Wall Street’s quest for China supremacy takes political turn

Bloomberg

International politics are looming large over the race among global investment banks to secure coveted permits for taking majority stakes in Chinese securities joint ventures.
Switzerland’s UBS Group AG and Nomura Holdings Inc. of Japan in the past week became the first to apply for permission to buy 51 percent stakes in local securities JVs. Both banks acted after China’s securities regulator encouraged them to quickly submit applications, people with knowledge of the matter said.
It wasn’t a coincidence that US banks such as Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley weren’t likewise asked to seek approval, three of the people said. Amid escalating tensions with President Donald Trump’s administration over trade and investments, Beijing wanted to signal that getting majority control over local JVs — something Wall Street has desired for years — could take longer for US firms, according to these people.
The securities regulator’s stance illustrates how US companies could be left at a disadvantage, at least in the short term, as President Xi Jinping opens big parts of China’s $12.7 trillion economy further to foreign firms. China has warned in negotiations with Trump’s team that its opening measures won’t be applicable to American investors if the US doesn’t meet Beijing’s request for equal treatment of Chinese investment.

DIMON’S HOPES
UBS has been a minority owner in its JV for more than a decade; Nomura, which announced its application, doesn’t have a local partner. Representatives for the two banks declined to comment, while the China Securities Regulatory Commission didn’t immediately respond to a fax seeking comment.
At least one top Wall Street leader has recently expressed hope that his China plans won’t fall victim to trade friction. JPMorgan Chief Executive Officer Jamie Dimon said in an interview he hopes there won’t be a trade war and — if there is one — “hopefully it doesn’t affect JPMorgan.”
Dimon reiterated that JPMorgan, which more than a year ago sold its minority stake in a local JV, one day wants a wholly-owned onshore securities business. Morgan Stanley and Goldman Sachs are also pursuing majority control of their China JVs.

WALL STREET FRUSTRATED
Rules that limited foreign players to being minority owners have long frustrated global investment banks because they prevented them from running the business unfettered by local partners who may have differing objectives. But just as China began laying the groundwork for easing restrictions, the Trump administration started cracking down on Chinese imports as well as technology investments by Chinese companies.
Despite the short-term turbulence, US firms aren’t likely to face a significant disadvantage in gaining access to China’s securities markets, according to Hubert Tse, a Shanghai-based partner at Chinese law firm Boss & Young, which has been advising foreign companies on their local joint ventures since 2005.
“The opening will be applied to all qualified foreign players in the long term and this direction won’t change,” Tse said. “But in the short term, various factors may come into play, including political ones.”

China Merchants Bank faces suit over discrimination
Bloomberg

China Merchants Bank Co. was accused of discriminating against African-Americans in a lawsuit filed on behalf of a former executive who claims she was fired for blowing the whistle on its conduct. The Shenzhen, China-based firm’s former head of US corporate banking, Xin Wang, said that she was dismissed after more than eight years for making complaints about discriminatory conduct towards the black community, according to a lawsuit filed in New York federal court.
Wang says she first brought the issue to the attention of management in April 2017 when Morgan Stanley sought more than $26 million in financing from the bank for a $105 million syndicated real estate loan to finance a project in Harlem. The bank approved only $10 million, based on an opinion by its head of risk management that the project’s deficiencies include the neighborhood in which it was located — “where the African population is more concentrated,” according to the suit.
“While there is no place in society for racist stereotypes and discrimination, this is particularly the case for financial institutions that hold access to capital, growth and development,” David E. Gottlieb, an attorney for Wang, said in a statement. “China Merchants Bank’s blatant discrimination and then retaliation against Ms. Wang when she raised complaints about this conduct is simply reprehensible.”