Bank of America Doesn't See Any Acquisitions; Both BoA and Wal-Mart to Offer Credit Cards in China

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U.S. Lender Details Expansion Plan and Wal-Mart Will Launch Its First China Credit Card

• Summary: Kenneth Lewis, Chairman and CEO of Bank of America, said his bank is eying expansion through credit cards and corporate banking in Asia and Europe instead of by acquisitions. BoA has maxed out growth via acquisition in the U.S. due to a regulatory limit of 10% of U.S. deposits. It has a small presence overseas compared to rival Citigroup. In China, BoA will use its almost 10% equity stake in China Construction Bank to enter a joint venture credit card agreement. Lewis comments, "Frankly, that's (the credit card JV) a long-term payback, because you don't have the same spending and borrowing in China as you do in the U.S., so it will take some time for the habits to change." Regarding Europe Lewis says, "We don't see a strategic imperative of being on the ground in Europe." Lewis wasn't very bullish about even being in Hong Kong or India either. In separate but related news on credit cards in China, Wal-Mart announced it will launch its first credit card in China in partnership with China's Bank of Communications. In fact, analysts say it is the first credit card issued in China by a foreign retailer. It's estimated that less than 5% of China's population has credit cards. Wal-Mart's card will be a regular credit card with special discounts when used in-store. It will be offered in conjunction with HSBC, which has a 20% stake in the Bank of Comm. The card will be "dual-currency" meaning it can be used overseas but analysts say releases of such cards to-date by foreign banks forming JVs in China have been unprofitable.
• Comment on related stocks/ETFs: Bank of America's (BOA) Lewis has been consistent with his comments regarding the bank's growth, noting early this year that acquisitions seemed unlikely in '06, especially considering the earlier MBNA deal. Jim Cramer recently gave BoA a bullish call on his Real Money Radio Recap, saying it was well-run. Shaun Rein of the China Market Research Group wrote last week about e-commerce in China including the increasing use of credit cards. His article is recommended reading if you want to try and make an investment play on credit cards in China. Separately, news earlier this month that China now has its first formal corporate-bankruptcy procedures helps reduce some of the risk of lending to corporate clients in China. It would be helpful to find out what type of personal bankruptcy laws exist and how that might someday impact new card issuers like BoA and Wal-Mart (WMT). A positive in this area is the often cited statistic of very high personal savings rates in China. See Wal-Mart's Q2 earnings conference call transcript. Learn how to invest in China's publicly traded banks (see Comment on related stocks/ETFs section).

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