The Federal Reserve Board's decision in May to allow a large Chinese bank to buy a majority stake in a U.S. depository has yet to touch off an expected wave of similar deals, but that is not due to a lack of interest on the other side of the Pacific.

Industry observers say Chinese banks are plotting their expansion into the United States, but they are doing so deliberately in hopes of avoiding mistakes that have been made by some other foreign banks with stateside ambitions.

"I think they're being thoughtful," says Walter Mix, an industry consultant who is also chairman of the International Bankers Association of California. "These are some pretty strategic thinkers."

Ernest Patrikis, a partner at White & Case who worked on the first Chinese acquisition of a U.S. bank, warned that it can be hard for foreign banks to succeed in the U.S. retail banking business.

"It needs to be done carefully and patiently. Many have failed in the past," he says.

Chinese banks that are seen as likely acquirers are the so-called Big Four -- Industrial and Commercial Bank of China, Bank of China, China Construction Bank, and Agricultural Bank of China. ICBC is the world's fourth-largest bank, with $2.6 trillion of assets, and the other three all rank among the 15-largest by assets.

The U.S. central bank gave Chinese institutions a blueprint for how to enter the United States in May when it approved Industrial and Commercial Bank of China's application to buy up to 80% of the U.S. operations of the Bank of East Asia in New York. Simultaneously, the Fed allowed Bank of China and Agricultural Bank of China to establish new U.S. branches, potentially giving those two banks a leg up over Chinese competitors that are looking to enter the American market.

Still, there is a lot of work to be done by Chinese banks that are looking to satisfy the requirements of U.S. regulators, says Stanley Farrar, a partner with Sullivan & Cromwell. "It's not going to be a rubber stamp for Chinese banks coming in," he said.

Chinese banks that want to do business in this country will also have get approval from their regulators at home. And with the Chinese economy slowing, the country's banks are facing pressure from their regulators to raise more capital, which could delay their entry into the U.S. market, said Jiang Liu, another lawyer at Sullivan & Cromwell, who worked on the Bank of East Asia acquisition.

The months that have passed since the Fed's approval of the first acquisition have provided an opportunity to gauge U.S. public opinion regarding the arrival of Chinese banks.

The majority shareholders in China's four largest banks are the Chinese government, and critics of the Fed's action worry that the banks may share information gathered from U.S. clients with Chinese government officials. Another fear has been that the Chinese banks will use China's large reserves of U.S. dollars to undercut pricing at American banks.

So far, however, the reaction has been relatively mute – particularly comparison to the popular backlash that accompanied the rapid expansion of Japanese firms here in the late 1980s.

The Japanese example is one the Chinese would like to avoid, according to industry sources. In the 1980s Japanese banks expanded quickly in this country, particularly in California, and by the end of that decade, they controlled about half of all foreign banking assets in the United States.

The subsequent hasty exit by some of Japanese banks was triggered partly by troubles at home, but also, in the view of industry observers, by their failure to maintain strong U.S. leadership at their banks in this country. In the early 2000s, when Japanese banks were rapidly selling off their U.S. assets, American executives at those institutions used to joke that investors might know about the sale of their bank before they did.

One reason why the arrival of Chinese banking has so far attracted scant attention in the United States may be the small size of the first acquisition. The U.S. operations of the Bank of East Asia have under $800 million of assets, making the bank a tiny speck in comparison to its Chinese purchaser, which has a market capitalization of $1.8 trillion.

Some industry observers expect other Chinese banks follow this pattern – dipping their toes into the water with the purchase of a small bank that that serves Asian Americans. There are a number of such banks in southern California, including the $1.4 billion-asset Preferred Bank (PFBC) in Los Angeles.

If a Chinese bank is looking for a larger purchase, potential targets could include the $22 billion-asset East West Bancorp (EWBC) of Pasadena, Calif., or the $11 billion-asset Cathay General Bancorp (CATY) of Los Angeles, both of which serve the Asian-American community. Officials from Preferred, East West and Cathay did not return calls seeking comment.

Sullivan & Cromwell's Liu said Chinese acquirers will be looking for healthy, clean banks with no regulatory issues, and then would fund their U.S. growth using assets in China. "They don't need the retail funding here," he says. "They can grow a lot."

But industry insiders also warned against assuming that Chinese banks will only seek to buy Asian American-focused banks. The International Bankers Association of California's Mix says that he knows of one Chinese bank that hopes to attract a broader spectrum of clients in California.

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