Industrial and Commercial Bank of China (ICBC), the World's Largest Bank Is Bigger Than You Think

&nbsp&nbsp&nbsp&nbsp&nbsp Since July 24, 2007 when it overtook CitiBank in market capitalization (US$ 254 billion versus US$ 251 billion) ICBC has been the largest bank in the world by market value (4th overall. It is 22.7% bigger than domestic competitor China Construction Bank, in contrast, construction bank's (2nd largest bank by market cap) overall rank fell 5 spots to 12 down from 7 in March). (FT Global 500 List June 2011) ICBC's impressive performance during the economic crisis has lifted it higher in The Global 2000, a ranking system compiled by Forbes; in it ICBC was ranked 12 overall in 2009, 5 in 2010 and 7 in 2011 (2011 slight drop was because higher oil prices pushed 3 oil companies into the top 6, by comparison none were top 6 in 2010), in 2011 ICBC overtook Bank of America but was overtaken by JP Morgan (rank 1st overall on highest sales of any bank and strong earnings) and HSBC (rank 2nd on high sales and assets (4)); HSBC was ranked lower than ICBC in 2010 (8 versus 5) but in 2011 it shot up to 2 (ICBC 7), JP Morgan was ranked higher than ICBC both years even though its market value was much lower and ICBC had 41% more profit (US$24B vs US$17B). In March of 2009 ICBC became the world's biggest bank in terms of deposits after its clients added US$140 billion to accounts bringing the total to US$1.31 trillion, higher than JP Morgan and Mitsubishi UFJ Financial Group.

Although many key indicators for ICBC improved in 2010 [(cost/income ratio down to near record low levels (30.99%) at a time when wealth managers worldwide are facing higher cost/income ratio's (wealthbriefing.com): Net fee, commission/operating income ratio 19.13 a 4 year high, 4 year high also in ROA assets (1.32% up 86% since 2006), ROA equity (22.79% up 336 basis points in 2 years), non-performing loans ratio down to 1.08 (down 49% since 2008)], the bank's market value has been slow to respond (growth) because of concerns among investors regarding banking risks faced industry-wide (brought on by banks abroad in countries where unemployment is high and consumer debt, national exceeds annual income, gdp) and a possible housing bubble in mainland China (loans secured by mortgages amounted to US$ 421.117 billion on December 31, 2010 up 31.2% since December 31, 2009 (US$ 321.063)); Market Values in the graph for the 3 big banks are from December 31 for each year, the end of the fiscal period.

In terms of revenue, JP Morgan still leads all banks however the major Chinese banks including ICBC significantly closed the gap between themselves and Bank of America/Citigroup. In the first half of 2011 HSBC leaprogged all banks except JPM even though its revenue grew by only 5%. Chinese institutions closed the revenue gap with their Western counterparts, ICBC only 45% the revenue of Bank of America (56% of Citigroup) in 2010 1st half but that increased to 88% in 2011. More info on 2011 revenue, assets at top 20 banks as of September 2011 ranked by 2011 2nd half metrics

Mortgage loans make up 41% of all loans at ICBC (2011 January 1) up from 38.3% a year earlier even though the government instituted new laws aimed at limiting lending to local governments (financing vehicles) and to the real estate sector. In May of 2011 in an attempt to reduce mortgage risks, ICBC told separate branches to raise certain minimum downpayments (up to 40% from 30% in places where prices are unusually high) and lending rates when the branch sees fit (110% higher than the benchmark best), in 2010 home prices were up 47% in Hangzhou (Zhejian ranks 5 in gdp per capita (US$7.4th), 10 in population), 37.9% in Chongqing (14 gdp pc (US$4th)/20 in pop.) and 37.1% in Beijing (3 in gdp pc (10.4th/26 in pop.). Prior to the increase, buyers of a second home were required to give a 60% down payment. (BBC: ICBC bank's profits surge as China economy grows, China Economic Review)

Also, the bank's less than perfect credit rating (A1+) due to the bank being highly exposed to a softening Chinese real estate market and having increased international exposure (Chinese government has shown interest in helping the bank gain a foothold outside the mainland since Chinese banks don't have as much global exposure as their western counterparts and China has the capability to do that; China has shown interest in establishing new international finance; In 2009 it gave China Investment Corp $200 billion to do that), may have scared away some investors who aren't aware of the bank's solid fundamentals (arrears/risks are as low as any other bank even those with better Moody's ratings).

At a time when the largest bank based outside of China (HSBC, US$ 176.9 billion in market cap) announced a 3 year plan to cut 30,000 jobs worldwide (10% of its workforce, 20-25% of its employees in Europe and North America), China's ICBC is hiring (workforce is over 397,000 up 1.8% on the year with over

Yamana Gold : Unjust Criticism Causes Investors To Overlook A Fundamentally Sound Company (undervalued, production, projects, 2012)

In 2010 Yamana produced 10.0 million ounces of silver (silverinstitute.org) and 1.05 million ounces of gold (Yamana Gold corporate responsibility:2010) making it a top 15 gold and top 19 silver producer that year (rank among all companies including those diversified). The gold churned out was produced at a total cash cost of $442/oz (fiscal 2010) 32.4% less than the cash costs industrywide in the third quarter and substantially lower than key competitor AngloGold Ashanti ($638/oz). In the last quarter of 2010 (one of its record quarters for production) Yamana produced 286,682 ounces of gold at a cash cost of negative US$34/oz giving it a solid margin and earnings optimism. Yamana's free cash flow (operating cash flow less capex) was $31.1 million in 2010 nothing to brag about but a far cry from thet 259.4 million in losses recorded two years earlier. Mineweb.com March 4, 2011:Are gold cash costs per ounce headed for extinction?
Update: On Jan 11, 2012 Yamana reported 2011 fiscal year gold production at 1.1 million ounces (up 5%) led by El Penon at 476,000 oz and Gualcamayo at 159,000 oz (up 18%). What's so great about this news is that the company last told us that it would produce only 900,000 ounces, that's 18% less than it actually did! Chapada produced 135,000 oz gold (same as the year before) and 166 million pounds of copper (up 11%) while Jacobina showed no growth in production (122,000 ounces). After by product credits, cash costs were $50/oz (gold equivalent which means silver is also included) significantly lower than the $250/oz estimate. The company plans on increasing gold production by 43% by 2013 to the range of 1.5 and 1.7 million ounces reaching 1.75 million ounces by 2014. 2012 gold production is estimated to be 1.3m ounces.

On June 25, 2011 the value placed on its gold per ounce by the market (Enterprise Value/Gold Equivalent) was $324.3. That compares to $404.67/oz for Goldcorp (60 mil oz AU, 30 mil oz AUequiv (silver)) and $495.36/oz for Eldorado Gold (15.41 million ounces) making Yamana's gold relatively undervalued (which is meaningful considering Yamana's cash costs per ounce are about the same).

Company earnings have been steady since 2009 however stock performance has been underwhelming. The reason? the company has relied on production from areas considered risky due to their currency situation (Brazil), inflation (Argentina) and natural disasters (earthquakes in Chile); Gaining the confidence of investors hasn't been easy given the losses incurred by other companies exposed to similar risk (coal mines in Australia). Not helping the situation is the fact that production (specifically gold) is expected to be flat until at least 2012 when a slew of new mines begin operating (Mercedes ~1.0 million gold equivalent ounces, Pilar - 1.4 million ounces of gold, Jeronimo - 0.928 million ounces of gold, Santa Luz - 1.2 million ounces gold), The good news: the new mines, home to more than half of the company's 2P gold reserves will come on tap at about the same time and immediately raise annual production by as much as 80% while possibly lowering total costs of production (most are at or under $460/oz).

Update December 28, 2011 Company will pay a dividend worth five cents a share, on January 13, 2012. Yamana's dividend has increased steadily since 2009. December 28th is the ex-dividend date meaning anyone who buys the stock after that time will not be entitled to the January 13 dividend.