ICBC To Avoid US Assets

Industrial & Commercial Bank of China Ltd. plans to steer away from buying assets in the U.S., despite low valuations, because the Chinese lender thinks the worst of the credit-market crisis may not be over, its chairman said.

Government-owned Industrial & Commercial Bank, or ICBC, is China's largest lender and has increasingly been working to expand its operations overseas. Yet ICBC's aversion comes as other Chinese and global institutions have been pumping money into ailing Western banks. China Investment Corp., the country's sovereign-wealth fund, for example, injected $5 billion into Morgan Stanley late last year, helping to recapitalize the Wall Street firm after its big write-downs on mortgage-backed securities.

But, in an interview Monday, Chairman Jiang Jianqing said the company remains wary of the U.S. in the wake of the recent financial-sector turmoil there. 'Recently, the U.S. government and the [Federal Reserve] have taken a series of steps, and the financial markets have recovered somewhat. But we think the real impact [of the problems] isn't yet over,' Mr. Jiang said.

Mr. Jiang, without naming any companies, said some U.S. financial institutions approached ICBC about half a year ago to discuss possible investment by ICBC, but the Chinese bank declined. Looking at the situation today, 'it appears the risk is still great,' he said.

'In China's capital market, people always say we should buy at the bottom of the market. But we don't know whether we are already at the foot level. We may be only at the waist level,' he said.

Chinese lenders have largely avoided the problems with subprime mortgage-backed securities and other assets that have battered Western banks. ICBC had subprime investments valued at just $1.2 billion as of its last financial report.

ICBC's stance underlines the remarkable turnabout in recent years in the financial fortunes of China and the U.S. Just five years ago, most of China's big lenders were buried under mountains of bad debt -- accumulated over decades of state-directed lending -- and were widely considered insolvent. The U.S., meanwhile, held its financial sector out as a model for other countries, and consistently urged China to speed up liberalization of its industry.

Today, thanks to tens of billions of dollars in government capital injections, years of operational restructuring, and an economy that has been growing steadily at 10%, ICBC and its Chinese peers have become enormously profitable -- even as U.S. and other Western banks reel from the credit crisis.

ICBC reported net profit in 2007 soared 65% to $11.6 billion, at current exchange rates. Its market value, based on the price of its Hong Kong-listed shares, is now around $248 billion -- more than any other bank in the world, although relatively few of ICBC's shares are publicly traded, which some experts say inflates its value.

Mr. Jiang's remarks reflect an apparent broader re-evaluation of the U.S. and European financial systems in the wake of the crisis. Other top Chinese financial figures have also voiced caution in recent weeks about liberalizing too quickly. 'We are for market solutions, but we are for going back to basics,' Liu Mingkang, China's chief banking regulator, told a regional forum on Saturday, according to Reuters. 'We don't need those functions we can't understand and can't use.'

The 54-year-old Mr. Jiang, who has worked in China's banking industry for nearly three decades, said ICBC remains focused in its overseas expansion on developing markets. ICBC has said it wants to expand its overseas assets and revenue to 10% of its business, from the current 3%.

In October, it paid about $5.5 billion for a 20% stake in Standard Bank Group Ltd, becoming the South African lender's biggest shareholder. Mr. Jiang said the two banks are now awaiting approval from Chinese regulators to set up a $1 billion private-equity fund to invest in energy and natural resources around the world. ICBC and Standard Bank each will commit $200 million, with the balance coming from a third party, he said.

Mr. Jiang declined to comment on reports that ICBC is among three short-listed bidders for a stake in Wing Lung Bank Ltd., Hong Kong's eighth-biggest bank by assets, in a deal that could top $5 billion. But he said that Hong Kong is one of the bank's 'priority' markets.

Asked what the U.S. subprime crisis could teach China's banks, Mr. Jiang said they 'must ensure loan quality,' noting that the root cause of the crisis was U.S. commercial banks lending to customers who have no ability to repay the loans. U.S. banks were 'too greedy to grasp profits and so they lent to people who could not return the money,' he said. He described ICBC itself as a 'cautious' lender.

Securitization and complex derivatives that were supposed to help U.S. banks reduce lending risks amplified them instead, he said. In the future, buyers of such financial products should know what the underlying assets are, he said.

Despite ICBC's wariness toward the U.S., Mr. Jiang said it is 'anxiously awaiting' approval from U.S. regulators to convert its New York representative office into a branch. And he indicated frustration at the delay in receiving approval. 'As the largest bank in the world, setting up in the U.S. should be of some good to the U.S.,' he said.

Jason Leow