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Old 30th March 2007, 05:08 PM
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China's ICBC Passes Bank of America in Market Value

Forget the 70 cents an hour factory wage, i always said, it's the big corps that got the money in China.


http://www.bloomberg.com/apps/news?p...tWo0w&refer=us

China's ICBC Passes Bank of America in Market Value (Update5)

By Luo Jun

March 29 (Bloomberg) -- Industrial & Commercial Bank of China Ltd. overtook Bank of America Corp. as the world's second-most valuable financial firm, even though the Beijing-based company earns about one-third the profit.

Shares of the bank, known as ICBC, rose 5.5 percent to 5.59 yuan at the 3 p.m. close in Shanghai, valuing the company at $228 billion. That trails only Citigroup Inc.'s $250 billion.

China's 10 percent growth and its $2 trillion of household savings are attracting foreign banks such as Citigroup, whose Chief Executive Officer Charles Prince today announced plans to double his network in the country. ICBC trades at earnings multiples that are more than double those of Citigroup and Bank of America, while its return on assets trails by at least half.

``What does it tell you when the world's second-biggest bank is Chinese?'' said Klaus Kaldemorgen, head of Deutsche Bank AG's DWS mutual fund unit, which manages the equivalent of $338 billion and is invested in China. ``I like Chinese companies but the valuations in the financial sector are just ridiculous and incredibly inflated.''

A four-year investment boom has powered annual economic expansion of 10 percent, double the global average, pushing China past the U.K. as the world's fourth-largest economy. ICBC, Bank of China, China Construction Bank Corp., Bank of Communications Ltd, and China Merchants Bank Co. have raised more than $47 billion from share sales since June 2005.

Bubble?

HSBC Holdings Plc economist Qu Hongbin this week said China's gross domestic product may swell more than 11.5 percent from a year earlier in the first quarter. That would be the fastest growth since 1994.

Mainland investors in ICBC attach a greater value to that growth than do those in Hong Kong, where overseas fund managers are allowed greater participation. ICBC's yuan-denominated shares trade at a 29 percent premium to the Hong Kong stock, having soared 79 percent since an October initial stock sale.

A 261 percent increase in China's benchmark Shanghai and Shenzhen 300 Index in the past year has fueled concern about a stock market bubble and prompted speculation that the government will move to slow gains. The index sank 9.2 percent on Feb. 28, the biggest rout in a decade, after the government said it would curb lending for stock purchases.

``ICBC, along with other big Chinese banks, are riding the tide of economic growth and playing catch-up with global banks in size and scale,'' Wu Xuan, a Shenzhen-based analyst at Penghua Fund Management Co. ``But the biggest gap lies in operations, management, and risk control.''

`Unparalleled Promise'

Prince, vying with ICBC and Bank of China Ltd. -- now the fifth-largest bank by market value -- for business from consumers and companies, said Citigroup will open 14 branches in China this year, bringing the total to 30. He also said he wants to develop a securities business in a market where trading in stocks more than tripled last year.

``China stands out as a country of unparalleled promise,'' Prince said at a press briefing in Beijing today.

ICBC, formed in 1984, has 18,000 branches nationwide and more customers -- 153 million -- than Russia has people. It has more than 355,000 employees and a network more than 50 percent larger than the 11,000 branches of closest rival Bank of China. The company's IPO raised a combined $22 billion in Hong Kong and Shanghai, making it the biggest ever.

New Model

ICBC posted 22 percent profit growth in 2005 and the bank has forecast 2006 net income would rise 26 percent to 47.2 billion yuan ($6.1 billion). It had a return of 0.65 percent on its 6.45 trillion yuan of assets in 2005, compared with 1.65 percent for Citigroup and 1.37 percent for Bank of America.

The company reports 2006 earnings on April 3.

To defend their valuations, Chinese banks must move away from their business model of taking household deposits and lending to state-run enterprises, said fund manager Lei Wang. That practice led to billions of dollars of bad loans and a government bailout that took years to complete.

``Long term, ICBC should be fine given its strong network which gives it competitive advantage,'' said Wang, who helps manage $12 billion at Thornburg International Value Fund in Santa Fe, New Mexico. ``Chinese banks will have to continue to transform to a more market-oriented model.''

Top 10 List

China has spent 3.5 trillion yuan, equal to a sixth of its 2006 GDP, bailing out and recapitalizing state-owned banks since 1998, according to an estimate by Moody's Investors Service. The bill may exceed 5 trillion yuan after bad loans are taken off the books at Agricultural Bank of China and other smaller banks.

ICBC received a cash injection of $15 billion in addition to carve-out of more than 400 billion yuan of bad loans in 2005. It has cut its non-performing loan ratio to about 4 percent from a high of 34 percent in 2000.

The following table lists the world's 10 largest banks by market value.

Company Name Market Capitalization

Citigroup Inc. $249.8 Billion ICBC $228.2 Billion Bank of America Corp. $227.1 Billion HSBC Holdings Plc. $200.7 Billion Bank of China $168.3 Billion JPMorgan Chase & Co. $166.7 Billion China Construction Bank $129.7 Billion UBS AG $123.8 Billion Royal Bank of Scotland $123.5 Billion Mitsubishi UFJ Financial $123.2 Billion

To contact the reporter for this story: Luo Jun in Shanghai at jluo@bloomberg.net .

Last edited by touchring; 30th March 2007 at 05:15 PM..
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Old 30th March 2007, 06:13 PM
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Re: China's ICBC Passes Bank of America in Market Value

And Citygroup is majority owned by Middle Eastern interests?
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Old 30th March 2007, 06:31 PM
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Re: China's ICBC Passes Bank of America in Market Value

Yes, and the World still does not get it.

Dollar valuations are meaningless when their assets are in Yuan.

Because the dollar is grossly overvalued anyway and the this exaccerbated by the fact that the Yuan is grossly undervalued, the Chinese Bank valuations should already be very much higher. Then because the Yuan is likely to climb against the dollar every year probably for at least the next twenty years, those valuations are likely to grow even if the Chinese are not growing their business faster than the Americans, which again is extremely unlikely.
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Old 9th April 2007, 05:42 AM
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Re: China's ICBC Passes Bank of America in Market Value

Quote:
Originally Posted by Rubber Duck
Yes, and the World still does not get it.

Dollar valuations are meaningless when their assets are in Yuan.

Because the dollar is grossly overvalued anyway and the this exaccerbated by the fact that the Yuan is grossly undervalued, the Chinese Bank valuations should already be very much higher. Then because the Yuan is likely to climb against the dollar every year probably for at least the next twenty years, those valuations are likely to grow even if the Chinese are not growing their business faster than the Americans, which again is extremely unlikely.

That's true, if a revaluation is made, that would make ICBC market valuation more than citigroup and bank of america combined.
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