BUY UCBH @ 1.24. Best Idea – Add to position on valuation. – -2009-Oct-07 11:47:21:  Two years ago China’s Minsheng Bank blazed a trail by spending about $100m on 5 per cent of San Francisco-based UCBH – the first Chinese minority investment into a US bank. Now, having doubled its stake last December, Minsheng is reported to be considering boosting its holding to at least 50 per cent. This is a smart move, for two reasons. UCBH, the fourth-largest bank based in California, is a troubled asset relief programme beneficiary and under pressure to bolster capital. Chinese companies in various industries have crow-barred their way into overseas cash flows by assisting distressed asset-holders. There is no reason why financial services should sit this out.

Meanwhile, diversifying revenues away from China makes sense – not just for Beijing-based Minsheng, China’s eighth-largest bank by assets. At ICBC, the nation’s number one – currently preparing to relieve the Thai government of a stake in the country’s ACL Bank – income streams from Indonesia, Macau, South Africa and Canada provided just under 2 per cent of operating income last year.

But it won’t be easy. As a privately owned bank with three-quarters of its listed shares floated, Minsheng should not ruffle as many regulatory feathers as, say, state-owned ICBC, where 6 per cent of shares are floated. Minsheng already has a seat on the UCBH board, and an option to raise its stake to about 20 per cent. But minority investment is one thing; control another. The last time a Chinese bidder came knocking for a Californian asset – Unocal of El Segundo, pursued by Cnooc four years ago – a political storm erupted.

Assuming Minsheng can amass funds to improve its own sub-par capital position – listing shares in Hong Kong looks the simplest route – a move on UCBH should provide an excellent test case of just how far American attitudes to direct Chinese investment have softened.