May 31 - The Federal Reserve's recent approval of the acquisition of the
U.S. subsidiary of Hong Kong-based Bank of East Asia by the Chinese
state-controlled Industrial and Commercial Bank of China (ICBC) likely signals
the start of a bigger push by Chinese banks into the U.S. market. Fitch Ratings
sees the potential for additional acquisitions by Chinese banks to alter the
competitive landscape for U.S.-based banks that primarily serve the Asian
The Fed's approval of the Bank of East Asia acquisition, which was small
relative to ICBC's total asset base, is significant in that it represents the
first U.S. regulatory approval of an acquisition of a U.S.-based bank with an
established branch network.
We currently rate Cathay General Bancorp (CATY) and East West Bancorp (EW), the
two largest U.S.-based banks catering specifically to the Asian American
community. Both banks have benefited recently from robust loan demand. The
potential emergence of ICBC or another large Chinese-based bank could alter the
competitive landscape for these two banks if the acquirer was to aggressively
pursue market share in the U.S. through more lenient underwriting terms or more
We believe CATY and EW would be natural targets for large Chinese banks given
their large presence in the Asian American communities where Chinese banks would
benefit most from deposit and loan growth.
In the short term, competitive conditions in this segment of the U.S. banking
industry are not expected to change materially given the small relative size of
the deal. However, the Fed approval has removed a primary obstacle to M&A that
may usher in more significant changes in the competitive profiles of Asian
ICBC's acquisition has no impact on the ratings of U.S.-based banks over the
near term. Still, we will remain focused on the potential for increased
acquisition activity by large Chinese banks to alter competitive dynamics in the
niche Asian American banking segment.
The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.