JPMorgan JPM and Nomura Holdings Inc. NMR have received regulatory nod for setting up brokerage joint ventures (JVs) in China. The Chinese regulator — the China Securities Regulatory Commission (“CSRC”) — took this decision in order to further widen foreign firms’ access to financial markets.
Both JPMorgan and Nomura had applied to set up majority-owned JVs last year.
Notably, in December 2018, UBS Group UBS became the first foreign bank to receive consent from the regulator since the rules on foreign investment in brokerages were announced in 2017.
Indicating its readiness to allow greater access to global banks into the country’s financial markets, CSRC allows foreign companies to increase majority stake to 51% in securities JVs, up from the prior ceiling of 49%. Regarding this, the regulator provided detailed guidelines and mandatory experience for foreign shareholders along with the scale of businesses that can be recognized.
How Will the JVs Work?
Notably, both JPMorgan and Nomura don’t have a mainland JV, and hence will be required to start the business from scratch. JPMorgan, which had a 33% ownership stake in a Chinese JV, sold the same in 2016 owing to limited revenue contribution and lack of control over operations.
Now, following the current approval, JPMorgan will be able to offer a complete set of financial services and solutions to its clients, strengthening its Chinese business. The company’s Asia Pacific Chairman and CEO Nicolas Aguzin said, “It's a critical component of our growth plans globally as well as in Asia Pacific and the progress and investments we continue to make reflect our long-term commitment to bringing the full force of our firm to the country.”
Per sources, JPMorgan will likely set up its majority-controlled JV with Shanghai Waigaoqiao Free Trade Zone Group and four other investment firms.
On the other hand, Nomura will initially be offering wealth management services and gradually expand offerings with an aim to grow“the business into a full-fledged brokerage”.The company plans to form JVs with state-owned firms Shanghai Orient International and Shanghai Huangpu Investment.
Nomura CEO Koji Nagai said, “With an increased presence in China, we aim to support economic growth in both China and Japan and firmly establish ourselves as a global financial services group with deep roots in Asia.”
Other Foreign Firms in the Fray
Morgan Stanley MS, Credit Suisse CS and Goldman Sachs GS are among the other brokerage firms that are likely to acquire majority stake in their respective Chinese JVs.Also, Japan-based Daiwa and Australian firm Macquarie are seeking nod for majority owned securities JVs.
In 2017, a 51%-owned securities joint venture was initiated in China by HSBC Holdings HSBC, under rules permitting special rights to Hong Kong-based firms.
Global investment banks’ expansion has been limited in China for the past few years due to restrictions imposed on ownerships. This resulted in difficulties for firms in incorporating JVs with global operations.
With the easing of regulations for global banks and a growing Chinese economy, several foreign banks are expected to expand their presence in the region. Also, the country has taken steps to relax regulations related to foreign ownership in life insurance and asset-management JVs.
Of the companies mentioned above, JPMorgan, Goldman Sachs and Nomura currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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