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BCG: Banks should be cautious with overseas M&As

By Xu Shenglan (chinadaily.com.cn)
Updated: 2008-09-22 17:51

Wall Street turmoil triggered by the Lehman Brothers and Merrill Lynch failures may encourage Chinese commercial banks seeking more overseas M&As, but they have to be cautious as they will face a range of challenges, according to a report released by The Boston Consulting Group (BCG) yesterday.

Western banks which suffered from the financial crisis will consider selling business lines as a way to ease financial burdens and refocus on core business, and Chinese commercial banks have both the capital and the incentive to make such purchases, said Michaelis, a partner in BCG's Beijing office.

Since 2006, Chinese banks has completed 11 cross-border M&A deals, and six of them took place in overseas markets. Among them, the $5.5-billion deal between Industrial and Commercial Bank of China and the Standard Bank of South Africa was the largest.

BCG's president Deng Junhao warned Chinese commercial banks of the huge risks in overseas M&As. "It is hard to foresee the development of the US financial turmoil and assess the acquisition risks involved. Therefore, Chinese commercial banks have to be more cautious", he said.

Chinese banks should look for troubled financial institutions with simple and clear businesses, like wealth and asset management services or private banking services, rather than integrating the entire entity, Deng suggested.

According to the report, Chinese banks can focus on four kinds of cross-border M&A objectives: well-managed banks in emerging markets, specialized financial management companies or their products, small-scale commercial banks and international banks with high investment values.