The West’s biggest bank is getting ready to confront China’s largest lender.
JPMorgan Chase & Co. has vowed to take its “full force” to China, where state-run Industrial & Commercial Bank of China Ltd. is not only the dominant player in the country, but also the world’s biggest bank. The U.S. firm already has approval for a majority stake of its local securities joint venture, and plans to take full ownership of its China operations when rules allow—which should be by 2020.
Unfettered entry to China could be one of the main profit drivers for global banks in the next decade or so. But while favorable rule changes will allow firms such as JPMorgan to gain a foothold, true success may only come if they can compete with the state-run banks that dominate the country’s financial system.
“JPMorgan will need to be selective around the businesses they choose to be active in order to carve out a meaningful competitive foothold in China,” said Benjamin Quinlan, chief executive officer of financial-services consultancy Quinlan & Associates in Hong Kong. “I don’t think they will ever contend against ICBC, given the sheer size of resources at ICBC’s disposal.”
JPMorgan saw itself overtaken by ICBC in a ranking of biggest banks by assets in the wake of the global financial crisis. While U.S. firms were still on the defensive, their Chinese counterparts ramped up lending to fund an unprecedented economic stimulus package.
“ICBC has simpler businesses in China, focused on lending,” said Chen Shujin, chief financial analyst at Huatai Securities Co. in Hong Kong. “Foreign banks may have been more impacted by the global financial crisis as they have a wider range of offerings such as investment banking and derivatives.”
ICBC still trails JPMorgan on some key metrics such as price-to-book ratio, but the Chinese lender is far more profitable. Its net income will probably top JPMorgan’s by 40% this year, with the gap widening even further in 2020, according to analyst estimates compiled by Bloomberg.
One major difference between the two banks is executive pay. Yi Huiman, former chairman of ICBC, earned 672,900 yuan ($98,000) last year, a fraction of the salary taken home by JPMorgan’s Jamie Dimon. China capped compensation for most senior executives at its biggest banks and other state-owned enterprises in 2015 as part of efforts to combat inequality.
ICBC has expanded its global footprint, almost matching JPMorgan’s, whose roots go back to the 18th century. But like most other Asian lenders, ICBC still mainly focuses on serving Chinese clients, while JPMorgan has business relationships with hundreds of foreign corporations.
Despite ICBC’s huge advantage in China, JPMorgan is undeterred. Dimon said in a Bloomberg Television interview earlier this year that the bank is fully committed to establishing itself in an economy that is expected to overtake the U.S. in coming decades.
“We’re all in,” Dimon said. “We’re not slowing down.”
(The mobile version of this story was corrected to accurately show the ICBC deposit figure.)
- Sources: Data from banks’ financial filings and annual reports compiled by Bloomberg
- Additional work: Michelle Davis, Michael Patterson and Adrian Leung
- Editors: Sam Mamudi and Jeanette Rodrigues