Last year China Construction Bank's net profit soared 10% to $11.9 billion. In the same period, Bank of America, which at the time owned some 19% of the Chinese lender, earned just $4 billion, down 73% from 2007. That's all you need to know to understand why Bank of America in May sold a 5.8% stake in China Construction Bank for $7.3 billion. Bank of America has been so badly hurt by the U.S. financial crisis that it needs to raise billions of dollars to recapitalize. Meanwhile, Chinese banks are making money hand over fist as China's economy continues to expand. (Read "Bank of America Needs to Play Its Merrill Card.")
What was up is now down and the other way around, and it's going to stay that way for some time. Former powerhouses such as Bank of America and Citicorp have turned into shadows of their former selves as they shed assets and withdraw from foreign markets. Meanwhile, lenders in China and India that are little known outside their home countries now have the wherewithal to expand internationally. They have the potential to become the Citicorps of tomorrow. (See pictures of the global financial crisis.)
Whether China Construction Bank and its developing-world brethren are actually willing and able to increase their international presence is an unanswered question. But the numbers indicate their relative financial strength certainly offers them the option.
Paul Schulte, a former Lehman Brothers star analyst who is now with Japan's Nomura (which took over bankrupt Lehman's Asian operations), recently compared bank balance sheets in various countries and discovered significant differences. One telling disparity is leverage. The higher the leverage, the greater the risk, and despite efforts to put them on sounder financial footing, U.S. and European banks remain overstretched by historical standards and relative to their peers. (See the top 10 bankruptcies.)
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