CMB purchase gives Wing Lung new lease of life

China Merchants Bank's (CMB) purchase of Wing Lung Bank from the Wu family five years ago, deemed expensive at the time, has stood the test of time, with the deal - the first acquisition of a Hong Kong bank by a mainland lender - having revitalised Wing Lung.

CMB acquired Wing Lung for HK$19.3 billion at a 2.9 price-book ratio. Five years on, and after meeting internal management and external economic challenges, Wing Lung has 44 branches in Hong Kong, making it the third-largest mainland bank in the city by branch network.

Back in 2008, some market participants questioned whether the deal was worthwhile and asked whether CMB would have been better off establishing its own branches. Some bankers thought it was overpriced, especially when the bank had to make a goodwill impairment of 579 million yuan (HK$730.4 million) on it just after the acquisition.

A number of mainland banks, including China Minsheng Banking, a strong domestic competitor of CMB, and even Agricultural Bank of China, one of the state-owned Big Four, are eyeing acquisition opportunities among Hong Kong's four remaining family-owned lenders. The targets include Wing Hang Bank and Chong Hing Bank, which have both said they have received expressions of interest in possible takeovers. The price-book ratio of the offers is said to be in the range of two to 2.4.

"The financial figures of Wing Lung have been improving after the sale, on its cross-border referral business," said BNP Paribas' analyst Dominic Chan, adding that it had created an extra income stream for parent company CMB as well.

CMB also helped Wing Lung establish a better platform for yuan business, analysts said.

One market watcher said that as "most of the branches are self-owned, together with the buildings in Mong Kok and Central", revaluation gains on the properties might cover what the mainland bank had paid.