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January 10, 2017

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Foreign banks to raise JV stakes

MORGAN Stanley and UBS Group AG are set to raise their stakes in separate Chinese securities joint ventures to 49 percent, people with direct knowledge of the moves said, betting on strong deals pace in the world’s second-largest economy.

China allowed foreign banks to boost holdings in securities joint ventures to a maximum 49 percent in 2012 from the previous cap of a third to help modernize its capital markets.

However, foreign investment banks did not raise their stakes as most of the securities joint ventures in China were small or struggling to break even due to sluggish onshore deals.

But the prospect of China soon allowing global banks to own majority stakes in securities joint ventures and growing volumes of equity issuance and trading businesses have pushed some foreign banks to explore raising their holdings.

“The China securities market is ripe for growth, and foreign investment banks will look to put more money there when it comes to boosting revenue. It’s a long-term bet,” said Benjamin Quinlan, CEO of consultancy Quinlan & Associates.

Morgan Stanley and its Chinese partner, Huaxin Securities, have agreed to a proposal to raise the US investment bank’s stake in their joint venture to 49 percent from 33.3 percent, two people with knowledge of the plan said.

This is awaiting approval from the Chinese securities regulator, one of them said.

UBS, which registered its Chinese securities joint venture in 2006, is in talks to hike its stake in UBS Securities to 49 percent from 25 percent, two separate sources said.

One of the sources said UBS expected the process to be completed later this year.

All the sources declined to be named as the details of the plans were not public yet. A Morgan Stanley spokesman declined to comment.

UBS China Country Head and President Eugene Qian confirmed the bank was working to raise its stake in its Chinese securities joint venture, subject to regulatory approval.

“If we can make a significant increase in the percentage stake we hold, it will result in more attributable revenue and earnings to the group,” Qian said, without elaborating.

Morgan Stanley Huaxin Securities’ offering includes underwriting and sponsoring of stocks and bonds. UBS China securities joint venture businesses include fixed income, equity underwriting and financial advisory.

Morgan Stanley China securities joint venture posted a net profit of 30 million yuan (US$4.3 million) in 2015, data on the website of the Securities Association of China show, compared with a loss of 470,000 yuan in 2014.

The net profit at UBS China securities joint venture in 2015 was 296 million yuan, versus 118 million yuan a year ago.

The foreign banks’ bigger push in China comes at a time when a pickup in onshore equity and bond issuance is helping the country’s home-grown investment banks to grab a bigger share of the fee pool.


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