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Morgan Stanley, Goldman Get Nod for Majority Stakes in China JV

Zacks Equity Research
·3 min read
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Two major global investment banks — Goldman Sachs GS and Morgan Stanley MS — have received nod from the China Securities Regulatory Commission to increase stake in their mainland securities joint ventures (JVs) to 51%. Both the companies had filed for approval of majority interest in their JVs last year.

Morgan Stanley’s JV — Morgan Stanley Huaxin Securities — offers investment banking services and proprietary trading of bonds. The JV, formed in 2011, is based in Shanghai. The company will increase its stake to 51% from the present level of 49%.

Goldman will be raising its stake in Goldman Sachs Gao Hua Securities to 51% from 33% at present. The company, which controls day-to-day operations of the JV, had set up with Beijing Gao Hua Securities in 2004. The JV provides investment banking services including equities and bond underwriting, as well as M&A advisory.

Also, Todd Leland, co-president of Goldman for Asia-Pacific, excluding Japan, said “We will be seeking to move towards 100 per cent ownership at the earliest opportunity.” Early this year, the company had announced plans to double its workforce in China over the next five years.

Amid coronavirus-related economic slowdown, approvals of these two applications can be attributed to China’s continued efforts to open financial markets. The country has been opening up financial markets since 2018.

Swiss major UBS Group AG was the first foreign bank to get approval of majority stake in the China securities business under the new rules, while Japanese brokerage house Nomura Holdings and JPMorgan JPM got approval last year. Additionally, JPMorgan intends to get approval for full ownership of all mainland China operations by next year. Another major global bank, Credit Suisse is still awaiting approval for increasing stake in securities JV. Major U.S. bank, Citigroup C is planning to establish a majority-owned securities JV.

Thus, once foreign banks are allowed to conduct business in China without any restrictions, these banks can expand geographically, which will boost revenues and market shares. Also, as the current global operating backdrop looks challenging, global diversification is likely to further support their financials.

Both Morgan Stanley and Goldman 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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