China Banks Look To Europe

As European banks falter, a handful of China state owned banks are swooping in for a closer look at possible road kill.

China Construction Bank Chairman Wang Hongzhang said in September that he is prepared to spend up to $15 billion (11.6 billion euros) on a major acquisition in Europe. His comments raised the prospect of a Chinese bank -- one many believe is also in some form of financial duress -- to muscle in on one of the European banking sector's biggest names.

"Some of the banks in Europe have been put up for sale. Now we are looking for the right choice," he told the Financial Times.

China banks may be better at acquiring larger stakes in brand name lenders in Europe, rather than taking control outright.  Government owned banks in China do not have the management expertise to run Western style banks, whether they are bread and butter savings and loans, or large investment banks.

China Construction Bank is one of the big four banks in the country, with a market cap of well over $1 trillion.  It's problems stem from a growing roster of non-performing loans due to the country's real estate bubble. Small and mid market developers have struggled to sell properties over the last year due to a crack down on real estate loans and policies designed to cool the overheated housing sector.  Many people in the industry have told me over the last year that while non-performing loans were rising, they were not yet rising to an alarming rate.  On the other hand, some bearish China watchers say all is not known about the balance sheets of banks like China Construction because the government is not transparent.  However, talks of acquiring banks in Europe suggests that the bank has enough money to consider such a large scale operation.

China Construction Bank shares (HKG: 0939) are up 1.29 percent year to date and up slightly over 8 percent in the last quarter, beating the bank and real estate heavy FTSE China index.

See: China Banks Ready To Move Beyond Borders -- China Daily