PRESENTED BY (Group-1)

OVERVIEW OF THE CASE STUDY:

1. BACKGROUND INFORMATION

2. POINTS TO PONDER

Would UCBH’s agenda in China hamstring Minsheng’s global expansion?

Our Analysis and Supporting facts

How would Minsheng address other issues, such as post-acquisition integration and international banking regulations?

Our Analysis and Supporting facts

Should other Chinese banks follow suit and go on a shopping spree of foreign banks?

Our Analysis and Supporting facts

3. ANECDOTES ON M & A

BACKGROUND INFORMATION Founded 1996 as CMBC limited.

First Private Commercial Bank Of China

Concept of acquisition through UCBH, USA

First mainland Chinese institution to invest in a US Bank

Initial offerings were providing financial services, and was the first to

prepare financial statements according to International Acc.

Standards.

Listed it’s A-shares on Shanghai Stock Exchange, Dec 19th, 2000

Adopted “Three Cards” project-

To promote employee salary, welfare & training.

Appreciated by Bankers and Forbes, after it won domestic/int. awards

PEOPLE'S BANK OF CHINA PBOC is China’s Central Bank Responsible for formulating and implementing China’s

monetary policies Also responsible for managing official foreign reserves, gold

and foreign exchanges etc. PBOC reported to the State Council for any decision it required. China Banking Regulatory Commission: Launched on 28th April,

2003 Took over the supervisory role from PBOC for the Banking

Sector Goal of the Reforms taken:

1. To Improve the efficiency and focus of supervision over Chinese banking

2. Allow PBOC concentrated on larger economy and currency policy.

Through its subsidiary UCB, UCBH was a leading bank in US. Dealt with variety of services from private banking till,

international trade finance. Founded San Francisco, CA (1974) Headquarters San Francisco, CA In terms of service and clientele profiles, CMBC and UCBH were

similar. Revenue $583.3 million USD (▲ $100.9M FY 2006) Employees 1,318 UCBH (Services)

Commercial Banking Consumer Banking Private Banking In Jan, 2007 – UCBH acquired “The Chinese American Bank” for

131 million USD The acquisition helped UCBH to enter into New York city.

BACKGROUND INFORMATION

DOMESTIC KEY PLAYERSSTATE-OWNED COMMERCIAL BANKS

In 1995, Govt. passed the COMMERCIAL BANK LAW to commercialize the operations of 4 state owned banks.

Led to the formation of the following banks :-

“The big four” of Chinese banking industry1. Industrial & Commercial Bank of China2. Bank of China3. China Construction Bank4. Agricultural Bank of China

Established in 1992, BDB was the first wholly foreign owned bank in China

Again, in March 2007, UCBH acquired “Business Development Bank”

BDB was Shanghai-based (acquisition cost: 205 million USD) BDB operated as a subsidiary of UCBH under UCB brand License to conduct renminbi and foreign currency business At the end of 2006, BDB’s Structure comes as :

Total Assets :- 217 million USD

Loans :- 188 million USD

Deposits :- 26 million USD

Equity :- 76 million USD

BACKGROUND INFORMATION (BUSINESS DEVELOPMENT BANK)

POLICY BANKSIn 1994, 3 Policy Banks were set up by the Chinese Government1. Agricultural Development Bank of China2. China Development Bank3. Export-Import Bank of China

Purpose of Formation:1. Exercised China’s macroeconomic policies and carried out macro

economic control for economic development.2. Took over government directed spending functions, of the 4 state

owned banks.3. Provided finance for State projects and infrastructure construction

QUESTION 1Would UCBH’s agenda in China hamstring Minsheng’s global expansion?

When in December, foreign banks were allowed to conduct RMB business under provisions of China’s agreement with the WTO. How will this change the Chinese banking industry? And what will CMBC do?

Measures by CMBC:

They have taken two measures:

The first one is human resources strategy: They are going to raise the bank’s core competency by upgrading the whole team’s general quality. They sent senior management staff, like presidents of branches and general managers of headquarter departments to take an [18-month] training course in Europe and the United States sponsored by IFC. They trained 1,200 to 1,500 senior management staff in a three months program, like directors of sub-branches and presidents of branches, at either Nanyang Business School in  Singapore or Hong Kong Chinese University.

QUESTION 1

They chose these two locations mainly because both Singapore and Hong Kong have mature financial markets, sound education organizations and well-managed banks for us to learn from.

This project ran for a year, showing very rewarding outcomes.

Secondly, they were in the process of transformation.

Their past 10-year development has created a model which they believe still needs up-gradation. In order to take on the challenges of market and competition in the open financial market, they made changes from traditional way of operation, a 3-tier system of operation involving headquarters, branches and sub-branches-- towards the direction of professionalization.

For instance, in their real estate business, they organized expert teams consisting of account managers and real estate specialists to provide more professional services to target customers, thus broadening market share, stabilizing the customers and improving their returns.

QUESTION 1

1. They planned to finalize this transformation in two or three year’s time.

2. They position themselves to serve small and medium sized enterprises (SMEs) and retail customers.

3. These identified the places in China, where their profits will come from in the future as more middle and rich classes are emerging to form a two-tip-big-belly structure in these areas. They are also the best markets for retail banking businesses. They declared to launch more diversified business for the selected target group in coming future.

They were not much bothered about foreign banks entry because:

1. China is such a big territory with a huge market, the number of outlets for newcomers is far from enough. They look on high-end customers, while CMBC focus more on the customers in the middle. There is a difference between their target customers.

2. Also, it will take time for foreign banks to identify profit belts there.

QUESTION 2 How would Minsheng address other issues, such as post-acquisition

integration and international banking regulations?

INTERNATIONAL BANKING REGULATIONS

As far entry into other markets are concerned, CMBC had to take care of the RMB Issue and International banking regulations and modify its own.

The U.S. government has pressured China to allow greater convertibility of the RMB and China may accommodate this.

Was this a threat to the liquidity of Chinese banks?

From the perspective of financial experts, over-appreciation of the RMB did not benefit China, the U.S., or the whole world. The central bank put RMB convertibility into a controlled floating exchange rate mechanism.

The currently adopted basket monetary policy was very wise, because it has embodied its goal of economic globalization. Along with economic and trade development in Asia, their exchange rate was to be influenced by one-basket currencies, rather than the U.S. dollar alone.

The Chinese government will make adjustments from time to time to

the monetary policy based on changes in economic and monetary market.

QUESTION 2POST ACQUISITION SITUATION HANDLING

The other issues that a company might face post acquisition are:

1. New Structure and Systems :

Lack of historical precedence means policies needed to be classified and discussed. “Who decides what” – must be discussed.

2. Power of Outsiders :

Power is exercised by sometimes 3rd party, who play a minor role in a acquisition. Pressure of outsiders from acquiring company can resist career paths for employees.

3. Territorial Battle :

Previous alliances and power structures persist and cause individuals to resist new authority.

4. Who fits in ? :

Conflict arises as company announces a new identity.

5. Start-up Problems :

Cultural problems could prevent in smooth operations / info flow.

QUESTION 2

The issues related to employee’s mind are:

1. Anxiety and Uncertainty : When move from stable to unstable- confidence loss

2. Helplessness and Rejection : Worried about next role, lack of control over circumstances, and outcome that shapes life and career in the corporation

3. Divided Loyalties : Loyalties change when newcomers enter

4. Withdrawal and Avoidance : Workers reduce level of commitment and use energy to cope up with anxiety

5. Conflicts over New Values : New leadership could create conflict. So employees are demoralized.

QUESTION 2The solution that CMBC might use post acquisition are:

1. New Structure and Systems :

Programs that re-affirms basic structures and clarifies reporting relationships. Acquired company could get clear interpretation of the situation, and vision of the future.

2. Power of Outsiders :

Make team of staff from both companies. Treat this as merger and treat all with respect.

3. Territorial Battle :

Founders of UCBH can help to interface with process to make it a developed organization.

4. Who fits in ? :

Proper clarifying and supporting interventions can be made.

5. Start-up Problems :

Educational training on cultural changes is required with common objectives and values.

QUESTION 2Their motive:

Business model was to build everything around the customer; core idea in management is to create value for customers; the business operation is market and customer-oriented. They have successfully reshaped themselves from a department-bank into a process-bank.

2 key ideas underpinning a viable process-based organization.

1. First, a company is divided into basic organizational units which are organized around core processes.

2. Second, other type of processes are added to these units so that they can operate in a effective and efficient way.

QUESTION 2

QUESTION 2

TYPES OF PROCESSES NEEDED TO DEVELOP PROCESS STRUCTURE

1. First, there are customer processes which are those processes that add value for external customers.

2. Second, development processes such as product development, product/market innovation, technology innovation etc that allow the organization to work effectively on a longer time horizon.

3. Third, planning and control processes focus on particular management tasks. It is useful to make a distinction between planning and control processes that are linked to the execution of the customer and development processes - management of the relationship with third party people, the management of distribution channels.

4. Finally, staff and service processes have to be recognized as well. They play a role as an enabler of all the other types of processes.

QUESTION 3 Should other Chinese banks follow suit and go on a shopping spree

of foreign banks?

Why was Minsheng successful ?

Internal factors:

1) First of all, CMBC has been clearly differentiated from state-owned banks since its birth. They have a sound structure of corporate governance with clear-cut asset structures and responsibilities.

2) CMBC has been adhering to the principal of innovation, including management system innovation and human resources innovation. For example, when evaluating the performance of the board of directors and senior management, they have adopted a two-rate-motivation-system, which combines profit-salary rate and profit-result rate. They are the first one to take this initiative among all commercial banks in China. At state-owned banks, the headcount and salaries are allocated by the state. Their motivation system enables to attract real talents.

3) They have a young team -- with average age of 31 -- which is energetic and full of innovative ideas. They have done a lot of work on service innovation under such an effective motivation system.

External factors:

The external factor is that the past decade has been a booming period in China’s economy and the country has achieved remarkable results due to recent reforms. CMBC has had some good opportunities.

Moreover, for US Chinese entry into US should not be much of concern, because:

China gets very little by selling made-in-China products to the U.S due to CCY convertibility.

1$ = 6.82792 CNY (as on May 14th ‘10)

BUT ……. WHY IT TARGETTED THE UCBH BANK ?

QUESTION 3

QUESTION 3Top Banks of China:

1. China Construction Bank Corporation

2. Bank of China

3. Industrial and Commercial Bank of China

4. Agricultural Bank of China

5. Bank of Communications

6. China Merchants Bank

7. CITIC Industrial Bank

8. China Minsheng Banking Corp.

9. Shanghai Pudong Development Bank

10. Industrial Bank

11. China Everbright Bank

12. Huaxia Bank

13. Bank of Shanghai

14. Bank of Beijing

15. Guangdong Development Bank

16. Shenz

QUESTION 3

Lots of their innovative strategies are the first of their kind in China and some of their approaches can be shared by other banks, such as the two-rate motivation system, data centralization, independent evaluation system and independent auditing system.

Have only one general ledger in the headquarters in Beijing. Every branch doesn’t have its own database. Data centralization does provided a better platform to develop management accounting systems and customer relationship management (CRM) systems. More than copying from western banks, such a strategy is a combination of both borrowing from foreign counterparts and being innovative are Chinese practices.

However, other domestic banks also learned a lot from western banks. Competing in the same marketplace, CMBC edge is that we are the “first mover”.

To Summarize the CMBC power:

1. They are equipped with effective risk management and good asset quality – IT infrastructure point of view

2. They have a concise and capable team. – HR point of view

3. Their corporate governance structure is far more professional than the competitors (may be foreign or local banks). – Governance point of view

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ANECDOTES ON M&A :