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Chinese banks to fuel M&As in financial sector

By Wang Bo (China Daily)
Updated: 2010-02-03 08:03
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Chinese banks are expected to fuel growth in Asian financial service mergers and acquisitions (M&A) this year, but could face pricing pressure due to stronger competition between prospective buyers, M&A experts said yesterday.

"There have been a limited number of deals in the past 18 months, but we expect 2010 to be a completely different story with a large number of deals particularly coming from Chinese acquirers," said Keith Pogson, managing partner for Ernst & Young's financial services business.

M&A activities in the financial sector remained limited last year even though financial asset prices were driven down significantly during the global financial crisis. With the financial market continuing to stabilize, Chinese banks, with their relatively better financial position, would look at more overseas M&A opportunities this year.

The Hong Kong M&A market is going to be particularly active this year, Pogson said, pointing to the possible acquisition of two or three local family-run banks by major Chinese lenders.

Several big mainland banks and insurance companies are said to be keen on acquiring the Hong Kong-based family-run Wing Hang Bank and Chong Hing Bank to gain a platform for business expansion in Asia, after China Merchants Bank, completed the acquisition of Wing Lung Bank in 2007.

"Chong Hing Bank will be a good bet for banks to pursue market entry to Hong Kong, while the bid for Wing Hang Bank is likely to be the real battleground, and could create a real difference in the competitive landscape, " Pogson said.

Industrial and Commercial Bank of China, the world's largest lender by market value, is believed to be the top contender for Wing Hang Bank.

Stanley Wong, deputy general manager of ICBC Asia Ltd, said earlier in an interview that Hong Kong's publicly traded family-run banks are "very likely" to be bought by larger competitors as the cost of operating in the city rises and as they are particularly attractive to the cash-rich mainland lenders.

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"In terms of the size of the M&A, it's going to generally smaller, or meaningful minority stakes, and predominantly Asia-centric," Pogson said.

He also pointed out that price pressure on Asian assets could be stronger this year. "In the past 6-12 months, we have already seen that pricing has returned to the pre-crisis levels," he said.

However, Lin Cai, managing director of Ernst & Young's transaction advisory services, said higher asset prices might not lead to fewer transactions this year.

"In essence, if the asset truly fits the bank's strategy from a long-term perspective, the relatively high price could still be justified," she said.

As for the M&A opportunities for Chinese insurance companies, Pogson said it is the right time for them to start thinking about strategic investments.

For large Chinese insurers, there are innumerable small and smaller domestic assets to pursue, Pogson said, adding outbound M&As are a better bet.