ANALYSIS: U.S. Federal Reserve Opens the Door to Increased Chinese Investment in U.S. Banking Organizations
By Michael E. Bleier and Travis P. Nelson, Reed Smith LLP, Pittsburgh, Princeton, N.J. and Washington, D.C. offices
On May 9, 2012, the Federal Reserve Board (“FRB”) released three orders approving investments in the U.S. banking market by entities based in China. The investments, which consist of the acquisition of 80 percent of a national banking association and the establishment of two foreign branch offices, are particularly notable because the investments are coming from China, the Chinese Government will be an indirect owner of a national bank, and the conclusions that the FRB draws regarding the financial regulatory system of China are significant and will facilitate greater investment in U.S. banking organizations by Chinese-based companies in the future (98 BBR 841, 5/15/12).
The Proposed Acquisition
The most significant of the three orders involves the Industrial and Commercial Bank of China Limited (“ICBC”), China Investment Corporation (“CIC”), and Central Huijin Investment Ltd. (“Huijin”) — all of Beijing, and all of which requested approval to become bank holding companies under section 3 of the Bank Holding Company Act of 1956 (“BHC Act”), by acquiring up to 80 percent of the voting shares of The Bank of East Asia, National Association (“BEA-USA”), New York, New York. 1 ICBC engages primarily in retail and commercial banking throughout China. CIC is an investment vehicle organized by the Chinese Government for the purpose of investing the latter’s foreign exchange reserves, and controls Huijin, a Chinese Government-owned investment company organized to invest in Chinese financial institutions. 2 BEA-USA, with total consolidated assets of approximately $780 million and deposits of approximately $621 million (as of December 31, 2011), engages in retail and commercial banking in the United States, and operates 13 branches in New York and California.
In evaluating an application by a foreign banking organization to acquire a U.S. domestic depository institution, the FRB considers several factors, namely: (1) supervision or regulation on a consolidated basis; (2) competitive considerations; (3) financial, managerial, and other supervisory considerations; (4) convenience and needs considerations; and (5) financial stability.