IBM's Role in the Chinese Banking Sector

Citigroup’s (C) bid for China’s Guangdong Development Bank has taken an interesting turn: IBM (IBM) has reportedly joined the bidding process for a 5% stake in Citigroup’s venture to acquire the government-owned Chinese bank. Citigroup is seeking to get a combined 85% with its whole group of bidders for what has been noted as some $3 Billion. This would not have been possible in months and years before because of foreign ownership restrictions, but the loosening of financial institution ownership from foreigners was one of the compromises that China had to make to joing the World Trade Organization.So what you have to wonder is just why an IT behemoth would want to own 5% of a Chinese public sector bank. You could draw the anaology that they are trying to conglomerize into more industries, or you can look at what it would gain. If you consider the IT business that is up for grabs in the Chinese and Southeast Asian banking sector it sort of takes a form that can be identified.IBM and S1 (SONE) have a seperate announcement this morning. The two are partnering to offer a “Branch in a Box” solution for banks. This will allow new banks to keep from having a dedicated PC for each employee and they can pare back to virtual PC’s per employee. If this can be determined to be strategic rather than just coincidental, then you begin to see what IBM is thinking. If it takes a stake in an ailing public-to-private bank, then maybe they can get a foothold for more and more banking IT contracts and even get this “Branch in a Box” rolled out in China.This looks like it is more of a strategic play for the IT-side of the business rather than anything sinister like IBM changing from International Business Machine to International Banking Monster. So for now, this looks like IBM is just trying to make a small investment to secure more of a foothold into larger banking and financial institution IT contracts in China and Southeast Asia.Jon C. OggNovember 13, 2006