China banks missing out on US investment banking bonanza

NEW YORK: As scores of investment bankers profit from the fee bonanza offered by Chinese companies hunting for deals in the US, one group is conspicuously absent - Chinese banks.

Despite their deep ties with Chinese firms, the country's largest state-owned banks are missing out on the hundreds of millions of dollars that Wall Street banks and their European rivals earn advising Chinese companies on acquisitions and share and debt sales. What is holding the banks back is the way Beijing controls the top lenders to manage the supply of credit to the Chinese economy.

Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China and China Construction Bank all have China's sovereign wealth fund, China Investment Corp (CIC), as the main shareholder.

US rules require the controlling shareholder - or CIC in this instance - to seek Federal Reserve clearance for investment banking operations. This poses a big hurdle to Chinese banks as they would need to coordinate their applications despite having separate managements and strategies, said a banker with a Chinese lender in New York.

The setup means the four banks are only as strong as their weakest link and two of them come with significant baggage, having drawn Fed scrutiny over enforcement of anti-money laundering laws.

The Federal Reserve declined to comment and the CIC and the "big four" banks were not immediately available for comment.

"We've hit a bottleneck," said another banker at a Chinese lender in New York.

"As a commercial bank, we've done all we are meant to do. Why don't we become an investment bank ourselves?"

Between December 2010 and last September, the "big four's" assets in the US soared over seven times to US$126.5 billion (S$176 billion), Fed data showed. - REUTERS

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