By Wang Xinyuan

United Commercial Bank's (UCB) closure had limited impact on Minsheng Bank's operations and profits, but it should keep domestic financial institutions on their toes when investing overseas, an analyst said.

China Minsheng Banking Corporation, the eighth largest bank by asset value among the 14 domestically-listed banks, spent a total of 887 million yuan ($130 million) in two installments for a stake of about 9.9 percent in United Commercial Bank Holdings (UCBH), UCB's holding company, in October 2007 and December 2008 respectively, according to Minsheng's statements.

On November 6, California-based UCB was shut down by the California Department of Financial Institutions and taken over by East West Bank.

Minsheng said Tuesday that it had already prepared loss provisions worth 824 million yuan ($120.6 million) related to its investment in UCBH.

Because of adequate provisions, the closure of UCB should not have a major impact on Minsheng's operation and profits, according to the bank's statement filed Tuesday with the Shanghai Stock Exchange (SSE).

To cover the losses, Minsheng needs to set aside 63 million yuan ($9.22 million) more this year, which is little compared to its expected profit, said Yang Sen, a leading financial analyst at Xiangcai Securities.

Minsheng had a net profit of 10.2 billion yuan ($1.5 billion) in the first three quarters, up 18.11 percent year-on-year. "The net profit is estimated to reach 12.9 billion yuan ($1.9 billion) by the end of the year," Yang said.

The bank had a roadshow Monday for its initial public offering (IPO) in Hong Kong at the end of this month, the first of its kind for a joint-stock commercial bank on the Hong Kong exchange.

Its IPO is expected to be the largest in Hong Kong this year with funds raised expected to be between HK$28.23 billion ($3.64 billion) and HK$31.56 billion ($4.07 billion).

A successful IPO will allow the bank to extend more loans and clear the way for future business expansion, said a report from BOCOM International.

Minsheng is not the only Chinese bank that has acquired assets outside of the Chinese mainland.

China Merchants Bank (CMB), the nation's fifth largest bank, paid a total of HK$36.3 billion ($4.7 billion) to acquire 100 percent of Hong Kong-based Wing Lung Bank's equity earlier this year.

China CITIC Bank Corporation also acquired a 70.32 percent stake in CITIC International Financial Holdings, a Hong Kong-based financial flagship of the industrial conglomerate CITIC Group, from British Virgin Islands-registered Gloryshare Investments last month.

"The acquired targets of CMB and CITIC Bank were firms within Greater China that are relatively easier to acquire without involving too much risk," Yang of Xiangcai Securities said.

However, since Minsheng's target assets were headquartered in the US, there are many more factors to consider. The failure of the investment in UCBH reveals that Minsheng had not conducted sufficient research beforehand, Yang said.

Domestic financial institutions should be cautious toward overseas investment and acquisition because there could be debt related to financial institutions that may not subject to disclosure, said Frank Song, director of the Center for China Financial Research at Hong Kong University.

"Investing overseas is the right move for Chinese financial institutions. However, they should be very careful to do thorough research to be aware of any risks," Yang said.

Minsheng's shares on the SSE closed at 8.01 yuan ($1.2) Wednesday, down 1.35 percent from the previous trading day.