China's biggest lender, the state-owned Industrial and Commercial Bank of China (中國工商銀行), yesterday signed a US$3.78 billion investment deal with Goldman Sachs Group Inc, American Express Co and Germany's Allianz AG.
The deal, aimed at building "strategic partnerships" in banking, insurance and credit card businesses, will involve the purchase of newly issued shares in the Beijing-based bank, known as ICBC, the companies said in a statement.
The statement did not provide a breakdown for the size of investment for each company or the stake each will own. It said the deal, signed at a ceremony in Beijing, is subject to regulatory approval.
The bank earlier had announced that the three companies planned to buy a combined 10 percent stake for more than US$3 billion.
The Wall Street Journal said yesterday that ICBC had agreed to sell the stake as planned, with Goldman Sachs and its private equity funds investing US$2.58 billion for about 7 percent of the bank. Allianz would pay US$1 billion for a 2.5 percent stake and American Express would invest US$200 million, it said, citing unnamed sources.
Yesterday's deal caps a spate of multibillion-dollar investments by major international financial institutions angling for a share of China's potentially huge and lucrative market.
By October, foreign banks had pledged or put US$16.5 billion into 16 Chinese banks, according to the China Banking Regulatory Commission. Most of those investments were made in the past two years.
ICBC, which like other Chinese banks has been plagued with lending scandals and mountains of bad debt, expects the cooperation with its foreign partners to help improve its governance and risk controls.
In a rare move, Goldman Sachs will appoint one member to ICBC's board, according to the Chinese version of the companies' statement.
"Today's announcement marks the beginning for ICBC's corporate governance reform and business development," ICBC's chairman, Jiang Jianqing, said in the statement.
Munich-based Allianz, Europe's largest insurer by premiums, will focus on building up joint insurance products and services, while American Express will focus on cooperation in consumer credit, it said.
Chinese regulators are encouraging foreign banks to take strategic stakes in the industry, both as a source of funding and to upgrade local bank services with foreign managerial and technical expertise as the industry prepares for the opening of local financial markets to full foreign competition late this year.
Boasting more than 20,000 branches, ICBC is a giant in an industry dominated by huge banks. By the end of September, its deposits totaled 5.59 trillion yuan (US$693 billion).
Like other major Chinese banks, ICBC is in the midst of a restructuring and preparing to sell its stock on the Hong Kong exchange, possibly later this year, aiming to boost its competitiveness.
ICBC recently announced the founding of a US$248 billion yuan joint-stock company, equally owned by the Ministry of Finance and the government-owned Central Huijin Investment Co. In April, the government injected US$15 billion into the bank to help replenish its funds, while writing off 705 billion yuan in bad loans.
The bank recently reported that its unaudited operating profit last year, before provisions for losses, grew six-fold to 90.2 billion yuan and its capital adequacy ratio was 10.26 percent, similar to other big Chinese state banks.