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Bank of America plans to set up a wholly owned subsidiary in China to expand in the world's fastest-growing major economy, people briefed on the plan said.
The largest U.S. bank plans to build up its corporate and investment banking business, and offer wealth management services to tap rich Chinese consumers, according to the sources, who requested anonymity because they were not authorized to discuss the plan.
Bank of America has set up a special internal workforce to complete the plans and it will likely formally apply to a Chinese banking regulator for a local incorporation license in the next few months, the people said.
A Bank of America [BAC
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It is unclear how much Bank of America, which acquired investment bank and brokerage Merrill Lynch on Jan. 1, will invest in its China incorporation.
HSBC Holdings [HSBC_LN Loading... ()] , among the first foreign banks to win Beijing approval to incorporate locally, invested 8 billion yuan (US$1.17 billion) in its China incorporation as registered capital in early 2007.
The U.S. government has injected $45 billion into the Charlotte, North Carolina-based Bank of America, which has struggled with rising credit losses and the Merrill purchase.
Earlier this year, a government order that the bank add $33.9 billion of capital prompted the bank to sell one-third of its stake in China Construction Bank.
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Sharon Lorimer |
"I'm sure they were not happy to do that," said Stuart Plesser, equity analyst at Standard & Poor's in New York. "If you're in the investment banking business, you want to have connections in China" in part to help diversify, he said.
Last year, before Bank of America acquired Merrill, just 7 percent of the bank's net revenue came from foreign sources.
Bank of America shares closed up 3.33 percent, or 45 cents, at $13.97 on the New York Stock Exchange on Thursday.
Next Stop: China
Incorporating in China can allow foreign banks to operate the same range of businesses as domestic counterparts.
Chinese regulators may then grant approvals to open new branches or offer new products more quickly, But under Chinese securities rules, Bank of America still needs to find a local partner for a joint venture to handle high-profit investment banking businesses such as underwriting shares and bonds for local companies in domestic markets.
Rivals such as Morgan Stanley [MS
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Bank of America's retail expansion in China is restricted by the CCB stake, which prevents it from competing directly with that company's retail bank.
Instead, Bank of America will probably focus on providing wealth management services under the Merrill brand to rich Chinese customers, according to the people briefed on the plan.
Foreign banks' rush to expand into China has waned amid the recession. Lenders such as Belgium's KBC Groep have canceled or delayed plans to incorporate locally.
Earlier this week, Bank of America said it planned to shrink its 6,109-branch U.S. network modestly over the next three to five years.
Data is a real-time snapshot *Data is delayed at least 15 minutes