Block on Minsheng deal costs US $1.7bn
By Tom Braithwaite in Washington and Jamil Anderlini in Beijing
Published: November 19 2009 23:01 | Last updated: November 20 2009 00:27
US authorities blocked Minsheng, the Chinese bank, from acquiring a Californian lender in a deal that could have saved almost $300m of taxpayers’ money and $1.4bn from an industry insurance fund, say people familiar with the matter.
Minsheng had asked the Federal Reserve for permission to acquire UCB, a San Francisco bank, but the application was not approved before the struggling US lender had to be seized two weeks ago by the Federal Deposit Insurance Corporation.
As President Barack Obama travelled to China last week, regulators in both countries were mopping up after the UCB failure. The bank’s assets in the US and China were transferred to East West, a US bank that, like UCB, served the Chinese-American market in California.
The Fed had warned it could not approve the Minsheng application quickly because the law obliged it to consider closely whether an acquirer’s home regulator practised sufficient “consolidated supervision”. The FDIC decided it could not wait before stepping in to protect depositors.
The seizure of UCB is expected to cost the FDIC’s insurance fund about $1.4bn; the US taxpayer all of its $298.7m investment in UCB Holdings, which was made via the troubled asset relief programme; and Minsheng $120m for the 9.9 per cent stake it had already built in the San Francisco bank.
“This may rank in the top 10 mistakes by the government in dealing with the financial crisis,” said Ken Thomas, an independent bank analyst. “I am really disappointed that any branch of our government . . . could step in and turn away an offer that would have reduced the cost to the taxpayers.”
The US Treasury, the FDIC and the Fed all declined to comment on the specific case. However, the Fed said: “Chinese authorities are working hard to meet the standards that would permit them to buy banks in the United States but these things can take time. We’ve been working with them as they seek to implement standards for consolidated supervision and they’re making real progress.”
A senior Chinese official said that co-operation over the wind-down had worked well but added: “The dialogue over whether Minsheng was allowed to raise its stake in UCB was not so good.”
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