Industrial & Commercial Bank of China Ltd., China's largest lender, is venturing into the broker-dealer business in the U.S., one of the most telling new signs of the rise of Chinese financial institutions in the world economy.
The Wall Street Journalreported Sunday that ICBC paid $1 to take over the Prime Dealer Services unit of Fortis Securities, controlled by France's BNP Paribas SA. The Fortis operation is small, with just 75 existing customers, but ICBC hopes to use it as a base to potentially expand its underwriting of securities in the U.S. market, according to the paper.
The Beijing-based bank is the world's largest by market value and 70% owned by the Chinese government. The bank has grown increasingly comfortable venturing outside its home markets. The Journal notes the acquisition of the Fortis unit also allows ICBC to avoid tight U.S. regulatory restrictions on foreign purchases of deposit-taking institutions.
Chinese banks are in a particularly strong position for U.S. growth, despite their limited name recognition. Three of the largest Chinese banks, including ICBC, have received approval from the Federal Reserve to open U.S. branches since the financial crisis erupted.
"It's a unique opportunity and a good entry point for ICBC," Joseph Spillane, former chief executive of Fortis Securities and now CEO of the new ICBC entity, called ICBC Financial Services, told the paper. He predicted that the business, which provides clearing and financing services to clients in the U.S. and Europe, would bring in about $15 million in annual profits for ICBC. It currently has a $10 billion balance sheet.
The paper notes BNP Paribas inherited Fortis Securities as part of its acquisition of troubled Fortis Bank of Belgium in early 2009. But the broker-dealer overlapped with BNP Paribas's existing operations in the U.S. By transferring the unit to ICBC, BNP Paribas avoided paying costs such as severance, the people with knowledge of the situation said.