The Analysis of Chinese Commercial Banks’ Cross-border M&A

劉軼藝

【Abstract】With the accelerated internalization of RMB and Chinese corporations，the Chinese commercial banks are in active overseas layout nowadays.Cross-border merger and acquisitions are the main approaches，and this paper is aimed to analyze the factors and features of this trend.The factors are mainly focused on the external macroeconomic environment and policy，the strategic layout demand and the motivation of diversified income resource.The main feature is that most of the M&As are made by the larger stated-owned banks，targeted in the main areas with the comparatively low degree.

【Key words】Commercial banks；Cross-border M&A；Internationalization

1?Introduction

Most of the Chinese banks are seeking to develop integrated business to increase non-interest incomes and internationalization in order to meet the diversified demand.There are three main ways to internationalize for the commercial banks，the endogenous growth by establishments of overseas branches，cross-border mergers and acquisitions and international co-operations.From 2002 to 2011，the Chinese commercial banks have completed 38 mergers and acquisitions with total 20.16 billion dollars，and Cross-border M&A are concerned as the best way for internationalization.This paper is mainly to analyze the factors and features of the cross-border M&A of Chinese commercial banks.

2?Factors of Chinese commercial banks cross-border M&A

There are several factors of the commercial banks for cross-border mergers and acquisition including external economic，inner strategy and business requirements and advantages of M&A.

The external economic factor is about the appreciation trend of the RMB，the sufficient exchange reserve and the M2（currency supply）.The figure of the exchange rate between USD and RMB from 1994 to 2014 reflected the continuous appreciation of RMB，which means the depreciation of the foreign assets and benefit the commercial banks overseas direct investment and business activities，and the banks get higher investment return rate.And the constant increasing of the net position and M2 supply，which makes it possible for commercial banks to buy the foreign banks share and gain the high return of the foreign currency reserve.The current global economic situation of the recession of the developed countries，especially after the 2008 American financial crisis and the European debt crisis，it provides good chance for the Chinese banks to invest the foreign assets.

For the inner strategic factors，cross-border M&A is beneficial for the diversified operation，gaining customers resource and markets.Currently，Chinese commercial banks lag behind their international counterparties in terms of the advanced and diversified financial service and products.The banks businesses are mainly divided into the corporation bank，personal bank，invest bank.Establishment of the new branches is more favorable when developing overseas wholesale business，while merger of a local retail bank is a better choice for developing retail business（Clark 2001；Hurduc&Nitu 2011）.The overseas merger and acquisition help Chinese commercial banks strengthen the competitiveness.It is quick to enter into the new regional markets with the existing distribution web，technologies，customers and products，qualified service experience.

Besides，it has positive effect on improve the Chinese commercial banks asset quality and spread risks.Currently，Chinese commercial banks concentrated on the traditional credit business with constraint profitability and asset quality.The synergic effects of overseas mergers and acquisitions is to learn the commercial banks management and risk management experience，technology and products innovation to improve the profitability of the non-interest business.And the cross-border merger and acquisition benefit the adequacy of the capital by attract the capital of targeted company，and the increasing value of the intangible asset increase the net core capital and reduce the risk asset ratio，thus improving the asset quality of the commercial banks.

3?Features of Chinese commercial banks cross-border M&A

Generally，most of Chinese commercial banks are in the lower level with preliminary overseas business network，except for Bank of China in the regional banks level.It was on the year 2007 that Chinese commercial banks had most acquisition with the total amount of near 10 billion USD.And the biggest cross-border acquisition was the takeover of South Africa Standard Bank by ICBC with the amount of 5.46 billion USD.Before 2006，the trading amounts were less than 1 billion USD.From the table of overseas institution of BOC and ICBC，Hong Kong and Macao are the most attractive targeted district of Chinese commercial banks with near half of the overseas institution and 20 targeted banks are located in Hong Kong due to the similarity of the culture and language and financial importance of Hong Kong in the world.They are based on the Asia and then expand to Europe and America.

It is obvious that most of the acquirers are the Chinese state-owned banks.There were 6 non-state-owned banks in the statistic table，and in the latest year the proportion increased.For instance，in 2007，China Development Bank bought about 3.3% shares of British Barclay Bank；Minsheng Bank acquired American United Bank in 2007.And the targeted Banks are diversified，including the early banks with poor performance and later stronger banks，such as the ICBCs acquisition of Unit Bank in 2000，and the takeover of South Africa Standard Bank in 2007.The direction of the merger and acquisition is gradually from horizontal M&A to mixed M&A.Most of the mergers are in the consideration of the diversified business development and gaining the banking license in the different countries，expanding to the investment banking，leasing and other financial service businesses.

Not all the mergers and acquisitions were successful.The failure of the mergers of the Fortis Bank by China Ping An Bank with a loss of 22.8 billion RMB alarmed the aggressive banks，for the nationalization of the Fortis bank and sold by the Belgium government with a quit low price after the 2008 global financial crisis.Whats worse，as the biggest shareholder，Ping An Bank was not able to get the compensation which were only provided for the European Union institutional investors.

Reference：

［1］Berger，A.N.& Humphrey，D.B.，Bank Scale Economies Mergers，Concentration and Efficiency：the U.S.Experience［C］.Working Paper Series，University of Pennsylvania，1993

［2］Guo Jianluan and Hu Xu，The Factors and Targeted Choice Strategy of Chinese Commercial Banks Cross-Border Merger and Acquisition［D］.Paper of Central University of Finance and Economics，2013（3）：17-22