NEW YORK ( TheStreet) -- A proposed deal by Industrial & Commercial Bank of China (ICBC) to buy Bank of East Asia's U.S. subsidiary could be the first of many cross border retail bank transactions between the U.S. and China, though some believe big hurdles remain.

The deal is worth just $140 million, but it would represent the first acquisition by a mainland Chinese bank of a U.S. bank since 1991, when Congress passed legislation that places tougher restrictions on regulation of foreign banks operating in the U.S., according to a memo from Wachtell, Lipton, Rosen & Katz.

Chinese banks have long sought to acquire a U.S. bank, but U.S. regulators have stood in the way because to approve foreign institutions as buyers of U.S. banks the Federal Reserve must give official indication it has confidence in the home country regulator of the acquirer. Thus, once one deal has been approved, others should be "much less of an issue in subsequent acquisitions by the same bank or by other banks from that country," according to the Wachtell memo.

Wachtell believes the approval could take some time, but "given the larger political context and the events surrounding the announcement of the deal, it seems likely that the parties have vetted this transaction from all relevant angles," according to the memo. The "larger political context" refers to the fact that Chinese President Hu Jintao was visiting the U.S. at the time and, as The Wall Street Journal put it in its Jan. 22 story breaking the news of the deal, both Beijing and Washington are calling for greater commercial ties between the two countries.

Ken Thomas, an economist and independent consultant who has worked with Chinese banks looking to make U.S. acquisitions, expects institutions that cater to a Chinese-American clientele will be next on the list.

East West Bancorp ( EWBC) and Cathay General Bancorp ( CATY) are the largest U.S.-listed banks serving a mostly Chinese-American clientele, though there are others, including Preferred Bank ( PFBC) in Los Angeles and MetroCorp Bancshares ( MCBI).

Executives from these banks did not return calls.

Even if Chinese banks were to buy up all of these companies, however, it would just be a drop in the bucket in terms of Chinese ambitions in U.S. financial services.

"The acquisition of foreign companies by Chinese companies will be significantly larger than anybody dreams. Every single day Chinese business executives call me about acquisitions they are looking to make in the U.S. and Europe," Guerilla Capital's Peter Siris said during a panel discussion this week at the Bloomberg China Investment Strategies conference.

For the time being, however, a couple of small deals would represent a huge step forward in a short period of time. As recently as 2009, U.S. regulators rejected a bid by China's Minsheng bank for UCBH, which would have made the Treasury whole on its loan through the Troubled Asset Relief Program. Instead, regulators ended up seizing the bank and selling it to East West Bancorp on much worse terms . The U.S. Treasury lost the TARP investment and the Federal Deposit Insurance Corp. had to backstop $1.4 billion in losses.

Thomas says he made repeated Freedom of Information Act requests from U.S. regulators but couldn't get an explanation for why Minsheng's offer was rejected.

"What would be the danger of letting a Chinese bank own a Chinese American bank in Chinatown? What? Are they going to steal pebbles from the bank lobby?"

In the wake of the Chinese President's visit, however, Thomas says the Fed and the Obama Administration appear to have "made a u-turn" on this policy.

Acquisitions of U.S.-based banks serving Chinese Americans would be a logical next step from an ICBC purchase of the U.S. branch of the Bank of East Asia, which is headquartered in Hong Kong.

"Even picking up a large bank in the U.S. focused on that Chinese American niche isn't going to be that meaningful in terms of the scale but it would certainly open up a different kind of cross border relationship and open with it all kinds of good banking opportunities," says Aaron James Deer, an analyst with Sandler O'Neill.

It should also open up opportunities for U.S. banks looking to expand in China, according to James Bacchus, a chair in the global practice group at Greenberg Traurig and another speaker at the Bloomberg Conference.

Bacchus stressed the importance of the U.S. government exacting concessions from the Chinese in exchange for allowing more acquisitions by Chinese companies here. That means not only easing rules on foreign investment, but improving China's human rights record and addressing its near monopoly over rare earth elements.

"It needs to be a two-way street," Bacchus said.
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