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.
"It allows CCB to have a platform from which to continue to grow in the Hong Kong and regional market," he said.
An index launched a year ago to give investors greater exposure to China’s Internet giants is now the world’s worst-performing major technology gauge. The Hang Seng Tech Index has been on a roller-coaster ride in the past 12 months. The gauge, which marks its first anniversary on Tuesday, was up 59 percent at its February peak, but has since seen more than US$551 billion in market value wiped out amid Beijing’s clampdown on the sector. That has reduced its gain to nearly 6 percent, compared with more than 40 percent for the MSCI World Information Technology Index and the NASDAQ-100 Index. The
EDUCATION AS WELFARE: New regulations threaten to upend the lucrative private education sector that teaches the public school curriculum to paying families China unveiled a sweeping overhaul of its US$100 billion education tech sector, banning companies that teach the school curriculum from earning profit, raising capital or going public. Beijing on Saturday published an array of regulations that together threaten to overturn the sector and jeopardize billions of dollars in foreign investment. Companies that teach school subjects can no longer accept overseas investment, which could include capital from the offshore registered entities of Chinese firms, according to a notice released by the Chinese State Council. Those in violation of that rule must take steps to rectify the situation, the country’s most powerful administrative
‘IN ITS INFANCY’: The company’s 12-inch fab in Arizona is to be its first major overseas chip manufacturing site, while the fab in Japan would be its second, if it is constructed Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) is evaluating the feasibility of constructing a semiconductor fabrication plant in Germany as it continues to expand overseas, it said yesterday. A shareholder at the contract chipmaker’s annual general meeting in Hsinchu City yesterday asked about the possibility following media reports earlier this month that TSMC was approached by the German government about building a chip fab in the country, as Europe joins the US and China in establishing local chip supplies in a bid to avert future chip shortages. “About the German fab, we are seriously looking into it, but it is still in its
Facebook Inc on Wednesday reported its profit doubled in the second quarter as digital advertising surged, but warned of cooler growth in the months ahead in an update that sent its shares sinking. Profit rose to US$10.4 billion on revenue of US$29 billion, a 56 percent increase from last year, mainly from an increase in ad revenue, Facebook said. The number of people using the social network monthly climbed to 2.9 billion, a year-on-year gain of 7 percent, while about 3.5 billion people used at least one of the company’s apps, including Instagram, WhatsApp and Messenger. “We had a strong quarter, as we
RSS