Euromoney, February 1 2019
The pieces are starting to shift on the board of Chinese investment banking. There have been signs of progress, frustration and new strategy since last April’s announcement that foreigners would be allowed to take majority stakes in securities joint ventures on the mainland.
After years of speculation, disappointment and frustration, foreign investment banks are finally in a position to make decisive moves in their onshore China businesses.
On Christmas Eve, 2018, UBS completed a transaction to lift its stake in UBS Securities from 24.99% to 51%, becoming the first foreign bank to gain majority control of a securities joint venture in China.
(HSBC Qianhai Securities, which is up and running near Shenzhen, is seen as a special case, having been granted its licence under the Closer Economic Partnership Arrangement rules governing free trade between China and Hong Kong, where HSBC is largely funded. Bank of East Asia’s partnership, East Asia Qianhai Securities, falls under the same rules.)
Also in December, Citi told its own partner in China, Orient Securities, that it intended to sell all of its shareholding in their joint venture, Citi Orient Securities. It will instead seek a new partner for a majority-owned securities JV.
Others are working their way through the regulatory process. Nomura and JPMorgan applied for approval for new ventures within days of UBS doing so in May 2018; JPMorgan had already exited a previous joint venture in expectation of the change of regulation. Morgan Stanley and Credit Suisse are on the way to gaining majority control of their ventures.
Goldman Sachs, like UBS, was allowed to build something distinctive and experimental ahead of the formal JV rules being announced in 2007. It now faces the most complicated bureaucratic task of any of the banks in getting to a simple majority-owned JV structure and may yet wait until it can own all of it before proceeding.
Meanwhile some new entrants who never previously had JVs, such as Macquarie, are rumoured to be trying to set up their own ventures.
HSBC and CLSA/Citic Securities aside – UBS is the one that has stolen a march. UBS was always distinct in its China investment, holding a stake in a domestic securities firm rather than a formal joint venture like those that followed, and its attainment of a majority position follows 14 years of history.