Foreign investors may have banked on bargains in Big Four lenders
IT'S FUNNY HOW China's big banks seem to be getting the same size of valuation. Industrial and Commercial Bank of China's (ICBC) memorandum of understanding to sell a 10 per cent stake to Goldman Sachs, Allianz Group and American Express for about US$3 billion puts its value at US$30 billion.
This is pretty much the same as the figures suggested by the Royal Bank of Scotland-led consortium's agreement to pay US$3.1 billion for 10 per cent of Bank of China (BOC) and Bank of America's US$3 billion deal for 9 per cent of China Construction Bank (CCB).
Unless these three mainland banks are all worth the same - on the face of it unlikely - this means that some of the buyers must be getting better deals than others.
Working out who this could be is impossible without inside knowledge of the mainland trio. Indeed, given the size of each of them - nearly 50,000 branches and getting on for one million staff between them - it is plausible that even they might not have too clear a picture themselves.
Moreover, it seems noteworthy that banks closer to the mainland's financial scene - HSBC or Citigroup, for example - have steered clear of committing their cash to any of the Big Four state-owned banks, preferring instead to concentrate on lenders in the next tier down.
But what is undeniable is the value that BOC, CCB and ICBC have managed to squeeze into themselves over the past couple of years.
Until recently, China's banking system - still dominated by these three and the other member of the Big Four, Agricultural Bank of China (ABC) - was routinely described as technically insolvent.
Over the past decade, however, a shuffling around of assets by financial officials, first through the formation of so-called policy banks, then the creation of the asset-management companies, and finally the injection of foreign currency reserves, has created the Big Four we know today.
They may not be pretty - their non-performing loans remain a concern, as does corruption and their bloated staff and branch numbers - but they are attractive enough to be courted by the world's leading international banks.
With strategic investors now being installed, BOC, CCB and ICBC can look forward to overseas listings, which should more than double the money they have already raised.
In addition, this trio - plus ABC when it secures a foreign partner - can expect to get their hands on the expertise and technology necessary to broaden their business reach, in everything from credit cards to private banking.
Given the state these banks were in just a few years ago - when they would have had to hand money over to get foreign involvement - it is a real tribute both to how far they have come - and how fast - that the stories of a financial meltdown have all but vanished.
Of course, these banks may find themselves tested by a major slowdown in the Chinese economy, especially if a large proportion of new loans made in the past three years turn sour.
All four will have to continue restructuring and downsizing their branch networks if they are to make themselves efficient financial forces.
They are also certain to lose market share to the leading national and city commercial banks - headed by the HSBC-invested Bank of Communications (Bocom).
Nonetheless, valuing each of BOC, CCB and ICBC at US$30 billion - and, by extension, the entire Big Four at US$120 billion - sounds not unreasonable. That is a lot less than HSBC's current market capitalisation of about US$180 billion. Viewed from this perspective, the investments by Bank of America, Royal Bank of Scotland, Goldman Sachs and their fellow investors look good value.
For sure, they may look a little pricey compared with the far more prudent US$1.75 billion spent by HSBC for 19.9 per cent of Bocom, but buying into China's Big Four at a price that values all of them together for two-thirds of HSBC may well come to look like a bargain in just a few years.
Jake van der Kamp is on holiday
