ICBC Enters Insurance, US 工行开疆辟土：进军美国涉足保险

By newsdoug on July 9, 2012

ICBC closes US, insurance deals China’s top bank ICBC (HKEx: 1398; Shanghai: 601398) is making more smart moves in its drive to look more like a commercial lender, consummating previously announced deals that should provide good starting points to develop new business areas with big potential. The first of those has seen the bank close its acquisition of a mid-sized US lender, paving the way for it to enter that important market; while the second has seen ICBC close its purchase of a controlling stake in a China-based insurance joint venture, setting the stage for it to enter a sector with big potential in its drive to become a more fully-diversified lender.

These are the kinds of strategic moves that have made ICBC my favorite of China’s “big 4” lenders, reflecting what looks to me like a sincere effort to break with its past as a state-run, policy bank as it tries to become a globally respected commercial lender.

Let’s look at the insurance deal first, which has ICBC announcing it has just completed its purchase of a controlling 60 percent stake in an insurance joint venture between French giant AXA (Paris AC) and mining specialist Minmetals. (company announcement) The deal, first announced nearly 2 years ago, will see AXA remain a significant stakeholder with 27.5 percent of the venture, while Minmetals will hold 12.5 percent.

This kind of Sino-foreign insurance joint venture has performed poorly in the past, because China previously limited foreign companies to pairing with partners outside the financial services sector, forcing them to work with companies like Minmetals that had little or no relevant experience to offer. The addition of ICBC to the venture should provide a major new boost, giving it access to ICBC’s thousands of branches and salespeople throughout China. As a result, it could quickly become a significant rival to dominant companies like China Life (HKEx: 2628; Shanghai: 601628; NYSE: LFC) and Ping An Insurance (Shanghai: 601318; HKEx: 2318), providing an important source of new business for ICBC.

In the second deal, ICBC has just closed its purchase of 80 percent of the US subsidiary of Bank of East Asia (HKEx: 23), which the 2 sides announced earlier this year. (company announcement) I previously said that I liked that deal because it created a nice platform for growth in the US by bringing together Bank of East Asia’s background as a savvy, commercial lender with ICBC’s resources and China connections. I further predicted the tie-up, if successful, could even lead ICBC to take a strategic stake in Bank of East Asia, or perhaps even buy the bank outright.

Regardless of how that relationship develops, I do think it’s worth highlighting that these are exactly the kinds of steps that ICBC and China’s other major lenders need to be taking if they want to gradually shed their reputations as policy tools of Beijing and start to earn some respect from the global financial community. Accordingly, look for more tie-ups between ICBC and respected global players in the next couple of years as it tries to boost its commercial credentials.

Bottom line: ICBC’s completion of a US acquisition and purchase of a controlling stake in a domestic insurer are its latest moves to become more commercial, with more similar tie-ups to come.

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