Box: Who’s next?

One of the more vibrant discussions in Chinese securities at the moment is: who’s next?

It has not escaped the attention of American banks that the three new licences, or variations in licence, since the end of the moratorium have all been for European banks: Credit Suisse, Deutsche, and CLSA (whose major shareholder is Credit Agricole).

It’s not for want of trying. US houses known to have either signed memoranda of understanding with local brokerages, or at the very least to have informal agreements in place, include Merrill Lynch (Huaan Securities), JP Morgan (Bohai Securities), Morgan Stanley (China Fortune Securities), and Citi (Central China Securities), as well as Australia’s Macquarie Bank with Hengtai Securities.

So what’s the delay with the Americans?

There are two theories. One, commonly talked about since the US election, is that this has to do with US-China relations at the highest level. Under this argument, approvals for US securities joint ventures in China are linked to broader bilateral issues: that China wants to see how relations develop under Obama, and that treasury secretary Tim Geithner may have dealt a blow to the process with his comments about China manipulating its currency.

“We were definitely surprised that Europe got two [excluding CLSA's expansion] before the US got another one but we felt that definitely had to do with relations at the strategic economic dialogue level not being as smooth as they could have been,” says one US banker. A Chinese banker in Beijing has reached a similar conclusion: “I think the government here has used it [SJV approvals] as a card to play with the US government,” he says.

One problem with this theory is that only one of the licences (Deutsche’s) has been awarded since Obama’s election; Credit Suisse’s and CLSA’s came under the previous administration, which makes a change of government or a vocal treasury secretary unlikely reasons for delay.

The other theory is that it has to do with the state of US institutions. While Deutsche and Credit Suisse have hardly emerged unscathed from the financial crisis, they certainly look in better shape than some of the names known to be in the queue, notably Citi, whose entire future as a private sector entity is under scrutiny, and Merrill Lynch, which no longer even exists in its own right (and whose new parent, Bank of America, is under similar pressures to Citi). Under this theory, China wants to be sure the institutions will survive, and survive without being taken over by the US state itself, before awarding a licence.

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