Swiss bank UBS AG said Tuesday it is investing $500 million in state-owned Bank of China, the nation's second-largest bank, to create a partnership in investment banking and securities services for Chinese clients.
The deal is the latest in a series of strategic investments by foreign banks seeking footholds in the fast-growing and increasingly competitive Chinese banking market.
For their part, Chinese banks have been encouraged by authorities to seek foreign partnerships to build up their capital and improve management before China fully opens its banking industry to foreign competition in late 2006.
UBS, Switzerland's biggest bank, will invest 645 million Swiss francs, or $500 million, in the partnership that will develop investment banking and securities products and services in China, the Swiss bank said in a statement from its headquarters in Zurich.
"We regard this agreement as a natural development of our long-term relationship with Bank of China. The combination of Bank of China's brand, distribution and customer base with UBS's products, services and experience will be powerful," said Peter Wuffli, chief executive officer for UBS.
UBS sees great room for expansion in the Chinese market, said spokeswoman Sabine Woessner. "We are looking to pursue deals to capture the growth potential of the Chinese market," she said. "The partnership with BOC is one step in this strategy."
Woessner said UBS might be making more investments in China, but she did not elaborate.
The Bank of China deal is subject to regulatory approval, the statement said.
The Royal Bank of Scotland Group Plc and Temasek Holdings Ptd Ltd., the investment arm of the Singaporean government, each recently paid about $3.1 billion for 10 percent stakes in Bank of China, one of several state-owned banks slated for overseas share listings.
If priced at the same level as those purchases, UBS's stake in Bank of China would be about 1.6 percent.
Current limits cap equity stakes in a Chinese bank by any one foreign institution at 20 percent, with the total foreign holdings limited to a maximum of 25 percent. Those limits are apparently aimed at preserving stat control of major lenders.
Bank of China still has room for additional foreign investment, and spokesman Wang Zhaowen said the lender is in talks with other potential buyers.
"We can't disclose the names of the investors before it is (officially) announced," Wang said.
China is due to fully open its banking industry to foreign competition under commitments made as a part of its entry into the World Trade Organization by late 2006.
Last month, Goldman Sachs, American Express Co. and Allianz AG of Germany signed a deal to buy a 10 percent stake in China's biggest bank, Industrial & Commercial Bank of China, for more than $3 billion.
In a separate deal, reports said UBS was preparing to pay 1.7 billion yuan ($210 million) for a 20 percent stake in a Chinese brokerage, Beijing Securities.
Both companies refused comment on those reports, which said that the International Finance Corp., the investment arm of the World Bank, would join UBS as a foreign investor in the brokerage.
The state-run newspaper China Business Post reported over the weekend that the deal would make UBS the single largest shareholder in Beijing Securities with 300 million shares.
