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BANK OF CHINA AND LA COMPAGNIE FINANCI?RE EDMOND DE ROTHSCHILD SIGN STRATEGIC INVESTMENT AND BUSINESS COOPERATION AGREEMENT


2008-09-18

Bank of China (“BOC”) and La Compagnie Financière Edmond de Rothschild (“LCFR”) have signed a long-term strategic investment and business cooperation agreement covering private banking and asset management businesses in their respective domestic markets and other strategic geographies. Pursuant to the agreement, BOC will acquire a 20% stake in LCFR. After this investment, the controlling shareholder, Benjamin de Rothschild, will hold 74.19% of LCFR, and BOC will become the second largest shareholder. This is the first strategic investment by a leading Chinese bank in a Eurozone bank.

· The objective of this strategic agreement is to leverage both parties’ strengths and well established franchises in their respective markets;

· BOC intends to strengthen its international presence, notably in Europe, and further develop its asset management and private banking businesses by leveraging the strong specialist knowledge and product design expertise of the Edmond de Rothschild Group;

· Capitalizing on 10 years of double digit growth and excellent 2007 results, LCFR aims to accelerate its international development, notably in China, by leveraging the extensive distribution capabilities and substantial customer base of BOC, the 5th largest bank in the world(In terms of market capitalization as end of 2007);

Mr. Xiao Gang, Chairman of BOC, stated: “We believe this transaction and our future cooperation with LCFR will bring great value to both parties by leveraging each other’s capabilities in product design and distribution. This partnership forms part of Bank of China’s global development strategy. We expect to further strengthen our asset management operations and product design capabilities in private banking business, and widen the product and service offerings to our clients.”

Mr. Benjamin de Rothschild, Chairman of the Supervisory Board of LCFR, commented: “I am delighted to welcome this new shareholder. This agreement opens up a new era of development for La Compagnie Financière Edmond de Rothschild in the tradition of innovation and international expansion of our group”.

Mr. Michel Cicurel, CEO of LCFR, announced: “It is a strategic partnership with the best international bank in the best country of the emerging world. We are convinced that the complementarities offered by both companies will lead to a fruitful partnership that will be highly beneficial to both parties. The fact that one of the greatest banks in the world has chosen us as its favored partner demonstrates the validity of our business model as evidenced by the quality of our results and the strength of our balance sheet.”

Investment agreement

To underpin this long-term partnership, BOC will acquire a 20% stake in LCFR for ?236.3 million (RMB 2.3 Billion) through the acquisition of existing shares (approximately 10% of LCFR’s capital) combined with the subscription of newly issued shares. Benjamin de Rothschild will retain 74.19% of the capital of this family business, BOC holding 20% and the remaining stake being held by the management team and employees. BOC, LCFR and Compagnie Financière Saint-Honoré, the French parent company of Benjamin de Rothschild, have entered into an investment agreement that will provide BOC with appropriate corporate governance rights. In particular, BOC will be entitled to appoint two representatives to LCFR’s Supervisory Board. Completion of the investment is conditional on the parties obtaining the relevant regulatory approvals.

Business Cooperation

The objective of the cooperation agreement is to deliver benefit to both BOC and LCFR. It will focus on product development, structuring and distribution, technology and knowledge transfer, and personnel exchange. Both partners will cooperate in the following business areas:

· Asset management: LCFR and BOC will leverage each others’ strengths for the development and distribution of investment products in China and France in areas such as QDII and QFII products.  The partners will also work together on asset management opportunities in selected regions outside China and France, and on potential joint investments in private equity globally.

· Private banking: BOC and LCFR intend to implement in particular a B-to-B-to-C model to further strengthen BOC’s domestic private banking business, and leverage LCFR’s capability to manage High Net Worth Individual’s assets, its knowledge in investment strategy and advisory services for family controlled SMEs and family offices. LCFR will provide selected products according to the customers’ needs of BOC’s global branches and distribute such products via BOC’s international networks. The parties envisage personnel exchange to ensure the efficient implementation of knowledge transfer and business cooperation. The partners may also jointly develop private banking business initiatives in selected markets.

The cooperation agreement will create a unique opportunity for both companies to strengthen their positioning in some of the most attractive sectors in the financial services industry. Appropriate governance including a Strategic Steering Committee and a Cooperation Coordination Office will be created to support the successful implementation of the cooperation agreement.

Going from strength to strength

China represents a strong opportunity for private banking: according to the World Wealth Report 2008, China experienced the second largest increase of its HNWI population in the world, advancing 20.3% in 2007. With the rapidly growing global demand for wealth management services, private banking and asset management are becoming increasingly important parts of the Chinese financial services industry.

BOC has become a major international financial institution with a vast global distribution network and strong customer base. Besides its leading position in traditional banking businesses, BOC is also a market leader in private banking businesses in China, with a high end customer focus and the most internationalized Chinese bank,

BOC has been selectively seeking long-term strategic partnership opportunities with offshore industry leaders to further enhance BOC’s global presence and strength its product capabilities.

Heir to 250 years of the Rothschild family’s banking tradition, LCFR fulfils BOC’s strategic objectives with its unique experience as a niche player in private banking and asset management, and particularly, with its capabilities in product development and innovation. In recent years, LCFR has received several awards as a result of its brand name, historical commitment to excellence and performance, reputation in France and Europe, and expertise in product innovation.

LCFR has been present in China for several years. The opening of a representative office in Shanghai, the creation of an asset management subsidiary in Hong Kong and the granting of the QFII licence have all demonstrated LCFR’s commitment to China and Asia. The strategic partnership with BOC will significantly boost its brand and presence in the local Chinese market by leveraging BOC’s broad distribution network and strong customer base. This partnership and the planned cooperation will also enhance LCFR’s global footprint in the long run.

BOC was advised by Bank of China International (BOCI), Morgan Stanley and Allen & Overy, and LCFR, by Goldman Sachs, Société Générale and Freshfields.

Backgrouds
About La Compagnie Financière Edmond de Rothschild

Created in 1953 by Edmond de Rothschild and now owned in majority by his son, Benjamin de Rothschild, LCFR is part of the LCF Rothschild Group controlled by Benjamin de Rothschild. The LCF Rothschild group is a major player in Europe in asset management and private banking, and is present on the principal international financial centers with 2,500 employees, more than 250 portfolio managers (institutional and private) and 30 subsidiaries throughout the world. As of December 31, 2007, assets under the LCF Rothschild Group’s management and administration amounted to nearly ?100 billion.

As the French branch of the LCF Rothschild Group, LCFR is a major player in France in asset management and private banking. With a unique name and, heir to 250 years of the Rothschild family’s banking tradition, LCFR has conducted its various activities in keeping with its values of excellence, creativity, discretion, and discipline, which are the foundations of its reputation.

LCFR’s businesses are organized around two pivotal strategic businesses to which is added proprietary trading, advising companies, and offering support functions:

-Asset management is performed on behalf of institutional and private clients. LCFR’s services cover all classes of assets, from equity and fixed income management to specialized management, such as structured management, multi-management (including long-only multi-management and alternative multi-management), hedge fund management, quantitative management or private equity fund management.

-Private banking provides services including portfolio and wealth management, financial planning and engineering, as well as advisory services for family entrepreneurs.

As of December 31, 2007, LCFR had 816 employees, including 741 in France and 75 abroad. With an average annual growth of nearly 20% per year since 1998 of its assets under management, and net inflows amounting to ?2.66 billion in 2007, LCFR total assets under management reached ?29.62 billion as of December 31, 2007.

About Bank of China

Bank of China (BOC) is one of the major financial service providers in China. It provides a comprehensive range of high-quality financial services to individual and corporate customers worldwide covering commercial banking, investment banking and insurance. BOC’s core business is commercial banking which includes corporate banking, personal banking and financial markets. As of Dec 31 2007, BOC’s total assets reached RMB 5,991Bn, total loans RMB 2,754Bn, and total customer deposit RMB 4,400Bn (IFRS) with 10,834 branches and outlets worldwide, of which 10,145 branches and outlets are in Chinese mainland.

With a history of almost a hundred years in the financial industry of China, BOC is well-known for its continuous business innovation while emphasizing prudence in its operations. It is widely recognized and commended by its peers and customers in corporate banking, international settlement, foreign exchange, trade finance, and private banking etc.

BOC is also the most internationalized bank in China. It is at the forefront of recruitment of international experts and has pioneered the introduction of modern business management concepts into its operations with a view to becoming a premier international bank. Outside of China, BOC has an extensive international network of 689 institutions and over 22,000 employees in Hong Kong, Macau and 26 other foreign countries at the end of 2007. It was ranked 9th among the world’s top 1,000 banks in terms of tier one capital by The Banker magazine in 2007.

BOC’s H Shares are listed on the Hong Kong Stock Exchange (stock code: 3988) and its A Shares are listed on the Shanghai Stock Exchange (stock code: 601988). It has been a constituent of the Hang Seng Index in Hong Kong since December 2006.

In recent years, BOC has experienced robust growth, From the period of 2004 – 2007, its net profits increased from RMB 27.1 billion to 62.0 billion, representing a CAGR of 32%; its ROE has gone up from 11.22% to 14.00%, representing an uplift of 2.78%; net profits per employee have grown from RMB 113,400 to 261,300, representing a CAGR of 32%; earnings per share have increased from RMB 0.12 to 0.22, representing a CAGR of 22%; net assets per share have grown from RMB 1.08 to 1.66, representing a growth rate of 53.70%.

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