Morgan Stanley, Goldman win China nod to control ventures

Bloomberg

Morgan Stanley and Goldman Sachs Group Inc. were granted approvals to take control of their securities joint ventures in China as policy makers push ahead with the opening of the nation’s $45 trillion finance industry even as they fight to contain the coronavirus outbreak.
Morgan Stanley plans to boost its stake to 51% from 49% with the approval from the China Securities Regulatory Commission, the New York-based bank said in a statement. Goldman said it also won approval to control its partnership, lifting the stake from 33%.
The move comes as China pledges to further open its investment banking and asset management industries on April 1 by allowing foreign banks to apply for full ownership of their partnerships, or start their own ventures. Global banks are rushing in to capture an estimated $9 billion in annual profits in commercial and investment banking alone. China has also swung the door open wider for insurers.
“Good news for foreign capital under the virus situation with lots of uncertainties and prospects of global recessionary economic situations, where China assets and interest rates could be relatively attractive,” said Lou Jian, Shanghai-based partner at consulting firm Roland Berger. “It shows China’s commitment to openness in capital markets and foreign participation.”
The finance industry opening, which was sped up in the January trade deal with the US, is designed to draw in foreign investment to support economic growth. The world’s second-largest economy is now in the midst of what could be the slowest expansion in more than four decades as large parts were shuttered because of the virus outbreak that’s now spreading around the world.
Goldman Sachs has said it will seek full ownership of its joint venture, going beyond the 51% controlling stake for which it filed for approval last August. The New York-based bank is embarking on a five-year expansion plan that includes doubling its workforce in the country to 600, ramping up businesses including asset and wealth management.
“We will be seeking to move towards 100% ownership at the earliest opportunity,” Todd Leland, co-president of Asia Pacific ex-Japan, said in the statement.
UBS Group AG , JPMorgan Chase & Co. and Nomura Holdings Inc. have already taken majority control of their local joint ventures. JPMorgan Securities (China) Co., in which the US bank holds a 51% stake, has opened and started brokerage, investment advisory and underwriting businesses earlier this month, according to an emailed statement.
Even with the massive potential of the Chinese market, foreign firms face a bevy of hurdles to win market share. China is home to the world’s four largest banks by assets, the biggest global fintech company and other formidable competitors. Its tightly-controlled system is opaque and arbitrary when it comes to licenses, and the regulatory burden is heavy. Recruiting talent has already proved tricky with experienced local executives often preferring state-backed companies.