HONG KONG/LONDON - The Agricultural Bank of China is set to open in New York and London, building a round-the-clock commodity trading team and taking global Beijing's ambition to be a major force on commodity markets.
With the move, Agbank will become the last of China's Big Four to establish a branch in the West's global financial centres, where peers, including Industrial and Commercial Bank of China, now the world's largest bank by market value, have already opened shop.
However, Agbank's approach will differ from its foreign exchange-oriented peers by focusing on trading in agricultural commodities and derivative products such as grain and corn, among the few markets in which China is not a dominant player.
The timing may be ideal as Agbank will go into head-on competition with commodity trading giants Goldman Sachs and Morgan Stanley, as well as up and comers like JP Morgan, at a time when they've had their wings clipped by the financial crisis.
It also comes as Beijing begins to use its growing leverage as the world's biggest importer of many key raw materials to its advantage on price, including holding out for cheaper iron ore contracts, stockpiling copper, forming joint ventures and extending billion-dollar government loans in exchange for oil.
While China is the biggest importer of soybeans, it trades very little wheat or corn, although many analysts expect it will eventually be forced to buy these goods abroad, a move almost certain to trigger a buying frenzy in the Chicago trading pits.
Three sources with direct knowledge of the plan said Agbank had hired consultants and lawyers to prepare applications for branch licences in the United States and Britain. Agbank already has UK representative offices, which do not allow it to offer banking services to clients.
Currently, Agbank only has branches in Asian cities like Hong Kong and Singapore, said one of the sources, who, like the others, declined to be identified because they are not authorised to speak to the media.
To build itself into a true international bank and a leading commodities trader, it must have branches in the West so it can operate a 24-hour non-stop trading system, he added.
Agbank was not immediately available for comment.
COMMODITIES IN FOCUS
Despite increased anxiety in Beijing over financial derivative trade overseas -- in March it ordered state-owned corporates to quit any high-risk deals after a number of forex and commodity hedges went bad -- policymakers are also cautiously encouraging the growth of the underdeveloped sector in China.
Agbank stands to win the business of thousands of mid-tier Chinese corporates increasingly exposed to global commodity costs, and could provide a gateway to international players who are desperate to break into the burgeoning Chinese market.
They have to do a few things right at the global level to build a track record and convince people to do business with them. But certainly, it's a step in the right direction, said a senior Singapore-based executive at a global investment bank.
Agbank plans to complete establishment of the two branches before it goes public, said the sources, adding that an initial public offering of shares was unlikely to take place this year.
Agbank, which received a huge government injection late last year, raised 50 billion yuan through subordinated bond issuance earlier this month, having its capital adequacy ratio far above the minimum requirement of 8 percent.
From the financial angle, Agbank is well qualified to win branch licences in New York and London, but I believe the regulators will be more concerned about its internal control, shareholding structure and anti-money laundering, said the source.
Agbank has, and won support from, the Chinese government for its foreign branch plan, said the sources.
We have not received the application, a Federal Reserve spokeswoman said, in response to Reuters inquiry about Agbank's plan for a New York branch. She declined to comment further.
(Additional reporting by Alister Bull in Washington D.C.; Editing by Jonathan Leff)