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China expands further into commodity trading with London bank buy

The fix is in

The world’s largest bank in terms of market value and assets under management, Industrial and Commercial Bank of China is buying the London commodities-focused arm of South Africa’s Standard Bank.

ICBC is paying $765 million for 60% of the London unit of Johannesburg-based Standard Bank, gaining access to a well-established commodities, credit and forex trader with affiliates and operations in all the major trading hubs including New York, Hong Kong, Tokyo and Shanghai.

The Chinese giant also received a five-year option to purchase another 20% of Standard Bank’s global markets unit for up to $500 million in cash.

Jianqing Jiang, the chairman of ICBC which is one of the big four Chinese state-owned banks, said: “The large amount of commodities trading and the consequential needs for hedging resulting from the development of the Chinese economy, as well as financial reforms such as the deregulation of interest rates and foreign exchange rates, along with the two-way opening-up of capital markets, have posed new demands for the transformation of the service capabilities and business model of Chinese banks.”

In October, the UK made it easier for Chinese banks and investors to trade inside the country and London is already responsible for the bulk of trading in renminbi outside China.

The ICBC deal is expected to be first of many as Chinese banks make the most of liberalization of the financial sector by the communist country’s leadership.

In 2008 ICBC, which boasts more than four million business clients and services 410 million retail customers, bought 20% of the 150-year old Standard Bank group, Africa’s largest bank, for $5.4 billion.

Image by hoginwang