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ICBC overtakes Citigroup as largest bank by value

Industrial & Commercial Bank of China briefly overtook Citigroup Inc. as the world's largest bank by market value after less than a year as a public company.

ICBC's shares rose as much as 1.9 percent in Shanghai today to 5.80 yuan (77 cents), taking its market capitalization to $244.9 billion, more than Citigroup's $243.9 billion. Citigroup earned more than three times as much as ICBC last year.

The reshuffle atop the rankings underscores the potential investors see in China, home to three of the world's 10 largest companies by market value and the fastest-growing major economy. Beijing-based ICBC in October raised a record $22 billion in an initial public offering in a nation where until recent years bank lending was steered by the government.

Chinese stocks have outperformed all other major benchmarks this year, with the CSI 300 Index more than doubling. The rally, fueled by cash from a ballooning trade surplus, has caused finance professionals including former Federal Reserve Chairman Alan Greenspan to warn about a market bubble. ICBC's shares offer testimony to conflicting views on its valuations. While the company's so-called A shares traded in Shanghai rose today, its Hong Kong-listed stock slumped as much as 2.2 percent.

Different Markets



In its October IPO, ICBC sold shares in both Hong Kong and Shanghai. China limits overseas investment in its domestic markets and also restricts local investors' stock buying abroad. Hong Kong has no such constraints. ICBC's Shanghai shares have jumped 85 percent since the IPO; the so-called H shares traded in Hong Kong have risen 60 percent. The A shares were up 0.9 percent at the 11:30 a.m. lunch break in Shanghai, giving ICBC a market value of $243 billion.

18,000 Branches



China's banks are expanding lending and wealth management services in an economy that grew 11.9 percent in the second quarter, the fastest in 12 years. They have raised $61 billion in share sales, giving them the financial strength to meet demand for loans.

ICBC, China's largest bank with 18,000 branches and more customers than Russia has people, said lending grew 10 percent last year. Profit in the first half probably jumped more than 50 percent from 25.14 billion yuan ($3.3 billion) in the year- earlier period, it said this month.

The increase in the bank's shares, 14 percent this month in Shanghai alone, reflects the rich valuations that investors have pinned on Chinese stocks. ICBC's shares trade at a price-to-book ratio of 4.14, more than twice Citigroup's 1.93.

Bad Loans, Fraud



Three of China's four largest banks have gone public in the past two years after the government spent $500 billion removing bad loans from the industry. In the first quarter this year, 3.6 percent of ICBC's loans were non-performing, down from 34 percent in 2000. China has pushed its biggest banks to sell shares, expecting corporate governance and risk management to improve as they submit to tougher international accounting rules and tighter stock market regulation. The industry has been plagued by fraud reaching into the highest echelons at banks.

Zhang Enzhao, 60, former chief executive of China Construction Bank, was jailed in November for 15 years for accepting 4.9 million yuan in bribes. Wang Xuebing, 57, who served as president of both Bank of China and China Construction Bank, was sentenced to 12 years in jail in 2003 for taking what state news agency Xinhua described as millions of yuan in bribes.

Source: Bloomberg
Date: 25.07.2007 [60]
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