As someone involved in
predicting the future, it amuses me how often we get things wrong.
You’ve heard all the quotes: "a worldwide market of five", Thomas
Watson of IBM’s prediction for the global computer market back in 1953,
or "640kb of memory is enough for everyone" from Bill Gates. So, when
you get one right, you can’t help telling everyone. And I got one
right so I’m gonna tell you about it.
At the beginning of 2006 I
began investigating the deregulation of the Chinese banking markets,
writing research reports in the area in May 2006 with the prediction
that three of the top ten will be Chinese by market capitalisation, and
the expectation that a Chinese bank would buy an American bank before
the end of the decade.
Now that’s not a bad prediction I
thought, but my American colleagues laughed at me and said, "No way".
The report produced back then therefore weakened the message to four of
the top ten banks in the world would be Asian. That’s a safe bet as,
even then, three of the top ten were Asian based upon the Banker magazine’s ratings … bear in mind, Asia means Japan in this context though, rather than China.
then presented these ideas around the US markets and elsewhere through
the summer and autumn of 2006. Again, the reactions were very negative
and dismissive. People didn’t want to hear it.
Six months later, in October 2006, I was commissioned to write a report for a US Journal (BAI’s Banking Strategies)
and the US editor told me that he didn’t believe my view that Chinese
banks would be buying American banks but, as it was stimulating and
controversial, they published it.
I even provided in-depth analysis on Finextra a year ago, and most people said, "interesting but not sure".
the Industrial and Commercial Bank of China (ICBC) had their IPO. On
October 20th 2006, ICBC hit the stock markets and were the largest IPO
the world has ever seen. The bank wanted to raise $19 billion, a
value which dwarfed the $12 billion raised from 53 IPOs in the second
half of 2006 on Wall Street. By the end of the first day of trading
however, the bank had a market value of about $157 billion. That was
more than Goldman Sachs Group and Lehman Brothers Holdings put together and within striking distance of JPMorgan Chase.
A year later and Chinese banks are using their market capitalisation to buy stakes in US banks.
They can easily do this because they are riding the wave of growth,
buoyant in an economy growing by over 11% per annum. Hence, China’s
CITIC Bank announced last week that they seek a stake in Bear Stearns.
This follows China Minsheng Bank agreeing to buy a 9.9 per cent stake
in UCBH earlier in the month and CIC’s $3 billion in Blackstone, the
American buyout firm, over the summer.
And it’s not only US
banks as China Development Bank took a 3.1% stake in Barclays in July
for $3 billion, supposedly to help them through their attempted buy-out
of ABN AMRO, whilst in the last week we also had the agreement for
Standard Bank of South Africa to sell a 20% stake to ICBC.
the one hand it’s nice to know I’m right in forecasting that, just as
with manufacturing and technology, China is now expanding into
financial services to create global banking behemoths of the size of
impressiveness of HSBC, Citi, JPMorgan and Deutsche. That is their
intention and it’s starting to come through. Although the dollars
behind such investments are based upon a strong economy that can
stretch a Yuan a lot further whilst we have a cheap and vulnerable
On the other hand, and it is a point made in reporting the Standard Bank / ICBC deal in the Times of South Africa, is the potential culture clash as these deals come through. The point made in the Times
is that the Barclays / ABSA deal hasn’t worked well due to the
difference between the English and the Afrikaner cultures. Now, we
have a lot of Western banks buying into China and a lot of Chinese
banks buying into the West. The cultures are at opposites and it makes
you wonder how well they’ll really get along.
After all, I
remember when the insurance group Clerical Medical Group launched in
China and had to use their short name, CMG, as the Chinese were unable
to pronounce their full name. Similarly, when Coca Cola first launched
in China, they used the name "Ke-kou-ke-la". This had to change
rapidly though as Ke-kou Ke-la translates into "bite the wax tadpole"
or "female horse stuffed with wax", depending on the dialect. They
ended up researching 40,000 characters to find a phonetic equivalent
"ko-kou-ke-le", and used the final translation "happiness in the
It’s not to say we cannot get along, but Coke’s final
translation still sounds like a line from a shady internet site and so
I wonder how much research and effort both sets of banks will have to
put into their Chinese investors and partners to find happiness in the