China Finds New Market for Loans: U.S.

By CAROLYN CUI

When GE Capital exited from the U.S. government's bailout program last year, it quickly found a new financial backer: a Chinese bank.
In December, cash-rich Industrial & Commercial Bank of China made a three-year, $400 million loan to the General Electric Co. unit, its first from a Chinese lender. "We like banks that have global aspirations and that can work with us in all markets," says Kathryn Cassidy, senior vice president and treasurer at GE.
It also helped that ICBC opened an office in Manhattan in October 2008. Hungry for business in the world's largest economy, three of the largest Chinese banks have received approval from the Federal Reserve to open U.S. outposts since the financial crisis erupted.

Wu Bin, the New York general manager for ICBC

"We arrived at the darkest moment," says Wu Bin, ICBC's general manager in New York. The bank has a 10-year lease for the entire 20th floor of Trump Tower, a skyscraper next door to luxury jeweler Tiffany & Co.'s flagship store on Fifth Avenue. When the office opened its doors, ICBC invited GE officials to visit. Among those who came was Ms. Cassidy.
The U.S. is undergoing a mini-invasion by banks based elsewhere that generally avoided the disastrous boom-era loans and investments made by many U.S. financial institutions. Chinese banks are in a particularly strong position for U.S. growth, despite their limited name recognition.
ICBC is 70%-owned by the Chinese government and became the world's most profitable bank during the crisis. With about $1.8 trillion in assets, ICBC is roughly 25% smaller than Bank of America Corp. The Charlotte, N.C., company is the largest U.S. bank by assets and owns an 11% stake in China Construction Bank. ICBC earned a whopping $19 billion last year, compared with $6.3 billion at Bank of America.
The growth appetite at China's major banks, especially for corporate loans, is in stark contrast to the reluctance of many U.S.-based banks to stick their necks out by extending new credit at a time when the economy is struggling, loan losses remain high and the specter of tougher government regulations and higher capital requirements is looming.
Bank of Communications, China's fifth-largest lender by assets, reported that its U.S. assets soared 55% to $1.4 billion last year. The bank has had a U.S. presence since 1991. Bank of China, which entered the U.S. in 1981 and is the third-largest bank in China, says its loans outstanding in the U.S. increased about 50% in 2009. Bank of China plans to open another branch soon.
China Construction Bank, which opened an office in Midtown Manhattan in June 2009, has since increased its U.S. asset base to about $370 million. China Merchants Bank got about $200 million in the year after its New York branch opened in October 2008. CCB is the second-largest Chinese lender by assets, while China Merchants Bank ranks sixth.

Chinese bank officials say they are taking a relatively conservative approach and focusing on plain-vanilla deals such as loans and deposits from companies. The strategy could position them well with U.S. companies that are looking for alternative financing sources in the cash-stricken market or to spread risk among a more diverse spectrum of lenders.
Except for Bank of China, other banks aren't allowed by the Fed to gather deposits from retail customers or make acquisitions in the U.S. because of concerns about the Chinese government's bank supervision.
ICBC's U.S. assets have increased to more than $1 billion from basically zero since the bank opened its New York office. The relationship with GE stretched back to China, where ICBC provided the company with some backup credit lines. At the end of last year, GE Capital's overall net debt level was $425 billion.
The Chinese bank's lending customers in the U.S. also include Dell Inc., United Parcel Service Inc., Southwest Airlines Co. and Harvard University.
The new office is a display of mixed cultures. A framed Chinese calligraphy scroll in the 43-year-old Mr. Wu's office says: "Crouching Dragon Listening to Waves." At a trading desk nearby with dozens of blinking computer monitors, employees buy and sell U.S. Treasury bonds for ICBC. Most of the 44 employees were hired in recent months. One-fourth of the branch's employees are non-Chinese.
ICBC says it uses a "top-down" approach to identify potential U.S. clients. Bankers focus on "industry leaders" among the 500 largest U.S. companies by revenue, as well as those with a presence in China and a strong credit rating. ICBC is staying away from exotic products like derivatives because "we are unable to see through the risks," Mr. Wu says.
Chinese banks also are reaping profits by financing moves by Chinese companies to scoop up distressed assets in the U.S. or increase the size of their business in the country. In December, ICBC helped fund the $307 million purchase of a 50% stake in Interstate Hotels & Resorts Inc., a hotel-management company in Arlington, Va., by Shanghai Jinjiang International Hotels. In March, China Merchants Bank helped China National Petroleum Corp. in its partial acquisition of ION Geophysical Corp., by refinancing the Houston-based seismic solution provider to energy companies with a total of $206 million.
In some ways, though, ICBC still is learning the ropes in the U.S. During last year's takeover of drug maker Wyeth by Pfizer Inc., Mr. Wu promised to extend a $325 million credit line to Pfizer.
The bank was geared up to hand over the money when it found out that Pfizer canceled the deal because it had raised what it needed by issuing bonds.
"In China, if a company says they want to borrow, they borrow," Mr. Wu says. The episode taught him how sophisticated the U.S. financial markets are and the resourcefulness of companies in tapping various funding sources, he says.
Among other non-U.S.-based banks, Toronto-Dominion Bank of Canada and Japan's Mitsubishi UFJ Financial Group Inc. have bought failed lenders in a bid to expand their retail-banking operations in the U.S. Barclays PLC, Credit Suisse Group and Deutsche Bank AG have increased their U.S. market shares in debt underwriting and advising on mergers and acquisitions recently.
Write to Carolyn Cui at carolyn.cui@wsj.com