Sarbanes-Oxley – Chinese banks look to return to the US

Last Friday, the US Federal Reserve approved the banking licence for China Merchants Bank (CMB), to open a branch in New York, the first Chinese bank to gain such approval in 15 years. This is expected to be a first step to CMB listing on a US exchange.

CMB, founded in 1987 and based in Shenzhen, is China’s 6th largest lender and was the first share-holding commercial bank in China wholly owned by corporate legal entities. CMB’s NY branch has been licensed to engage in wholesale deposit taking, lending, trade finance and other associated banking activities.

It is expected that CMB will be joined by Industrial and Commercial Bank of China (ICBC), China’s largest bank and, by many measures, the world’s largest, bank who applied for a US licence to open a NY branch earlier this year. Approval has been given by the NY State Banking Department but ICBC still wait the final approval from the Fed.

No Chinese banks have listed in the US since the onset of the Sarbanes-Oxley Act but this now looks set to change. Chinese banks are cash rich and are looking to build their overseas presence through opening branches and acquiring local financial firms. A US listing would assure new banking clients, investors, counterparties and the markets that transparency and risk management were at levels to be expected of global banks. It would also be a step to assuring US and European regulators that processes to counter fraud and money laundering were to the required levels.