Walter Hutchens’ Blog

Nan Tung Bank is not on the list of China’s Big Four banks.

It’s not even on the list of China’s second or third tier banks.

In fact, it only has about 40 employees and a single branch.

Nonetheless, global heavy weight Morgan Stanley has agreed to acquire Nan Tung.

Morgan Stanley is not after Nan Tung’s sole branch or its 40-odd employees; rather, they want Nan Tung’s commercial banking license. That will help them do RMB-business in China.

At the end of this year the geographical and scope of business restrictions on foreign banks are supposed to end in China. That’s long been a headline about China’s WTO entry.

But the fine print is important. Foreign banks will still need all kinds of approvals and licenses to really do business in China. Buying this banks helps Morgan Stanley move forward with getting some of those approvals (though it certainly doesn’t complete the process).

A Reuters story about the acquistion is here.

Based on information in ICBC’s IPO prospectus, Morgan Stanley only needs to add 18,037 more branches to catch up with ICBC!

Of course, foreign banks will not aim for the vast Chinese population. They will target China’s affluent individuals and companies, and those are generally concentrated in major cities.

I have previously opined that China should simply auction approvals to do business in certain lucrative sectors, the way the US auctions radio spectrum for 3G services. Morgan Stanley could help them run the auctions.

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