ICBC Challenges Bank Of China With London Deal
China’s big 4 state-owned banks are a relatively orderly group in their home market, largely respecting historical boundaries set by Beijing. But industry leader ICBC (HKEx: 1398) is quickly emerging as the most aggressive player on the global stage, with word that it’s in talks to buy a major London-based commodities and forex trading operation. These latest talks are just part of a recent global acquisition spree by ICBC, but they look particularly interesting as they present one of the most direct challenges yet to big 4 lending rival Bank of China (HKEx: 3988; Shanghai: 601398).
Within the China market, each of the country’s 4 biggest lenders have traditionally focused on the core areas implied by their names. ICBC’s full name is Industrial and Commercial Bank of China, giving it a traditional focus of lending to businesses. China Construction Bank (HKEx: 939; Shanghai: 601939) provided construction-related financing, while Agricultural Bank of China (HKEx: 1288; Shanghai: 601288) provided funds to the rural sector. Bank of China was historically the nation’s most foreign-oriented lender, with a special focus on forex services.
But in a more commercial era, ICBC has been particularly aggressive in expanding globally into a wide range of services outside its historical focus. ICBC’s global expansion began with its landmark purchase in 2008 of 20 percent of Standard Bank, Africa’s biggest lender. More recently ICBC has purchased assets and opened new branches in a wide array of global markets, from Argentina and the Middle East to the US. But up until now, ICBC has largely been the first to enter many of those markets, avoiding any major rivalry with other Chinese banks.
Now media are reporting that ICBC is in advanced talks to purchase the London-based commodities-trading and forex businesses of Standard Bank. (English article) The deal would be part of Standard Bank’s efforts to dispose of many of its non-core businesses to focus on its main Africa operations. As part of that drive, Standard Bank also sold a controlling stake in its Argentina subsidiary to ICBC last year. (previous post)
What’s particularly interesting in this latest deal is the fact ICBC seems to be making a direct challenge to Bank of China, indicating it doesn’t intend to respect previous boundaries observed by these rivals in their home market. Bank of China made headlines last year when it formed tie-ups with CME and the London Metals Exchange, operators of 2 of the world’s biggest commodities trading platforms in the US and Europe. (previous post) This this latest deal seems to show that ICBC wants to be a major participant in global commodities trade, and has no intention of letting Bank of China become China’s dominant representative in the sector.
The case looks similar for forex services, an area which ICBC has been aggressively chasing despite Bank of China’s historical dominance in the area. This latest deal would give ICBC a solid foothold in forex services in the lucrative European market. Both ICBC and Bank of China have also been aggressively competing to be named as official agents for currency conversion services, as China’s central bank signs a growing number of formal currency clearing agreements with foreign governments. ICBC made a major advance on that front when it was named as the exclusive currency-trading agent under an expanded yuan-clearing deal between China’s and Singapore’s central banks earlier this year. (previous post)
I’ve previously said that I like ICBC the most among China’s 4 big state run lenders for its aggressive international expansion, which underscores its ambitions to become a major global player and truly commercial bank. Of course it will still have to take its orders from Beijing for its lending policies in its home China market. But on the global stage it will be allowed to act more freely, providing a strong growth opportunity as ICBC looks to steal business from Bank of China and other major global lenders.
Bottom line: ICBC’s bid to enter London’s forex and commodities trading markets are part of its aggressive global expansion, and a direct challenge to Bank of China.
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