U.S. banks reap profits from China connections

Citizens Financial Group and Bank of America are among a vanguard of large U.S. banks that have bought stakes in Chinese banks and forged relationships in China to help attract business from Chinese and Chinese Americans in the United States and from U.S. firms venturing into China.
Citizens got involved in this new market through its parent company, the Royal Bank of Scotland.
In August 2005, RBS led a consortium that purchased a 10-percent stake in Bank of China, the nation’s second-largest bank, for $3.1 billion. RBS and Bank of China agreed to offer joint products and services, including credit cards, wealth management tools and insurance, and to work closely on matters of risk, governance and more.
The partnership is seen by both banks as a way to tap the vast potential of the Chinese market, said Robert M. Mahoney, executive vice chairman of Citizens Financial Group.
“It’s a financial stake, but it’s far more than that. It’s really a strategic stake,” Mahoney said. “RBS already had people in Shanghai, Hong Kong and Beijing, and so this is a way to really build up the local business through the partnership with Bank of China.”
Citizens scratched the surface of the market’s potential in January, when it launched its low-rate Remittance Plus money transfer service to China in collaboration with Bank of China. The service allows any customer with a Citizens checking account to transfer up to $1,000 per day to China for a $10 service fee.
Citizens launched the offer to coincide with the Chinese New Year, Feb. 18 this year. Chinese immigrants and nationals living abroad send billions of dollars to their families every year in the weeks leading up to the holiday.
But after remittances to China increased by 60 percent Citizens decided to extend the offer. “It was really quite something,” Mahoney said.
The strong performance of Citizens’ remittance service was due in part to efforts the bank made to reach the roughly 1 million Chinese Americans living in the 13 states where it has a presence.
The remittance service was also helped by Bank of China’s relationships with the two dominant wireless carriers in that country, which enabled the banks to send text-message notifications of transfers to nearly 380 million cell phone customers in China.
The text messages effectively made Citizens’ remittance service even cheaper, because those sending the money didn’t have to call their family and friends to tell them the money was on the way, Mahoney said.
For Citizens, the money transfer service is the first of several products and services the bank plans to aim at Chinese Americans and Chinese nationals in the United States, Mahoney said.
This summer, the bank will roll out a suite of products for Chinese students in the United States, he said. And because Citizens wants to become the bank of choice for U.S. companies seeking to do business in China, the bank soon will begin offering seminars and written materials about how to do business in China, Mahoney said.
“The commercial side of this thing is going to be huge for us,” he said. “There just aren’t that many banks who can be a window to China the way we can now. We intend to become the best export partner for U.S. companies seeking to sell into China.”
Bank of America, meanwhile, has been pursuing a similar strategy. In June 2005, the bank purchased a 9-percent stake in China Construction Bank for $3 billion, with the option of increasing its stake in future years. CCB is the third-largest bank in China and was the first Chinese bank to go public.
As part of their new partnership, last year CCB and Bank of America gave their customers free access to both banks’ extensive ATM networks, enabling their customers living or traveling in either country to get cash and do other ATM transactions at either bank without any processing fees and at a competitive exchange rate.
Bank of America is also operating a pilot program that allows free money transfers to China from some locations on the West Coast.
And the bank is advising CCB on ways the Chinese bank can optimize its processes, change its sales model, increase efficiency, improve customer service and better meet the demands of its customers, said Eloise Hale, a Bank of America spokeswoman.
Because Bank of America has a financial stake in CCB, it behooves the U.S. bank to help the Chinese bank do more business in a country with 1.3 billion potential customers, and ultimately to become a leader in the global banking industry, she said.
“For us, it was a strategic investment and partnership in one of the fastest-growing economies in the world, and we are very pleased with the results that we’ve seen so far,” Hale said.