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

52% of all economically viable oil available to private investors resides in Alberta, Canada

Alberta is home to nearly 170 billion barrels of proven and probable oil reserves (much of it amongst easily processed oil sand) exceeded only by Saudi Arabia and Venezuela (AP:China eyes Canada oil, US's energy nest egg) In Alberta alone, more than 1.6 trillion barrels of oil in inferred resource isn't even included because extraction methods SAGD and THAI/CAPRI aren't able to bring it to the surface by economically viable means. However, considering conventional sources only, Canada has major sources outside Alberta (Saskatchewan and Newfoundland combined have about 1.4 times as much oil reserves as Alberta). (NEB - Energy Reports Canadian Energy Ovewview) Approximately 20% of Alberta's oil sands are close enough to the surface to be recovered by open pit mining, the rest requires vairous in-situ technologies; the government of Alberta requires that oil companies bring the land back to 'equivalent land capability' that is, restore it to a level that makes it useful to the community either as boreal forest (which was initially destroyed) or pasture for bison (though many companies have only restored a fraction of that, for example Syncrude Oil restored 22%). Oil sands operations have been approved to use about 360 million m3 of water from the Athabasca River (runs through the mining district, water source is a glacier over 1,200 km away), that's twice as much water used by the entire city of Calgary though less than 1% of the water from the river is used by the province and oil operations; 24 m3 of water is used to produce 1 m3 of synthetic oil.
By 2045 oil sands will produce close to 11M bbls/d and that will continue for a century. Between 2012 and 2020 oil output from the tar sands will double (1.7 mbpd --> 3.4 mbpd) and triple in the next 25 years to 5.1 million barrels per day.

With crude oil fetching higher prices in Asia, Canadian producers are looking to expand into new markets (nearly all Canadian oil (2M bbls/d) currently heads south, 2010). (Reuters:Foes fight Canada pipeline to rich Asia market) The supply chain has, more recently been overwhelmed in the United States due to the release of 30M barrels of reserve oil onto the market Parkersburg News and already filled up pipelines and storage tanks. With China's interest in Canada growing, the 728 mile Northern Gateway pipeline from Edmonton to Kitimat, BC is gaining the attention of politicians and oil companies eager to broaden their customer base.

Ironically, environmentalists are both helping and hampering efforts to provide access for Asia; The oil pipelines face fierce opposition from environmentalists and Native Indian groups concerned over wildlife and possible oil spills (like what happened with Enbridge in Michigan in 2010); at the same time American environmental groups have opposed the oil sands on the grounds that it makes excessive use of water and increases greenhouse gas emissions.

Keystone XL, another oil pipeline struggling through the approval phase, aims to bring more of Canada's oil to the United States in an effort to reduce their dependency on Middle East oil 'potentially to nil'. Among other top sources, Mexico is an unsustainable source due to dwindling reserves there and Saudi Arabia (number 2) is viewed as unstable due to its situation within the Middle East. TransCanada's $7 billion pipeline project would double Alberta's oil exports to the United States. Though Obama rejected the permit in January 2012 he didn't completely shut the door on the project, saying that the company is free to re-apply. Whether or not the project goes ahead one thing is for sure, Alberta will continue to produce oil. As of last summer there were 22 active exploration projects in Athabasca alone.

The reason that it's 52% even though all of Canada doesn't have half of the world's oil is that, much of the new oil being discovered/produced is heavy-extra heavy oil and a lot of it is in countries like Venezuela which don't allow foreign investment/ownership of their state run oil companies. Even in Colombia where capitalism is as popular as it has ever been, big oil companies like Ecopetrol remain off limits to foreign investors (in August Ecopetrol (majority state owned) will have its biggest share sale since 2007 in which it will make available between 3 and 5% of Ecopetrol shares but only Colombian citizens are allowed to participate).