HSBC Holdings Plc, founded in Hong Kong and Shanghai in 1865, said it reached an agreement to buy a stake in Bank of Communications (交通銀行), the biggest acquisition yet by an overseas lender in China.
HSBC, Europe's biggest bank by market value, which already owns shares in the Bank of Shanghai (上海銀行) and Ping An Insurance Co (平安保險) in China, said it will announce the purchase shortly.
London-based HSBC announced last month that it was conducting talks to buy a 19.9 percent stake in the Chinese lender. It didn't say how much it will pay or whether it had received government approval.
HSBC Chairman Sir John Bond spent US$46 billion on US and European takeovers in the past five years, adding more than 70 million customers and making the bank the world's sixth-largest credit card issuer.
"This is their most significant deal in China," said Ambrose Chang, who manages US$1.7 billion as the chief investment officer at Daiwa SB Investments HK Ltd in Hong Kong, including shares of HSBC.
"This is a big move in the Chinese banking sector and the biggest investment move by HSBC in a still closed banking system," Chang said.
HSBC, Citigroup Inc and other overseas banks are jostling for position in China, where 1.3 billion people have US$1.35 trillion in savings and the government is opening up the market to competition.
"We're in discussions with the Bank of Communications," said HSBC's Chief Executive Stephen Green.
"Those discussions have gone well. We have reached an agreement in principle and expect to make an announcement shortly," he said.
HSBC said yesterday that its profit in the first half of the year advanced 55 percent, helped by the US$15.5 billion purchase of Household International Inc. Net income increased to US$6.35 billion from US$4.1 billion in the same period a year ago.
Banks worldwide are targeting Chinese lending, credit card, insurance and fund management services as the nation prepares to lift curbs on lenders in line with WTO rules.
When China joined the trade body in December 2001, it agreed to lift restrictions on overseas banks conducting local currency business with individuals by the end of 2006.
HSBC said profit from its China operations more than doubled last year to 324.7 million yuan (US$39.2 million) from a year earlier, as it increased lending and took more deposits.
"It will also ring the bell for other foreign investors to link up with Chinese banks," Chang said.
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