The Strength of Commercial Banks Depends on That of Its Board of Directors

2007-11-8

　　To tell the truth, I have no interest in opening oversea branches because very few of them can make profits. A president of the central bank of a country told me that there were two reasons why they invited CMBC to open an branch in their country: the first is privatization, and the second is high transparency. Since 1996, CMBC has been engaging international accounting firms to issue financial reports. In 1998, our financial reports became in line with international standards. There has been ten years since 1998, so all the people clearly know our financial status. However, I still have no intention to open oversea branches.

　　In addition, our purchase with UCBH is also a trial by which CMBC (as a Chinese bank) sounded out the Federal Reserve of U. S. In the first-stage purchase, CMBC invested approximately 96.06 million U. S. dollars to purchase new shares of about 5,400,000 additionally issued by UCBH to CMBC, accounting for 4.9% of the share capital after such issuance. This transaction can be carried out without the consent from California Financial Administration and the Federal Reserve of U. S.

　　In the second stage, CMBC will additionally get hold of 5% of the shares by means of purchasing old shares, thus making the total shares held by CMBC accounting for 9.9%. This transaction requires approval from California Financial Administration. However, if the first-stage purchase runs smoothly and both parties cooperate with each other very well, I believe U. S. can see that this is a mutually beneficial thing. In fact, after this purchase, UCBH’s share price has risen by 15%. This is evidence.

　　In the third stage, we will round out the Federal Reserve of U. S. again. If it agrees, CMBC will additionally increase its holding of UCBH’s stock right, to 20%. At that time, CMBC is absolutely an overwhelming substantial shareholder.

　　By taking these methods, we keep rounding out U. S. step by step, and thus some people from the administrative authority told me that this unexpected action by CMBC opened a new way for domestic banks to enter U. S.

　　In the future, CMBC’s overseas strategy will go on to be taken.

　　After serving as the Chairman, I did three things, and the first one is to establish a specialized working group which studied and drew up the Five-year Outline for the Development of China CMBC Bank. We consider that CMBC has managed to pass the stage of survival and is currently entering into the stage of strategic transformation. In the Five-year Outline, we analyze the necessity to implement a strategic transformation, describe the meaning of strategic adjustment in the transformation period, determine the overall objective in the stage of strategic transformation, and establish an objective system in eight aspects of corporation governance, establishment of a financial holding company, foreign merger and acquisition, risk management and control, internationalization, human resource management, culture and brand, as well as a strategy to realize such system. Therefore, foreign merger and acquisition is one of these eight aspects.

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