China Construction Bank Corp (中國建設銀行) agreed to buy Bank of America Corp's Hong Kong and Macau unit for HK$9.7 billion (US$1.24 billion), the largest acquisition by a Chinese lender outside the country.
China's third-largest bank said in a statement the purchase is a step toward creating a "leading international lender."
The Beijing-based bank will pay cash for Bank of America (Asia) Ltd, gaining 17 outlets with HK$7.4 billion of net assets.
Chinese lenders are expanding in Hong Kong to prepare for competition with global banks, after decades of fraud and lax lending controls led to at least US$520 billion in bad loans. Bank of America, seeking access to the world's fourth-largest economy, last year bought a 9 percent stake in the lender for US$3.3 billion and agreed to assist its management.
"Hong Kong is a good market to buy into," said David Astor, who is on the management team of the US$94 million Hiscox Far Eastern Financial Fund at Hiscox Investment in London. "In international terms, Hong Kong banks are very profitable, highly regulated and well capitalized."
The acquisition reflects the growing clout of China's banks. China Construction has a market value of US$97.6 billion, making it the world's 11th biggest bank, ahead of BNP Paribas.
China's lenders are overhauling their management and technology to cast off a legacy of bad loans caused by decades of state-directed lending.
Moody's Investors Service estimates the government spent
3.5 trillion yuan (US$439 billion) bailing out banks since 1998.
China Construction now has five outlets in Hong Kong, compared with about 14,250 in China. The bank raised US$9.2 billion in an initial public offering last year.
Shares of Construction Bank were down 0.6 percent to HK$3.339 at the close of business yesterday in Hong Kong. The shares have gained 44 percent since they began trading in November, outpacing the 17 percent increase of the Hang Seng Index.
"The acquisition fits with our international strategy and significantly enhanced our scale and market position in Hong Kong," Guo Shuqing (
Buying Bank of America (Asia) pushes China Construction Bank into ninth place in Hong Kong, with HK$96 billion of assets, from 18th, the company said in a statement, citing Hong Kong Monetary Authority figures.
The investment represents 1.32 times the Hong Kong subsidiary's net assets as of Dec. 31. Bank of America (Asia), set up in 1912, focuses primarily on serving individual customers, and had net income of HK$537 million last year. Hong Kong's banks trade at an average price-to-book ratio of 2.7 times, according to data compiled by Bloomberg.
"It's a good buy," said Kent Yau, deputy head of research at Core Pacific-Yamaichi International in Hong Kong. "Since Bank of America has been in Hong Kong for some time, the bank knows how to do its wealth management business."
Charlotte, North Carolina-based Bank of America, the world's second-biggest bank by market value, closed its only retail branch in China in December and agreed to a seven-year alliance in the country with Construction Bank.
The transaction "allows us to concentrate our capital and resources on retail banking in markets where we have significant market share," said Gregory Curl, an executive at Bank of America.