China Merchants Bank (CMB), the nation's most profitable lender, has agreed to buy stakes in Wing Lung Bank in a deal that values the smaller lender at $4.66 billion, according to sources quoted by Reuters.

An agreement has been signed and it would be announced on Monday, sources said.

China Merchants Bank has agreed to pay HK$156 a share, or 2.9 times of Wing Lung's 2007 book value, for a 53 percent stake of the Wing Lung Bank. Bloomberg

The Shenzhen-based bank has agreed to pay HK$156 a share, or 2.9 times of Wing Lung's 2007 book value, for a 53 percent stake of the Hong Kong lender held by the controlling Wu family, according to the sources.

The deal, which some market watchers consider as expensive, will give China's sixth largest lender a presence in the city that has long been a stepping stone for mainland banks to further expand overseas.

Both Wing Lung and CMB suspended trading yesterday in the early morning, pending possible price-sensible information to be announced.

The price is also a 5.8 percent premium to Wing Lung's last traded price HK$147.40 on Thursday.

CMB beat out Australia and New Zealand Banking Corp and Industrial and Commercial Bank of China (ICBC), the country's largest lender in the race to acquire the city lender.

"The price is not cheap as there were various bidders. But the CMB is definitely not buying Wing Lung for its profitability," said Ronald Wan, a managing director at BOCOM International.

"Besides the network, I believe the deal will bring more intangible benefits to the bank that cannot be valuated," said Wan, adding that it can be a strategic move paving way to further tap into overseas market.

However, spokespersons for both Wing Lung and CMB were not available for a comment.

While the acquisition could be negative to CMB's near-term earnings and capital adequacy, market watchers believe that there will be synergies in the long term, providing the bank with a good platform for offshore wealth management, loan and bond businesses.

Yet, the real impact on CMB will depend on final structure and the implementation of the deal.

Under the Hong Kong's law, the buyer of the Wu family's stake must make a tender offer to remaining shareholders.

The deal is expected to trigger more bids for smaller banks including Wing Hung Bank, Dah Sing Bank and Chong Hing Bank and the final acquisition price is expected to be a reference for potential deals.

Large rivals such as China Construction Bank and ICBC have bought small Hong Kong banks in recent years.

Credit Suisse and UBS are advising Wing Lung's controlling shareholders while JPMorgan Chase is advising CMB.

Reuters contributed to the story.

(HK Edition 05/31/2008 page2)