Caution seen as key in bumpy market

As the US tilted towards fears of a double-dip recession last week, one Midtown Manhattan office exuded calm.

"The financial crisis is a chance for us as newcomers," said Li Wei, the general manager of China Construction Bank Corp's  New York branch,   a tranquil office overlooking Bryant Park.

CCB is one of the three large Chinese state-controlled banks to open a branch in New York in the past two years. The banks are quietly overcoming local regulatory hurdles as they move tentatively into the US market in a bumpy global economy. With lending still slow among US banks, Li said, there was little customer loyalty to institutions with a longer history here.

"To the extent that they don't have a legacy portfolio of bad loans that the US banks do," said Henry Fields, a partner at law firm Morrison & Foerster, which has advised foreign banks operating here, "they have a competitive advantage."

Since opening in June last year, CCB's New York branch has brought in assets of US$560 million. The branch has hired 35 employees, most of them locals, and primarily serves  corporate clients  who are involved in US-China trade and investment.

Hoku Corp is a typical customer.  The Honolulu-based clean-energy company received a US$28.3 million loan from CCB in June for the construction of a polysilicon production plant in Idaho. The agreement was arranged through Chengdu-based Tianwei New Energy,  a majority owner of Hoku and a previous client of the bank.

"It's tough to get money," Darryl Nakamoto, Hoku's chief financial officer, said. "So to have Tianwei as a supporter and having access to Chinese banks gives us access to capital we probably wouldn't have otherwise accessed."

The Manhattan branch made moving funds easier, he added.

Industrial and Commercial Bank of China's New York branch has brought in assets of more than US$1 billion since opening in October 2008.

The same month, China Merchants Bank  opened its New York branch; it recently reported assets of US$260 million.

Two other  Chinese banks - Bank of China and Bank of Communications - have a longer history in the US, and are also expanding their activities here.

Because of foreign banking restrictions in the US,  Chinese banks are not authorised to accept retail deposits. Only Bank of China, which  enjoys an exemption, has retail branches.

Regulatory hurdles have been a source of frustration for the banks in the past. In 2007, CCB  chairman Guo Shuqing  told reporters the US was "unfair" in its treatment of  Chinese banks.

Li, the bank's general manager in New York, said their complaints faded after regulators granted the foreign branch licence last year. He added that the branch was focusing its efforts in the first year on ensuring compliance with US anti-money-laundering regulations and other legal requirements before thinking of further growth.

In a brief e-mailed statement, a spokesman  for the Federal Reserve said it "evaluates the application of any firm, foreign or domestic, in consideration of the financial and managerial facts presented by each case".

Several lawyers who specialise in commercial banking operations here said they expected the US to grant  Chinese banks the regulatory status they needed to expand into retail operations.

"It's clear that Chinese banks and the whole Chinese regulatory system have improved markedly in the past several years,"  Rodgin Cohen, chairman of law firm Sullivan & Cromwell, said.

He added that he thought it was a question of when - and not whether -  Chinese banks would receive the nod from the regulators. "It's difficult to hazard a guess but I'd say within the next 12 to 24 months."

Whether the banks will want to expand into the retail market is another question, though. The shaky condition of many community lenders in the US - natural targets for expansion - might have also slowed  Chinese banks' efforts to acquire them, said Fields, the Morrison & Foerster attorney.

"I think they were poised to move more quickly before things fell apart in 2007 and 2008," Fields said. "I still think this is going to happen, it's just a little hard to predict the timing."

China Minsheng Banking Corp   became a pioneer - and had its fingers burned - by acquiring a sizeable minority stake in UCBH Holdings,  the holding company of San Francisco-based United Commercial Bank. That bank failed late last year.

Li said it was not his job to determine CCB's future in the US - that was up to the head office. But he  expects the bank to move with caution. "I think we will expand our business gradually," he said. "We won't jump into a market we don't know."