China’s Largest Lender Gains Entree Into Trading in London

LONDON - The Industrial and Commercial Bank of China agreed on Wednesday to buy a controlling interest in Standard Bank’s global markets business in London for about $765 million in cash.

The deal makes it the first large Chinese lender to have a substantial trading operation in London and could be a precursor to investment in Britain by other Chinese financial companies.

The British government has been actively recruiting investment from China, including saying last year that it would ease the roadblocks to Chinese banks opening branches in the British capital.

“The large amount of commodities trading and the consequential needs for hedging resulting from the development of the Chinese economy, as well as financial reforms such as the deregulation of interest rates and foreign exchange rates, along with the two-way opening-up of capital markets, have posed new demands for the transformation of the service capabilities and business model of Chinese banks,” said Jianqing Jiang, chairman of I.C.B.C., as China’s largest bank is known.

“This transaction will elevate I.C.B.C.’s global markets capabilities in business development, risk management, operations, and innovation in order to better serve our clients’ needs,” he added.

Under terms of the transaction, Standard Bank, the largest bank in Africa, will sell a 60 percent stake in its London-based markets business to I.C.B.C. and grant the Chinese bank a five-year option to buy another 20 percent of the unit.

The entity being sold focuses on commodities, fixed income, currency, credit and equities trading.

As part of the transaction, the state-controlled bank will buy a 20.1 percent stake in Standard Bank.

“We are excited about the prospects of deepening and extending our cooperation with I.C.B.C. through the global markets platform that we have built outside Africa,” said Ben Kruger, joint chief executive of Standard Bank. “The strength and reach of I.C.B.C., our strategic partner, will open a wide range of new business opportunities for the global markets business, while continuing to serve Standard Bank’s African clients as their economies continue to grow and develop.”

I.C.B.C. has more than 4.6 million corporate clients and 410 million individual customers.

Last fall, the British government engaged in a five-day trade mission to Beijing where it announced a series of measures it hoped would make London a global center for Chinese investment and trading in China’s currency.

George Osborne, Britain’s chancellor of the Exchequer, said in October that the Prudential Regulation Authority, a financial regulator, would begin discussions to allow Chinese banks to open wholesale branches, rather than subsidiaries, for the first time.

By opening branches, a Chinese bank will be able to use its parent company’s capital to meet British rules for reserves and other financial requirements. British officials hope it will spur Chinese investment. The five largest banks in China, including I.C.B.C., already have subsidiaries in Britain.

In October, the British government also reached an agreement that allows investors in London to apply for a license to invest directly in Chinese stocks and bonds in the Chinese currency, the renminbi. It is the first Western country to reach such an agreement.

In the past, investors had to go through a counterparty in Hong Kong to invest in Chinese stocks and bonds, which could carry a higher cost.

Britain is also a Western trading hub for the renminbi, accounting for 62 percent of global trading in that currency outside of China and Hong Kong.

After the deal, Standard Bank will retain the investment banking, investment management and London-based services businesses. Those business lines remain a “critical part” of Standard Bank’s business in Africa and will be incorporated in a new British-based entity or other Standard Bank entities.

The deal is subject to shareholder approval, as well as regulatory approval in South Africa, China, Britain and Singapore. The transaction is expected to be completed in the fourth quarter of this year.

Standard Bank operates in 18 African countries, including South Africa, and has about $171 billion in assets. It also owns a controlling stake in the South African insurance and financial services company, Liberty Holdings.

The bank has operated in South Africa for 150 years and employs about 49,000 people.

Standard Bank said it expected to use proceeds from the sale to increase the size of its operations in South Africa and the African continent.