Banking News
- ICBC world's second- most valuable lender
Date: 30-Mar-2007 Sources: (Shenzhen Daily)
INDUSTRIAL and Commercial Bank of China Ltd. (ICBC) on Thursday 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 ICBC rose 5.5 percent to 5.59 yuan in Shanghai on Thursday, valuing the company at US$228 billion. That trails only Citigroup Inc.'s US$250 billion.
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 US$338 billion and is invested in China.
'I like Chinese companies but the valuations in the financial sector are just ridiculous and incredibly inflated,'' Kaldemorgen said.
A four-year investment boom has powered annual economic expansion of 10 percent in China, pushing the country 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 US$47 billion from share sales since June 2005.
HSBC Holdings economist Qu Hongbin 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 the 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 Feb. 28, the biggest rout in a decade, after the government said it would curb lending for stock purchases.
'ICBC, along with other big 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., said. 'But the biggest gap lies in operations, management, and risk control.''
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 US$22 billion in Hong Kong and Shanghai, making it the biggest ever.
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 (US$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.
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