The first listing of the Industrial and Commercial Bank of China (360,000 employees) took place on Friday 27 October. This is the largest operation of its kind ever done.
For its first day of trading, Friday, October 27, the action of the first Chinese bank, Industrial and Commercial Bank of China (ICBC), gained 14.6% on the Hong Kong Stock Exchange, and 7.37% in Shanghai. In total, the transaction raised $ 21.9 billion (17.3 billion euros), the largest IPO in history. It is ahead of the NTT DoCoMo mobile phone operator in Tokyo in 1998 ($ 18.2 billion).
Another record, demand for securities exceeded $ 500 billion. This craze is explained first and foremost by the fascination exerted on the world by Chinese growth.
Secondly, because this operation reflects the voluntarist policy of the local government, willing to subject credit institutions to the regulatory function of markets in a context of opening the Chinese banking sector to foreign competition. Finally, the IPOs of major local banks are perceived as a safe calculation.
“The main reason is that people are convinced that the Chinese government will not let these banks crumble and that it will support their profits to a certain extent,” says Arthur Kroeber, editor-in-chief. from China Economic Quarterly, a specialized newsletter on the Chinese economy.
“So as the country’s economy grows, the profits of the banks will increase fairly quickly.” De facto, it can be said that the shares of Chinese banks are an investment with guaranteed capital, with substantial interests and the promise of good premium when the stock has gained value, so it has less to do with the quality of their balance sheet than with the quality of the implicit government guarantee associated with them, “he says.
RENEWED BY THE STATE IN 2005
As the largest Chinese bank, ICBC and its 19,000 branches have some 150 million individual customers and 2.5 million businesses. A little more than 15% of all loans granted in China are made by it.
Like its counterparts, it was a bailout in 2005: the state injected $ 15 billion, while part of bad debts of the bank was transferred to bad banks. Finally, in January 2006, Goldman Sachs, the Allianz group, and American Express were chosen to enter 10% of its capital.
Of the four major Chinese state banks, ICBC is the one whose balance sheet is perceived as the most fragile. Officially, its bad debt ratio is only 4.1% of its total loans. If we count only payday loan consolidation granted since 1999, it would fall to 1.86%.
However, it is a controversy over the quality of recent claims by Chinese banks, including ICBC, that prompted Ernst & Young to revise its report, released in May, on the state of the Chinese banking sector.
The study thus advanced the colossal figure of 911 billion dollars for the whole, including the structures of defeasance. The Chinese authorities did not appreciate that the audit firm’s experts speculate on the quality of outstanding loans over the past five years, which year after year has grown at a spectacular 21% per year.
“It’s sad to see that the bank that is in the worst condition, will raise the largest amount of funds,” says financial analyst Fraser Howie, co-author with Carl Walter of Privatizing China, a book of reference on the Stock Exchange in China.
“The Chinese fever is running high and this is fueling the fire, and although I think the country’s banks are in poor health, I do not expect a drop in the near future. In fact, these institutions offer the best example of how China is seen as a special case, to which the laws of the economy would not apply, “he adds.