Introduction of The Minsheng Bank, Penetrating the US Market through Acquisition

The private banking history is not too old in China, and it started with the foundation of Minsheng Banking Corporation Limited. It was the first Chinese private commercial bank, which started its work in 1996 in Beijing. It was time, when banking sector was dealing with tight restrictions, and start of this bank was a breakthrough for the Chinese banking sector. The bank started as a small one, but with its proper strategy and planning, it kept growing with the passage of time. It was not easy for Minsheng Bank to progress well in a Chinese strict environment. Different range of financial services was offered by the bank. It was first bank in China, which started following international accounting regulations for its financial statements.

The bank was different from other banks or state owned banks in China in so many ways. The ownership basis of this bank was as joint stock commercial bank, which made sure that commercial bank law as well as company law is followed accordingly. Over the years, the bank has been so successful in China, and proved its worth with the passage of time. The total assist for the bank was $130b in 2006 along with approximately 300 offices all over the country. The Banker Magazine is one of the most respected as well as renowned financial publication in the world, and this magazine gave important consideration to Minsheng Bank for its growth and development. In 2004, the magazine ranked Minsheng Bank at 310 out of 1000 top banks of the world (GAO, LU, & FUNG, 2013).

In 2006, Minsheng Bank was able to achieve ranking of 247 as per this magazine. It shows that how quickly the bank was showing its development and growth, which was acknowledged by the renowned financial publications. With its great performance, the bank was able to get green signal to buy stakes in UCBH Holdings, Inc, a U.S based company. This was going to be a huge step as Minsheng Bank was going to be the 1st Chinese bank, which was buying any stakes in the United States. Minsheng Bank was the first of its kind in China, which issues bonds of subordinated nature. The bank was playing a key role in making reforms in China for its capital market, like by making shares merger reforms for the first time.

The business process system adopted by the bank was centralized one, and its incentive system for employees was extremely effective. The bank employed young as well as dynamic banking professionals in its management team, which allowed the bank to earn so much recognition and awards in China as well as across the world. Keeping all these performance measures in view, the acquisition of U.S based company by Minsheng Bank was going to be a huge one in so many ways, therefore it is important to analyze that what Minsheng Bank would achieve with such international expansion and penetration strategy, and what issues will be there after the acquisition is made. The bank has to keep things on right track so that they can position their bank well in the global banking market. So, a comprehensive analysis is going to be made to see that what Minsheng Bank would achieve in U.S by such expansion strategy and what they would have to face after the acquisition is made (GAO, LU, & FUNG, 2013).

Key Facts from the Case

                The Minsheng Bank is looking to acquire stakes in UCBH, one of the leading banks operating in United States. The United Commercial Bank is bank, which serves American companies to do business in China as well as it also serves the U.S Chinese communities. In 2007, UCB assets were around $12b and it was operating at 70 locations across the globe including United States, Taiwan, Hong Kong, and various Chinese cities. The bank has been involved in providing so many banking and financial facilities to its customers. In 2007, UCB acquired another bank named The Chinese American Bank for $131 million. Then other major step for UCB was acquisition of Business Development Bank. BDB was based in Shanghai, which was started in 1992 in China as the first wholly foreign owned bank (GAO, LU, & FUNG, 2013).

Overall, the Chinese banking sector has been very tight, but changes were obvious in the modern era, so in last two decades, the Chinese banking industry has transformed with many changes. However, the stronghold of government on banking sector remained there as it was in the past. Earlier, the monetary policy and other regulations were handled by The People’s Bank of China, but a great reform was made in 2003 in shape of official launch of China Banking Regulatory Commission. The domestic key players in the Chinese banking industry include state owned commercial banks as the most important one. The policy banks are also part of the banking industry of China. Another key player in banking industry of China are 2nd tier commercial banks. Trust and investment corporations are also part of the domestic financial system of China.

The Chinese strict banking sector started to experience various reforms with the passage of time, and these reforms were actually started in 1979, when China realized that for better development keeping the international perspective in view, they have to make certain reforms. So, they came up with some better policies for the banks by introducing institutional level reforms. The foreign exchange control mechanism was also changed to make new reforms. The liberalization of interest rates were done to ensure that foreign exchange had more authority. Then other great reform was the entry of foreign banks in the Chinese territory in 2002 to fulfill the commitments with WTO.

The process of foreign banks entry into China was remarkable in so many ways. Some of the biggest names grabbed the opportunity with both hands. Citigroup has existed in China since 1902, and reforms allowed them to acquire stakes in one of the banks named Shanghai Pudong Development Bank. In 2006, the Guangdong Development Bank was also acquired by Citigroup. The other big bank was Standard Chartered bank who made the move in 2005 to continue with their long term expansion strategy worldwide. The China Bohai Bank’s 19.99% shares were acquired by Standard Chartered in 2005. SCB was the first bank in China to incorporate any kind of business. The other big name who made a move in Chinese banking sector was HSBC. HSBS is considered one of the largest in terms of financial groups at global level. In 2008, HSBC was the largest investor to make investment in China as a foreign bank. HSBC acquired 8% of the Bank of Shanghai in 2001. In 2007, the significant move was made by the bank by launching HSBC Bank China (GAO, LU, & FUNG, 2013).

The International Acquisition Process in International Banking Industry

The mergers as well as acquisitions are one off the important ways for companies to expand their business around the globe. Same is the case with banking industry that banks try to expand their business operations by mergers or acquisitions. This kind of strategy not only helps them to expand in other markets, but also helps to grow as a global banking corporation. It is an evident fact that banking industry across the globe is flourishing, and it is important for banks to stay ahead in the competition by penetrating into other global markets. The banks involve in such activities so that they are able to achieve more economies of scales and its relevant benefits. There could be various benefits for the banks when they expand in other markets like they can achieve huge amount of growth and development. They may also be able to cut several costs as well. The banks can compete well by doing mergers and acquisitions in global financial market, and can have their strong position. Sometimes, even banks with distressed financial situations can also look for mergers or can be acquired by other banks to get out of the financial issues being faced (ECONOMY WATCH, 2010)

It is also important to mention that banking industry look for mergers and acquisitions so that good enough financial gains can be obtained. There are two aspects associated with acquisition or merger. When one bank merges with another bank, it means that bank being merged is not gaining much in this deal. On the other hand, when one bank is acquired by the other, then in this process, the bank being acquired is losing their corporate existence, whereas the bank which acquired the other bank is gaining so much from such deals. So, one entity gets survival and development, whereas other one loses almost everything in this process. However there can be situations, where both entities gain something for their development as well as survival. The acquisition process can be a complex one to decide the terms between the two parties, however, it is important for banks to do it with proper planning so that positive impact is made on the banking industry as well (Subhashree & Kannappan, 2018)

It is important for banks to understand that which processes and procedures will be used for the acquisition, and how things will be done. If banks would not understand the process and would not follow given guidelines then it would be hard for them to achieve the real purpose of their acquisition. The process is straightforward, where banks will research the industry in their target market to see what kind of opportunities they can have. The international banking markets will be explored to see where they can have better chances of growth and development to gain financial benefits. Once the second party is identified then initial contact will be made to see whether acquisition can further continue or not. Then concerned teams will negotiate from both banks to settle the deal for acquisition that what would be the terms and conditions, and once the terms are finalized after negotiations, and then acquisition process will be completed (Subhashree & Kannappan, 2018).

Key Alternatives of The Minsheng Bank, Penetrating the US Market through Acquisition

There are many of the alternatives for China Minsheng Banking Corporation Limited, as far as acquisition is concern.  The acquisition of the Minsheng Banking Corporation in the China is also causing some of the issues for the bank because it is one of the first Chinese banks to invest in the US bank. Following are some of the potential alternatives that the bank can use for acquisition in the international market of US.

The association is between monitoring growth of acquisition and the process of account switching. The China Minsheng Banking Corporation should reflect on the journey of customer’s control while communicating in US market.  The difficult the switch process is, the more probable customers will quit (GAO, LU, & FUNG, 2013).

The other way for China Minsheng Banking Corporation to invest in the US is to change the overall policies of the bank according to the US requirements, as it can be seen in the case that China have the strict regulation for the banking section, that can also cause the problems for the China Minsheng Banking Corporation to penetrate in the US market. So the alternative for this issue is to make the policies of the bank more flexible for the international market.

The China Minsheng Banking Corporation has to clearly delineate the process switching in marketing statement. The bank that has streamlined their switching process has set up it can be a differentiator in be a magnet for customers in the market.  This China Minsheng Banking Corporation strategy sets up anticipation for consumer that process of switching will be hassle-free and easy.

The China Minsheng Banking Corporation being the financial institute has to recognize the pain points in the process of acquisition and the perfection that can be made during the whole process of acquisition of the bank in the US market. In acquisition process evaluation, a bank ought to appraisal the journey of the customer’s and settle on if:

There is help and support accessible if needed

The procedure is computerized to the degree that possible

The customers of the China Minsheng Banking Corporation are directed via process

consign to scheming a smooth, market-focused understanding

Carry on and deliver to optimize process of acquisition

It is also very important to make the process of streamlined as culture part.

Keep Strategy and Synergy as Priorities of The Minsheng Bank, Penetrating the US Market through Acquisition

There are two major reasons why China Minsheng Banking Corporation is open to the M&A proceedings (either as target or purchasing company): it is also very important for the China Minsheng Banking Corporation to make a proper strategy and synergy for the international acquisition of the bank in the international market of US. Intentionally, an acquisition is also helps banks to be more cost-effective and competitive business. This type of acquisition also help the bank not just increase a greater share in the market, but an acquisition of the bank may mean eradicate a present competitor. So it can also be said that in the case of China Minsheng Banking Corporation have the same opinion to be acquired since, tactically, they be acquainted with they won’t carry on in the US market (GAO, LU, & FUNG, 2013).

When implement properly, a China Minsheng Banking Corporation acquisition makes sure the long-standing affluence of both innovative institutes for existence to come.
A acquisition of the bank in the US market also permits middle-market bank to synergize the mutual hard work and efficiently scale all of the efficiency and investments ratio of the China Minsheng Banking Corporation. In case the M&A is a first-class fit for China Minsheng Banking Corporation, the worth of newly acquisition institute is more than the calculation of its two individual divisions. So it can be said that the China Minsheng Banking Corporation potential for the synergy is a most important reason why M&A are so profitable and attractive to China Minsheng Banking Corporation shareholders.

Best Alternatives of The Minsheng Bank, Penetrating the US Market through Acquisition

Although all of the alternatives that is that can be used by the China Minsheng Banking Corporation are said to be effective and can be used by the bank for the better penetration of acquisition in the international market of US. The potential solution that is best suited for the business of the China Minsheng Banking Corporation to penetrate in the US market is keeping strategy and synergy as priorities. It is significant for the China Minsheng Banking Corporation to make a proper strategy and synergy for the international acquisition of the bank in the international market of US. It can also be said that in the case of China Minsheng Banking Corporation have the same estimation to be acquired, strategically, they be acquainted with they won’t carry on in the US market. It is the best available solution for the China Minsheng Banking Corporation because of the strict regulations and the polities of the China it is very important to have synergy strategy for the better penetration in the US market for the first time.

Analysis of The Minsheng Bank, Penetrating the US Market through Acquisition

From the overall case study of the China Minsheng Banking Corporation it is analyze that the bank need to go for the better alternative for the penetration in the US market because of the specified law and regulation of the China Minsheng Banking Corporation are said to be very different from the US that can create mire issue for the bank to future business investment in the international market with completely different economic and financial system. It can be analyzed from the case that there are many of the companies of US that are doing their business in the Chinese market that estimated that the US and China shared a huge commercial business market together (GAO, LU, & FUNG, 2013).

 Traditionally secluded and forcefully synchronized, banking system of the China had undergone important transform in the preceding 20 years, with banks slowly accept the principles of their global equivalent. On the other hand, the government’s direct manage the industry of banking remain well-built even as banks had increase an autonomy in the certain market degree. The stronghold of government on banking sector remained there as it was in the past. Earlier, the monetary policy and other regulations were handled by The People’s Bank of China. Trust and investment corporations are also part of the domestic financial system of China. The foreign exchange control mechanism was also changed to make new reforms. The gradual recreation was accelerating by China Minsheng Banking Corporation attainment to the World Trade Organization, which also had been approaching the government of China to considerably open the manufacturing to foreign contribution.

The Chinese government is also permissible more than a few small banks to elevate resources through stock or bonds issues. The China Minsheng Banking Corporation share catalog on the Stock Exchange of the Shanghai goes after the route of the Pudong Development Bank and Shenzhen Development Bank. The banking system reform in the China Minsheng Banking Corporation was escort by decision of the PBOC’s to hand over the interest rates control. The interest rate of the market-based improvement was introduced to set up the mechanism of deposit pricing and lend rates depends on market demand and supply. As far as the penetration of China Minsheng Banking Corporation is concern, the PBOC continual to guide and adjust development of the interest rate, but allow the mechanism of the market participate a more prevailing role in the allocation of the financial resource (GAO, LU, & FUNG, 2013).

Conclusion of The Minsheng Bank, Penetrating the US Market through Acquisition

Summing up the discussion it can be said that the bank started as a small one, but with its proper strategy and planning, it kept growing with the passage of time. ownership basis of this bank was as joint stock commercial bank, which made sure that commercial bank law as well as company law is followed accordingly. With its great performance, the bank was able to get green signal to buy stakes in UCBH Holdings, Inc, a U.S based company. The bank employed young as well as dynamic banking professionals in its management team, which allowed the bank to earn so much recognition and awards in China as well as across the world. The United Commercial Bank is bank, which serves American companies to do business in China as well as it also serves the U.S Chinese communities.

The liberalization of interest rates were done to ensure that foreign exchange had more authority. The other big bank was Standard Chartered bank who made the move in 2005 to continue with their long term expansion strategy worldwide. The banks involve in such activities so that they are able to achieve more economies of scales and its relevant benefits. When one bank is acquired by the other, then in this process, the bank being acquired is losing their corporate existence, whereas the bank which acquired the other bank is gaining so much from such deals. The acquisition of the Minsheng Banking Corporation in the China is also causing some of the issues for the bank because it is one of the first Chinese banks to invest in the US bank. A acquisition of the bank in the US market also permits middle-market bank to synergize the mutual hard work. The government’s direct manage the industry of banking remain well-built even as banks had increase an autonomy in the certain market degree. The interest rate of the market-based improvement was introduced to set up the mechanism of deposit pricing and lend rates depends on market demand and supply.

Recommendations of The Minsheng Bank, Penetrating the US Market through Acquisition

By analyzing the whole case of Minsheng Banking Corporation it is recommended to encourage financial steadiness while make possible financial modernism, in order to improve the Minsheng Banking Corporation worldwide competitiveness of banking subdivision. Set suitable regulatory and supervisory limitations and desist from needless controls. It is also very impottant for the Minsheng Banking Corporation to support orderly and fair opposition. Minsheng Banking Corporation must evidently define the responsibility of together the manager and the supervising institutions. Employ decision-making possessions in a well-organized and money-making method.

The government of China is also acceptable quite a few banks to elevate capital via stock or bonds issues. The Minsheng Banking Corporation A-share catalogs on Shanghai Stock Exchange pursue in route of Pudong Development Bank and Shenzhen Development Bank. It can also be banking system reform was come with the PBOC’s choice to surrender control of the rates of the interest. The interest rate based on market improvement was bringing in to set up the mechanism of pricing of the lending rates and deposit depends on market command and supply.

The Minsheng Banking Corporation need to guide and adjust development of the interest rate, but allow the market of the US play a leading role in the allowance of the financial resource. The government of China had been foreign exchange comforting control. Even though far from absolute, a reform sequence had been recognized that is liberalizing interest rates of overseas currencies especially in the US market before the domestic currency of the Minsheng Banking Corporation, lend before put down, long-term and large finance before doing any of the investment in the US markets.

References of The Minsheng Bank, Penetrating the US Market through Acquisition

ECONOMY WATCH. (2010). Mergers and Acquisitions in Banking Sector. Retrieved November 20, 2018, from http://www.economywatch.com/mergers-acquisitions/international/banking-sector.html

GAO, G. Y., LU, J., & FUNG, H.-G. (2013). MINSHENG BANK: PENETRATING THE US MARKET THROUGH ACQUISITION.

Subhashree, K., & Kannappan, M. (2018). Merger and Acquisition in Banking Industry. International Journal of Pure and Applied Mathematics , 119 (17), 1009-1022.