourism again.

However, true modernization of China’s banking industry only began in the mid-1990s, when regulatory and managerial reforms began to slowly transform Chinese banks towards more market-driven and risk-conscious enterprises. In 1994, Bank of China embarked on a major expansion plan to open more branches across the country.

In 2003, China's State Council approved the joint-stock restructuring of its state-owned commercial banks, of which Bank of China was one of the pilot banks in the process. One year later, Bank of China Ltd. was formally incorporated in Beijing. The Chinese government was said to have injected USD $22.5-billion in new capital to the bank in 2003 to raise its Tier 1 capital to international standards.

In what was then the world's largest IPO since 2000, Bank of China Ltd. raised HKD $87.0-billion (USD $11.2-billion) in May 2006 when it class "H" shares were listed on the Hong Kong stock exchange. As China was still inexperienced in managing its own stock exchange, securities underwriting and regulation, essentially all of China’s major state-owned enterprises were initially floated on the Hong Kong stock exchange before a mainland Chinese listing during the early 2000s. Then in July, 2006, Bank of China became the first lender to list its class "A" shares on the Shanghai stock exchange, raising another USD $2.5-billion.


Bank of China (Hong Kong)

Due to the close demographic, economic and trade relations between China and Hong Kong, Bank of China opened a branch in the then British colony in 1917. Eight other Chinese banks that would eventually become part of Bank of China had retail branches in Hong Kong, namely: the Kwangtung Provincial Bank, Sin Hua Bank, the China & South Sea Bank, Kincheng Banking Corporation, the China State Bank, the National Commercial Bank, the Yien Yieh Commercial Bank and the Bank of Communications. In addition, Chinese investors also established two Hong-Kong-registered banks locally: the Hua Chiao Commercial Bank and Po Sang Bank.

Following the Communists’ takeover of mainland China in 1949, the banking sector in China was nationalized and re-organized into a number of state-owned banks.  The Hong Kong operations of the aforementioned eight Chinese were take over by Bank of China's Hong Kong branch during the 1950s. Interestingly, these eight banks' Hong Kong operations continued under their own management and brands even though they were subsidiaries of Bank of China (Hong Kong), which was also known as BOCHK.

In the post-1949 era, Bank of China also acquired control of two more Hong Kong-based banks: Nanyang Commercial Bank and in 1970, the Chiyu Banking Corporation. For many years, BOCHK plus its 12 subsidiary banks were referred to as the 中銀十三行 (“BOC 13 Banks”) by the local press. The BOC 13 Banks each had its own administration and branch network. Needless to say, the arrangement created lots of redundancies and inefficiency, with sister banks often competing with each other for business. It was only in the 1980s that a common computer database system and platform was implemented across all 13 banks.

As China prepared for the 1997 turnover of Hong Kong from a British colony to an autonomous region of China, BOCHK aimed to play a much larger role in the local banking market. In October 2001, the Kwangtung Provincial Bank, Sin Hua Bank, the China & South Sea Bank, Kincheng Banking Corporation, the China State Bank, the National Commercial Bank, the Yien Yieh Commercial Bank, Po Sang Bank and Hua Chiao Commerical Bank were merged and consolidated into Bank of China (Hong Kong). Nanyang Commercial Bank and Chiyu Banking Corporation kept their own management and branding despite being subsidiaries of BOCHK.

Meanwhile, BOCHK returned the Hong Kong operations of Bank of Communications to China's Bank of Communications in 1998, which was originally founded in 1908, dismantled in 1958 and re-born in 1987 as China's first state-owned joint-stock commercial bank.  So technically the BOC 13 Banks in Hong Kong became the BOC 12 Banks in that year.

As another important step for Bank of China to take a much more important role in post-British-colonial Hong Kong, BOCHK was given the privilege to issue Hong Kong's banknotes in 1994, joining HSBC and Standard Chartered Bank.  BOCHK was floated on the Hong Kong Stock Exchange in October 2002. As of the end of 2015, Bank of China controlled 66% of BOCHK.

Recent transaction(s):

• In 2008, Bank of China agreed to buy a 20% stake in French-based La Compagnie Financière Edmond de Rothschild for Eur 236-million (USD $340-million). The two planned to develop private-banking and asset management services for China's nouveau riche. The Rothschilds' private and merchant banking business dates back to the 1740s.
• The above deal was scrapped in April 2009, after Bank of China failed to win regulatory approval from the Chinese government.
• In December 2010, Bank of China raised CNY 59.7-billion (HKD $69.6-billion, USD $8.96-billion) from rights issues in Hong Kong and Shanghai to replenish capital following the lending boom in 2009.
• In December 2015, Bank of China's 66%-owned Bank of China (Hong Kong) agreed to sells its Hong Kong-based Nanyang Commercial Bank (NCB) to China Cinda Asset Management Co. Ltd. for HKD $68-billion (USD $8.77-billion). Nanyang Commercial operated 42 branches in Hong Kong and 18 in China.
  

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China Bank Mergers & Acquisitions (Bank of Communications)

Photo: A Bank of Communications branch in downtown Shanghai, China.

With special thanks to Mark Chang of New Jersey, United States, for allowing me to use his photo. You can see his photo stream via this link: http://www.flickr.com/photos/kramchang/


Bank of Communications (交通銀行)

Founded in 1908 during the final years of Imperial China’s Qing (Ching) dynasty, Bank of Communications quickly became one of Big Four banks in China. It was also one of the first local note-issuing banks in China (many foreign banks also issued banknotes at the time). The bank's original mandate was to manage payments for, and to finance the building of the country's shipping, railways, telegraph, postal service, mining and forestry industries.

Three years later in 1911, forces led by Dr. Sun Yat-Sen overthrew the Qing (Ching) dynasty, ending two thousand years of imperial rule in China but also plunging it into almost four decades of wars and instability. In 1934, Bank of Communications opened a Hong Kong branch to handle the massive amount of remittance business between the then British colony and China.

Following the devastating invasion from Japan, World War II and China’s own civil war between the Communists and the Kuomintang (Nationalists), the Republic of China government (founded in 1911) fled to the island of Taiwan in 1949 while the Communists took over mainland China, establishing the People’s Republic of China. Like China itself, Bank of Communications was also split, with the Communists taking over the mainland Chinese operations and the Kuomintang taking the senior management team and the bank's precious metals to Taiwan. Both parts of the bank were effectively nationalized, though Communist China's Bank of Communications continued operations until 1958, when it was dismantled and its assets divided up between the People's Bank of China and the People's Construction Bank (today's China Construction Bank). Interestingly, ownership of Bank of Communications Hong Kong Branch was transferred to Bank of China (Hong Kong), but maintained its own management and branding, becoming the only entity operating under the original banner for quite some years.

Meanwhile, Taiwan's Bank of Communications remained shut as Taiwan itself plunged into a decade of social unrest and terror. It was only in 1960 that the remnants of Bank of Communications resumed operations in Taiwan, adopting a new English name Chiao Tung Bank, which actually means "Bank of Communications" in Mandarin Chinese. Eventually Chiao Tung Bank and International Commercial Bank of China (the Taiwan descendant of the Bank of China) merged in 2006 to form today's Mega International Commercial Bank.

After decades of social turmoil, famines and terror under Chairman Mao Zedong's regime, China in 1979 launched its “economic reform and open-door policy” and the new Bank of Communications Co. Ltd. was re-established in Shanghai in 1987 as modern China’s first state-owned joint-stock bank. Despite this, under state-control, bureaucracy and corruption was common in all Chinese banks well into the 1990s, when regulatory and managerial reforms began to slowly transform them towards more market-driven and risk-conscious enterprises.

The new Bank of Communications became the first bank in China with a mandate to transform itself from the old, corrupt, backward and bureaucratic mode of operations that merely carried out official policies regardless of risk and profitability, or lack thereof, to one based on market forces.

In 1983, Bank of Communications Hong Kong was amalgamated into the Bank of China (Hong Kong) Group. However, in 1998, Bank of China (Hong Kong) Group returned Bank of Communications Hong Kong back to the Shanghai-based Bank of Communications Co. Ltd.

As of 2010, Bank of Communications had a nationwide network of over 2,600 branches in China and was the No. 5 bank in China. Overseas, the bank operates a network of branches in Hong Kong while maintaining offices in New York, Tokyo, Singapore, Seoul, Macao, Frankfurt and London.

Recent transaction(s):

• In 2004, with the banking reform now well under way with other state-owned banks like the Agricultural Bank of China, Bank of China, China Construction Bank and the Industrial & Commercial Bank of China, the State Council approved Bank of Communications' plan to partially float its share capital. To facilitate the modernization of the bank’s management, product lines and operations, Bank of Communications invited HSBC Holdings to take a 19.9% stake in itself for USD $1.75-billion.
• On 2005-06-23, the bank was listed in Hong Kong, becoming the very first Chinese bank to do so outside of mainland China.
• On 2007-05-15, Bank of Communications obtained a dual listing on the Shanghai Stock Exchange, becoming the first Chinese bank to float its stock domestically.
• In February 2010, Bank of Communications raised HKD $37.24-billion (CNY 32.77-billion, USD $4.79-billion) from a rights issue to improve its capital level after a surge in lending and an increase in capital requirement ratio by the People’s Bank of China, the country’s central bank. HSBC Holdings, which aimed to maintain its 19% stake in the Chinese lender, subscribed to CNY 6.29-billion (HKD $7.17-billion, USD $921-million) of the rights issue.

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China Bank Mergers & Acquisitions (Industrial & Commercial Bank of China)

Photo: An Industrial & Commercial Bank of China (Canada) branch in the Toronto suburb of Markham, Ontario.

Industrial and Commercial Bank of China Ltd. (中國工商銀行, 中国工商银行)

The Industrial and Commercial Bank of China (ICBC) was created out of the People’s Bank of China (the central bank) in 1984. As its name suggested, the bank has a focus on financing China’s industries and commerce, though it also serves a huge number of individual customers through its extensive branch network.

In 1992, ICBC established its first overseas subsidiary in Singapore, followed by its first European office in London in 1995. In 1997, the bank launched its popular “95588” nationwide telephone banking platform.

Under Communist China’s state-control, bureaucracy and corruption was common in all Chinese banks. Regulatory and managerial reforms since the 1990s, however, have slowly transformed them towards more market-driven and risk-conscious enterprises.

In order to prepare ICBC for its initial public offering (IPO), the Chinese government injected USD $25-billion into the bank in 2005 to raise its Tier 1 capital level to international standards. On 2006-10-27, the floating of ICBC in Hong Kong and Shanghai made history as the world’s biggest IPO up to that point. ICBC was also the first company ever to float its class "A" and class "H" shares simultaneously. Class "A" shares are listed on the Shanghai stock exchange in the Chinese currency Renminbi (CNY), and can only be held by Chinese citizens. Class "H" shares are shares of Chinese companies listed on the Hong Kong stock exchange, which are traded in Hong Kong dollar (HKD), and can be bought and sold by Hong Kong and international investors.

ICBC's IPO had initially called for a sale of 13-billion "A" shares and 35.4-billion “H" shares, for a total of 48.4-billion shares to raise HKD $148.6-billion (USD $19.12-billion). Due to overwhelming demand for the stock, the over allotment (called "greenshoe") option was exercised in both Hong Kong and Shanghai in November 2006, bringing the total number of shares floated to 14.95-billion "A" shares and 40.7-billion "H" shares, for a total of 55.65-billion shares, raising the IPO size to HKD $170.8-billion (USD $21.97-billion). The ICBC IPO surpassed the old world record held by Japan's NTT Mobile Communications, which raised USD $18.40-billion in 1998.

The Hong Kong portion of ICBC's IPO attracted more than 977,000 individual retail applicants, or about 1 in 7 of the population. As retail investors subscribing to an IPO in Hong Kong must fully pre-pay the value of the shares at the time of application, the massively over-subscribed IPO apparently locked up HKD $420-billion (USD $53.9-billion) of funds for a few days.

As of 2008, ICBC served more than 193 million individual and business clients through more than 16,000 branches and 385,000 employees.

Recent transaction(s):

• In April 2000, ICBC agreed to buy 53.24% of Union Bank of Hong Kong Ltd. for HKD $1.80-billion (USD $231-million). ICBC also agreed to launch an unconditional offer for the remaining shares held by the public. By the time the offer expired, 70% of the shares were tendered, raising ICBC's total purchase price to HKD $2.37-billion (USD $304-million). Founded in 1964, Union Bank of Hong Kong had 22 branches within the territory, and one overseas branch. After closing, Union Bank of Hong Kong was renamed ICBC (Asia), and 30% of its equity remained listed on the Hong Kong stock exchange.
• In 2004, ICBC's Hong Kong subsidiary ICBC (Asia) bought Belgian Bank from Fortis S.A./ NV for HKD $2.16-billion (USD $278-million). Belgian Bank was the Hong Kong retail banking operations of Fortis S.A./ NV. Fortis retained a 9% stake in the enlarged ICBC (Asia) following the sale of its 22-branch Hong Kong network.
• In 2005, ICBC (Asia) bought Shenzhen-based China Mercantile Bank for HKD $749-million (USD $96-million) from ICBC. ICBC (Asia) acquired China Mercantile in order to obtain a banking licence to conduct Renminbi (China’s currency) business in Shenzhen.
• In 2006, ICBC acquired 90% of PT Bank Halim Indonesia, a tiny bank with 12 branches and only USD $50-million in assets. Terms of the deal were not disclosed. The purchase, while symbolic in nature as the first foreign acquisition outside of China/Hong Kong for a Chinese bank, was not expected to have any material impact on ICBC's earnings. China's enterprises are sometimes known to make foreign acquisitions for "pride."
• In 2007, bought 79.93% of Macau (Macao)'s Seng Heng Bank for MOP 4.68-billion (Macao patacas, or HKD $4.55-billion, USD $583-million) from majority shareholder casino tycoon Sir Stanley Ho.
• In 2007, ICBC subscribed to a new share issue representing 20% of South Africa's Standard Bank Group Ltd. for ZAR 36.7-billion (USD $5.46-billion, HKD $42.32-billion, CNY 40.95-billion). Standard Bank is Africa's largest bank group and has operations in 18 African countries and 19 countries outside of Africa. It operates 713 branches in South Africa and another 240 in the rest of Africa.
• Also in 2007, ICBC bought the 8.23% stake in ICBC (Asia) held by Belgium's Fortis S.A./ NV for HKD $1.92-billion (USD $ 246-million). With the latest acquisition, China's ICBC raised its stake in its Hong Kong unit ICBC (Asia) to 71.21%. Fortis acquired the 8.23% stake in ICBC (Asia) in 2004 when it sold its Hong Kong-based Belgian Bank to ICBC (Asia).
• In 2009, ICBC bought 19.3% of Thailand’s ACL Bank for USD $108-million (3.55-billion TBT).
• In 2010, ICBC bought 70% of Bank of East Asia (Canada) for CAD $80-million (HKD $589-million, CNY 517-million, USD $76-million). Bank of East Asia (Canada) was the Canadian unit of Hong Kong-based Bank of East Asia. At the same time, Bank of East Asia raised its stake in joint-venture ICEA Finance to 75% for HKD $372-million.
• In August 2010, ICBC privatized its 73%-owned Hong Kong-listed subsidiary ICBC (Asia) Ltd. by offering HKD $10.8-billion (CNY 9.45-billion, USD $1.39-billion) for the 27% stake not yet controlled.
• In October 2010, ICBC acquired 60% of AXA-Minmetals Assurance Co. for CNY 1.2-billion (USD $179-million). AXA-Minmetals was a joint-venture between French insurance giant AXA S.A. and China Minmetals Corp., a major base metals miner. Following the transaction, AXA's stake in the joint-venture would fall to 27.5% from 51%, whereas China Minmetals' stake would fall to 12.5% from 49%. The joint venture would rename itself rather clumsily to ICBC-AXA-Minmetals Assurance Co.
• Also in October 2010, ICBC was planning to raise up to CNY 45-billion (HKD $52.2-billion, USD $6.7-billion) from a rights issue in Hong Kong and Shanghai to replenish capital after a lending boom in 2009.
• In January 2011, ICBC agreed to buy 80% of Hong Kong-based Bank of East Asia's American retail operations for USD $140-million (HKD $1.08-billion, CNY 922-million). The politically sensitive purchase included 13 branches in California and New York City and is subject to U.S. government approval. The purchase marked the very first time a Chinese bank has attempted to acquire a commercial banking licence in the U.S.
• In August 2011, ICBC bought 80% of Standard Bank Argentina and its two affiliates for USD $600-million (ARS 2.49-billion, ZAR 4.31-billion, CNY 3.86-billion, HKD $4.68-billion) from South Africa's Standard Bank Group (55% stake) and other shareholders (25% stake). Before the sale, Standard Bank owned 75% of Standard Bank Argentina and 70% of the other two units. Following the sale, Standard Bank Group would retain 20% of Standard Bank Argentina, which had 103 branches. ICBC and Standard Bank would inject a total of USD $100-million of new capital into the Argentine bank based on their new ownership
• In 2013, ICBC agreed to buy 20% of Taiwan's Bank Sinopac for TWD $20-billion (USD $606-million). However, the deal was contingent on the passage of a "cross-strait" free-trade agreement on services between China and Taiwan. The trade agreement subsequently faced severe opposition in Taiwan and was never signed. In September 2015, ICBC and Bank Sinopac announced that the purchase/sale agreement expired without closing.
• In January 2014, ICBC bought 60% of Standard Bank of South Africa's London-based global markets business for USD $765-million (ZAR 8.64-billion, CNY 4.63-billion, HKD $5.94-billion). The deal also gave ICBC a call option to buy another 20% of the unit for five years, starting two years after the closing of the transaction.  If the call option is taken up by ICBC, then Standard Bank can exercise a put option to force the Chinese bank to purchase the final 20% of the unit.  The global markets unit provides trading and other services in foreign exchange, commodities, interest rates, debt and equity products. The division was later renamed ICBC Standard Bank.
• In May 2016, ICBC-majority-owned ICBC Standard Bank acquired Barclays' bullion vault in London for an undisclosed amount. The bullion vault is said to have capacity for 2,000 tonnes of precious metals such as gold, platinum and silver.

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