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Fed Clears China's First US Bank Takeover

Thursday, May 10, 2012 - 8:00 AMThe Bank of East Asia
The United States opened its banking market to China's biggest bank ICBC, for the first time clearing a takeover of a US bank by a Chinese state-controlled company.

Just days after high-level US-China economic talks in Beijing, the Federal Reserve approved an application from Industrial and Commercial Bank of China to buy a majority stake in the US subsidiary of Bank of East Asia.

The transaction will make ICBC the first Chinese state-controlled bank to acquire retail bank branches in the United States.

http://news.yahoo.com/fed-clears-chinas-first-us-bank-takeover-012927575.html
2
ShorebreakShorebreak2,694 posts since
Apr 6, 2010
Rep Points: 14,602
1. Thursday, May 10, 2012 - 9:32 AM
The article states, "As part of the deal, ICBC and two state-backed financial firms -- China's sovereign wealth fund, the China Investment Corporation (CIC), and Central Huijin Investment -- will be recognized as bank holding companies, regulated as commercial US banks.".  "Regulated as commercial US banks" won't mean much the first time they want to do something normally prohibited to commercial banks and the issue will probably be resolved in the interests of our US-China economic partnerships/agreements.  Exactly who at the Fed thought this was a good idea?  
4
pearlbrownpearlbrown1,481 posts since
Nov 2, 2010
Rep Points: 6,438
2. Thursday, May 10, 2012 - 10:24 AM
Here is a more detailed account of the acquisition and the role of the Fed in the matter...

https://mninews.deutsche-boerse.com/index.php/fed-allows-china-state-owned-fund-and-bank-buy-us-bank?q=content/fed-allows-china-state-owned-fund-and-bank-buy-us-bank
1
ShorebreakShorebreak2,694 posts since
Apr 6, 2010
Rep Points: 14,602
3. Thursday, May 10, 2012 - 10:41 AM
Shorebreak:  I could not bring up the article you posted.  Can you tell me if accounts in the Chinese banks in US will be federally insured the same as all other federal banks here?  Thanks!
1
paoli2paoli21,405 posts since
Aug 10, 2011
Rep Points: 6,149
4. Thursday, May 10, 2012 - 11:02 AM
Thanks Shorebreak.  From the article "...Wednesday's decision required a change of view about China's reputation for lax banking oversight, and came to the conclusion it does have competent regulatory authorities...  The Fed noted that it is required to consider regulatory adequacy and whether accounting standards are up to the U.S. level. "There is no evidence that Chinese accounting methods or practices at the large Chinese banks, such as ICBC, are unreliable," the Fed noted... " 

This from the same government that did not detect Madoff's accounting shenanigans.  The fortuitous timing of this government change of opinion on the reliability of the accounting standard is highly suspect - pressure to get the deal done maybe? 

"...The Fed also noted the China Banking Regulatory Commission had the authority to override international standards but has never done so."  True, but it's a new game now.

15 days until we open the gates to let the Trojan horse in. 

 
3
pearlbrownpearlbrown1,481 posts since
Nov 2, 2010
Rep Points: 6,438
5. Thursday, May 10, 2012 - 11:11 AM
#3, Bank of East Asia is a member of the FDIC.  According to the article, "...New York's Bank of East Asia will be owned by China's sovereign wealth fund CIC, which is responsible for managing part of the People's Republic foreign exchange reserves, as well as by the state-owned Industrial and Commercial Bank of China". 

In other words, an organization which manages another country's foreign exchange reserves is going to be able to conduct business in the US through the Bank of East Asia and deposits at the Bank of East Asia are going to be insured by the FDIC.  

Oh no, there's no cause for alarm here. 

 
2
pearlbrownpearlbrown1,481 posts since
Nov 2, 2010
Rep Points: 6,438
6. Thursday, May 10, 2012 - 2:11 PM
Hey pearlbrown, if they offer high deposit rates, I say let them join the fray. It's not like the existing group of banks in this country are doing all that much for consumers.
1
loulou552 posts since
Aug 3, 2010
Rep Points: 3,431
7. Thursday, May 10, 2012 - 5:40 PM
Lou, I don't have a problem with foreign ownership of banks.  TD is Canadian, BBVA is Spanish and I have no reservations about their participation in our banking system. 

On the other hand, foreign ownership of banks where the owner is a government and not a private company makes me nervous, mostly because I have little confidence that the involved regulatory agencies have thought through the long-term ramifications of the arrangement.  In addition, I suspect that any objections have been minimized and not given enough attention.  Based on the article, and as I indicated in #4 above, the sudden decision that China's banking practices are OK seems to have been come out of nowhere and has the whiff of being driven by the urgency to do the deal.   

Finally, it concerns me that we are allowing majority ownership of the banks but in return "... China will also allow U.S. and other foreign investors to establish joint venture brokerages to trade commodity and financial futures and hold up to 49% of the equity in those joint ventures.".    It doesn't seem to be a balanced deal at all. 

As far as better rates, Bank of East Asia's website doesn't post any.  They do offer personal checking accounts with a monthly service charge of $10 and an activity charge of $0.20 per transaction if the average daily balance is below$100, a free checking account with direct deposit, and a basic checking account with a $3 monthly fee if there are no other relationships with the bank.    So far not so different from other US banks.
2
pearlbrownpearlbrown1,481 posts since
Nov 2, 2010
Rep Points: 6,438
8. Thursday, May 10, 2012 - 6:00 PM
I guess I think the current crop of banks in the US could use more competition, not less. Let me pose this hypothetical: If a Chinese-owned bank offered a 3.5% 5 year CD, would you object because it is foreign owned or because there isn't a sufficient balance in ownership rules between various countries. I would love for any bank to start offering higher rates and force their competitors to match it. I know it is not likely to happen, but if you make it difficult for someone to gain entry into the US market, there will be less competiton, not more.
1
loulou552 posts since
Aug 3, 2010
Rep Points: 3,431
9. Thursday, May 10, 2012 - 7:26 PM
I'm not advocating we make it more difficult to gain entry into the US market.  Independently of whatever higher rates may result from the competition, my immediate concerns about this announcement are:

1) that this is a variation on the "usual" foreign ownership of banks, since the ownership is in the hands of a foreign government and not a private company

2) that the regulatory agencies involved have not sufficiently considered all the long-term ramifications of the agreement in so far as allowing another government to have majority control of a banking institution and to conduct business as a bank holding company.

3) that the agreement which has made this arrangement possible does not appear to be evenly balanced.

I prefer not to comment on hypothetical situations which may or may not happen, but one thing is certain and that is that low rates are certainly devastating all of us savers and there doesn't seem to be relief in sight. 
3
pearlbrownpearlbrown1,481 posts since
Nov 2, 2010
Rep Points: 6,438
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