Wing Lung Bank auction sputtering into final stretch

By Michael Flaherty and George Chen

HONG KONG/SHANGHAI (Reuters) - Bidding for Hong Kong's Wing Lung Bank (0096.HK: Quote, Profile, Research, Stock Buzz) has moved from spirited to sputtering.

What was once a three-way fight looks like Industrial Bank of China's to lose as its lone remaining rival, Australia and New Zealand Banking Group (ANZ.AX: Quote, Profile, Research, Stock Buzz), is constrained by worries closer to home and the higher cost of capital needed to fund a deal.

But even deep-pocketed ICBC (1398.HK: Quote, Profile, Research, Stock Buzz) has its limits.

"It is unlikely for ICBC to accept something like 3 times or 3.5 times book value," said a source close to ICBC, the world's most valuable bank. "Even if ICBC agrees to pay such a high price, Chinese banking regulators may ask ICBC to think twice."

Final bids for a controlling stake in Wing Lung are expected to be submitted soon, with analysts previously saying the deal for the small lender could be worth around $4.8 billion.

Meanwhile, Wing Lung's hope that China Merchants Bank (600036.SS: Quote, Profile, Research, Stock Buzz) would enter the running and rescue the auction appears to be wishful thinking.

High valuation demands have already sent another mainland Chinese suitor, Bank of Communications (3328.HK: Quote, Profile, Research, Stock Buzz) (601328.SS: Quote, Profile, Research, Stock Buzz), packing, and Beijing looks unfavorably on China's banks bidding against each other.

"I think Merchants Bank wants to wait and see," said a source close to Merchants Bank, China sixth-largest lender. "The bank lacks experience in acquisitions so it will be a good opportunity to learn something even though it may not result in a deal."