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Case Title:

Standard Chartered: Invading into Mainland China

Publication Year : 2010

Authors: S Chaudhuri, J Chakraborty

Industry: Banking, Insurance and Financial Services

Region:Global

Case Code: MES0097IRC

Teaching Note: Not Available

Structured Assignment: Not Available

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Abstract:

Standard Chartered Bank entered into a strategic partnership with the Bohai Bank of China on 18 February 2006. The London-based Standard Chartered Bank had invested US$123 million in cash to purchase a 19.99% stake in China's Bohai bank that was based in North China's Tianjin municipality. The London-based Standard Chartered, which had been operating in China since 1858 through its first branch in Shanghai, had been in favour of acquiring minority stakes in Chinese banks, which they regarded as a stepping stone towards full ownership. The agreement marked the British bank's first investment on the Chinese mainland, which was close to the maximum permitted holding of 20% by any single foreign investor. Standard Chartered Bank became the second largest shareholder of the bank immediately after Tianjin TEDA (Tianjin Economic Development Area) Investment Holding Company, which held 25% in the Chinese bank. With such a small and limited shareholding (19.99% stake) in the Chinese banks, analysts questioned whether the British bank would be able to have any influence on the management policies and decisions of the company. Standard Chartered targeted a significant growth in profits and network expansion in China over the coming years and the acquisition of Bohai Bank was the latest manifestation of that. But critics felt that this could weaken the relationship between Bohai Bank and the Chinese government, and reduce social-welfare factors in Bohai Bank's policies. The Chinese government, in order to accelerate business developments in the poorer inland regions of China, had allowed the foreign banks to operate in seven cities, including Harbin in the north-east and Lanzhou in the west. It would also remain a matter of concern whether the foreign international banks would be interested in developing their businesses in the hinterland cities of China.This case is intended for MBA/PGDBM students and was designed to be part of the strategic management curriculum.

Pedagogical Objectives:

  • To understand the role of mergers and acquisitions in the growth strategy of Standard Chartered Bank.
  • To analyse the benefits and drawbacks of mergers and acquisitions associated with banking companies.
  • To study the impact of the acquisition on the Chinese banking sector.
  • To understand the potential synergies of the acquisition.
  • To understand the pros and cons of the Chinese banking sector reforms.

Keywords :  China; UK; Standard Chartered; Bohai; Assets; Market share; Branches; Tianjin; CBRC (China Banking Regulatory Commission); SOCB (surplus on the current budget); CCB (China Construction Bank); RCC (rural credit co-operative); JSCB (joint-stock commercial bank); WTO (World Trade Organisation); NPL (non-performing loan)

Contents : 
Expected Synergy
Establishment of Standard Chartered Bank around the world
Division-wise classification of Income of Standard Chartered
Structure of the Chinese financial system
Criteria Commonly Used by Chinese Banks in Selecting Potential Investors
Non Performing Loan in Chinese Banking System
Strategic partnerships with JSCBs
China’s Six Major Regions

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