NEWS

Industrial & Commercial Bank of China Ltd.  is in talks to buy a controlling stake in Standard Bank Group Ltd.'s  U.K. commodities- and foreign-exchange-trading business, according to people with direct knowledge of the matter, in a sign Chinese banks are pushing for business long dominated by their Western counterparts.

 

State-controlled ICBC, China's largest bank by assets, is seeking to acquire a 60% stake in the South African bank's commodities and foreign-exchange business centered in London, the people said. The deal would value the stake at between $600 million and $700 million, these people said.

 

ICBC would have an option to increase the stake to 80% in a couple of years following the purchase, the people said. But the talks could still fall apart, they said, as no final agreement has been signed.

 

The transaction could mark the start of expansion by Chinese financial institutions in global markets for gold, silver and other commodities. Big Chinese banks like ICBC are top market makers for commodities domestically, but their world presence has been limited. It also marks an effort to expand in global foreign-exchange trading, another area where Chinese banks have a mostly domestic focus.

 

In light of China's voracious appetite for raw materials, Beijing has been encouraging banks to seek a bigger say in global commodity prices. Executives at Chinese banks including ICBC and Bank of China Ltd. have said that they will look for opportunities to expand their trading business overseas.

Last year, ICBC became the first Chinese bank to join the London Bullion Market Association, an international industry group that represents the market for gold and silver bullion. It recently has started quoting prices for gold, silver and other precious metals in London and New York.

 

ICBC has owned a piece of Standard Bank since 2007, when it bought a 20% stake for $5.5 billion, and in 2011 it paid $600 million for some retail-banking assets in Argentina controlled by Standard. Senior management of both banks gathered in Buenos Aires late last monthto mark the official handover of the bank branches.

 

Standard Bank in recent years has been rolling back its international presence after earlier trying to expand beyond its African roots and position itself as a bank for emerging markets.

 

In particular, it has been scaling back its presence in London. It moved its investment-banking operation back to Johannesburg last year, and in November announced plans to eliminate about 10% to 15% of its 900 permanent employees remaining in London.

 

The bank is now focusing on Africa—which generated more than 90% of its revenue in 2011—as well as China and Brazil. It has used its relationship with ICBC and also China Development Bank, Beijing's wholly owned policy bank, to build a business supporting state-backed Chinese companies investing in Africa and Brazil.

 

ICBC has been the most aggressive Chinese bank in expanding overseas in recent years, and now has operations in nearly 40 countries and regions, up from 28 two years ago. Its overseas profits, though still relatively small, are rising faster than its domestic profits.

 

ICBC executives have said the bank will focus on expanding further in emerging markets, but will also look for acquisition targets in Europe and the U.S., especially business lines that can help increase the bank's fee income.