ICBC Vs CityBank

 This article was first published on fisical version A1 ,ShangHai Securites News,March 23,2009

 A lot of things that unimaginable was happened during fiscal tsunami,I counted the day when share price of CityBank declined to less than $1 with the whole market value less than 6 billion dollars,about 40 billion RMB,that the value of ICBC worth more than 30 times of Citybank's.Now price of CityBank bound to more than $3 a share,the total market value of ICBC is still more than 10 times of CityBank's value

It's not just comprison of two banks,but of two finiancial industry business models:one is head of the past,the other is head of today;one represent model of modern financial supermarket,one represent the traditional deposit and lending business model.Traditional deposit and lending model concentrated on currency liqidity,operating interest rates of deposit and lending which is also called net interest margin,providing luqidity for real economy,so it is liquidity of interest rates that lead to liquidity of goods.Modern financial supermarket was focused on design and produce of financial products,then to sale,which created various of financial products,improved liquidity of financial assets.Today we stand on financial tsunami ruins to assess business models of two,does it means that financial industry's effort on products innovation was in the wrong direction?If it's ture,difference between ICBC and CityBank is the same as it  between turtle and rabbit during competition, the result of the race is the prudent and conservative turtle defeat the over-smart rabbit.

Federal reserve chairman Ben Bernanke had predicted recently that the economic decline would reach on the bottom by the end of this year,he said,things would not happen as closure or nationalization  of big banks which is one of the reasons that share price of CityBank bound from the bottom.But CityBank is certainly not the former one,although it had escaped from this disaster,which showed us that modern financial supermarket model would stay in the history,and be a lesson of history.What should we learn form the rise and fall of CityBank

First of all,it's not the direction of financial innovation but the use of financial leverage which have been out of our control of risk wrong.Greenspan have said recently,the over-confidence of internal risk control was got from Markowiz'theory,who is father of modern investment study,Markowiz won Nobel prize by his porfolio theory,which breakthrough bottleneck of financial risk management in theory.But now,process of financial tsunami outbreak proved that at least in today's risk management pracitse that problems as out control of risk which resulted from over-high financial leverage have not realy resolved.

Secondly,virtual economy can't be completely divorcied from real economy.Finance is fianancial leverage that work for real economy,effect of financial leverage can only be enlarged by Fulcrum which provided by real economy,once the flucrum shaked,the fianancial leverage effect will disappeared,or even translated into forces that can destroy fianancial industry and real economy.At this circumstance,fiscal risk management will lost its affect no matter how rigorous it is 

The third,so-called One-Stop fiscal service is an ideal prosperctive that easy to say but hard to approach.Umbrella which sybolized CityBank had once  represented dreams of a generation,it seems to be the best financial supermarket to provide all kinds of service under this unbrella.But as One-Stop fiscal service can almost surely leat to monopolies in the market by several fiancial giants,especially in the market of financial management as fiscal products design become more and more complicated,fianancial giants' brand effectiveness garadually replaced strict financial supervision and serious products identification,as customers can't understand this products,they are acctually pick brand and buy commitments.Finally on shelves in financial supermarket,stands various fiscal trashes with well-known brands,Lemon's toxic mini bond is a lively example.Flatters among fiancial giants and self-assessments not only covered high risks during fiscal trade,but also flooded financiers' innovative spirit,financial products changed in to promises without priciples or big brands'marketing

CityBank survived from this deathful fianancial tsunami,a story of an industry giant's rise and fall was left behind ,it's a good thing for future financial industry development in China.For the reason that we have learn not to blindly worship famous enterpises and realized mistakes make by older generations,hence gained experience in fiscal innovation

To analyze from the present economic situation,if CityBank's alive from death could be seen as one of the lankmark cases which showed bottom of the economic recession,it is getting warm in the cold winter of 2009.China's economic recovery is going to happen as if American economic recession would ended in this year.Reasons as following:chinese economy system haven't been attacked as ICBC worth several times' more than CityBank is an obviously evidence;what's more,there still place for macro-control ,the present policy is constitued of expansionary fiscal and accomodatively monetary,which means we could change from now one expansionary with the other accomodatively to both expansionary;thirdly,Purchasing Manager Index have rised successively the third month,now is above 0.5,which means producers' confidence is recovering;forthly,both stock market and real estate market is recovering,there is a marked increase in trading volume and price begin to bound from the bottom,note also restore of consurmers' confidence;the fifth,decline of international energy and bulk ray materials lead to significant decline in raw material prices for manufacturing in China,it's crucial for excess capability to transform from export to domestic which is drived by expanding domestic demand policy.

Lots of signs have showed that cyclical economic crisis is approach the bottom,sudden economic resscession have ended,if there aren't accidents like regional war happening,China will lead the other countries to recovery during the process of global economic recession to detect the bottom,and stock market shocks will also advanced to the bottom ahead of time at the beginning of next year 

March 22,2009.ShenZhen