CRI Talk China

US authorities blocked Chinese bank Minsheng from acquiring an American lender in a decision that may have cost almost $300m of taxpayers’ money and $1.4bn from an industry insurance fund, according to people familiar with the matter.

Minsheng, a private bank that is going through a market offering in Hong Kong, had applied to acquire United Commercial Bank, a San Francisco lender, but its application was not ruled upon before UCB was seized by the Federal Deposit Insurance Corporation.

“This may rank up there in the top 10 mistakes by the government in dealing with the financial crisis,” said Ken Thomas, an independent bank analyst and economist.

“I am really disappointed that any branch of our government . . . could step in and turn away an offer that would have reduced the cost to the taxpayers,” he said.

UCB, which was failing under a mountain of bad loans, was seized by the FDIC this month and its assets transferred to East West Bank. Both institutions are US-based and focus on the Chinese-American market.

The seizure will lead to the loss of the government’s $298.7m equity injection made under the troubled asset relief programme, which is supposed to be used only for healthy institutions. It will cost the FDIC’s insurance fund about $1.4bn.

Minsheng, which had invested $129m for a 9.9 per cent stake in UCBH Holdings, approached the board of directors with an acquisition offer, to protect its original investment and ramp up its presence in the US. The FDIC fund would have been spared the pay-out and the government’s Tarp investment may have been protected as well.

It was unclear whether the Fed had formally ruled against the move or declined to expedite the application. The US Treasury, the FDIC and the Fed declined to comment.

Applications for foreign banks to acquire US counterparts can take months to process with Fed officials studying whether the acquirer’s home country has sufficient “consolidated supervision”.

Minsheng and Chinese regulators were told that UCB was in such trouble that the US regulators had to act quickly to take control of the bank and the necessary approvals would take too much time to process. A senior Chinese official said this was “not a very convincing reason”.

”The dialogue over whether Minsheng was allowed to raise its stake in UCB was not so good but the [China Banking Regulatory Commission] didn’t make too much noise about it,” said the official.

Chinese regulators were upset that Minsheng had to post a loss of more than $120m but they and the FDIC trumpeted their co-operation in ensuring a smooth transition in protecting UCB’s Chinese subsidiary and transferring it smoothly to East West.