Most Valuable Bank In the World

Which bank is the most valuable in the world, measured by its market capitalization? Is it Citigroup? Bank of America? HSBC in the UK? UBS in Switzerland?

None of the above. According to this August 23, 2007 article from Reuters, it’s a bank in China, called Industrial and Commercial Bank of China Ltd (ICBC).

“Last month ICBC overtook Citigroup as the world’s biggest bank by market value and is worth more than US$280 billion. Citi is valued at around US$239 billion.”

According to my rough calculation using data from Reuters, ICBC earned about $6.6 billion net income in 2006. Citigroup earned $21.5 billion in the same period. Hmm … 1/3 of the earnings, 20% more market value.

And which life insurance company is the most valuable in the world? It’s not a Chinese company yet. AIG is still #1, but China Life is #2, larger than the French company AXA, the German company Allianz and the Dutch company ING. The earnings story is the same. The Chinese company has much smaller earnings but it has higher market value than the global giants.

It just shows how out of whack the Chinese companies’ values have become. Yes the Chinese economy is growing fast, but having the world’s No. 1 bank and No. 2 life insurance company? I don’t think it’s rational. Back in May I thought China was in a bubble. The bubble just became a lot larger. The Shanghai stock exchange index rose another 40% in 4 months since May 2007, or how about up 220% in one year? The P/E on the other Chinese stock exchange reached 70 [source]. Scary stuff.

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  1. Cindy says

    Did you know that AIG was founded in Shanghai, China? It was founded by an American in 1919, but the company started in China.

    just a curious factoid footnote for you.

  2. TFB says

    Thank you Cindy. I didn’t know that. According to the entry on Wikipedia,

    “AIG’s history dates back to 1919 by when Cornelius Vander Starr set up an insurance agency in Shanghai, China. Starr was the first Westerner in Shanghai to sell insurance to the Chinese. When his business was successful there, he expanded to Asia, Latin America, Europe, and the Middle East.”

    I have nothing against companies in China. AIG is a perfect example for a successful company with root from China. I just think the revenue and earnings of some of the Chinese companies don’t support the kind of valuations they have. In the 80s there was fear that Japanese companies would take over the world. Now all eyes are on China. Will they take over the world? I doubt it. Look at what happened in Japan.

  3. Cindy says

    Yeah, I agree with you tfb about the inappropriately valued companies in China. Like the dot-com bubble when it wasn’t unusual to see companies with P/Es in the few-hundreds. Scary stuff. Plus, isn’t there a problem in the financials in China that they lack experienced people to do proper evaluations?

    I also think it’s amusing that a company like AIG, started in China but isn’t a Chinese company. (off topic, but that was a question on CNBC’s MBA challenge – that’s how I found out.) Although from what I’ve read, AIG is really positioning themselves well in China to take advantage of the booming economy. I’ve been lately of the belief that more solid companies like these with China (or other BRIC) exposure is the way to play emerging markets.

    FWIW. :) Thanks for the interesting blog entry, btw.

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