UBS seeks joint venture majority after China securities reform

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Swiss bank UBS has become the first foreign firm to apply for a majority stake in a joint securities venture, following new reforms opening up China’s securities and finance sector.

The China Securities Regulatory Commission (CSRC) confirmed via its website that it is reviewing the application submitted by UBS, which is looking to up its stake in its joint venture, UBS Securities Co. Ltd., from 24.99 percent to 51 percent.

The reform, which was only confirmed via a newly announced regulation by the CSRC on April 28, raised the maximum shareholding ratio for foreign firms in joint securities ventures from 49 to 51 percent.

A statement released by the CSRC confirming UBS’ application said: “The further opening up of China’s financial sector represents great opportunities for our China businesses, including investment banking, wealth management and asset management.”

UBS Securities was established in China in 2006 as the first foreign-invested fully-licensed securities firm in the country. Currently, UBS is the second-largest shareholder in the joint venture, behind Beijing Guoxiang, an asset management firm operating under the Beijing municipal government, with a 34.73 percent stake.

Other significant stakeholders include state-owned enterprises China Guodian and COFCO Group – major players in the country’s energy and food production sectors. The joint venture, according to its website, offers Chinese clients investment banking, asset management and wealth management services.

The joint venture made net profit of 95 million yuan (15 million US dollars) in 2016, and UBS has announced plans to double its staff numbers in China to 1,200 by the end of the year.

Other major foreign finance firms including Morgan Stanley and Goldman Sachs have signaled that they will also look to take majority control of their joint ventures in China.

In November, Chinese authorities announced that equity caps would be eased and eventually removed in five years in financial joint ventures. Morgan Stanley’s Chief Executive Officer James Gorman called the policy change “a pleasant surprise” in an interview with South China Morning Post, before adding that it was “an incredibly important step.”

Morgan Stanley's CEO James Gorman has called the Chinese financial reforms "a pleasant surprise." /VCG Photo‍

Morgan Stanley currently has a 49 percent stake in a joint venture with Huaxin Securities.

The previous regulations limiting foreign firms to minority stakes proved frustrating for several finance companies, with JPMorgan pulling out of its Chinese joint venture in 2016 by selling its 49 percent stake in JPMorgan First Capital Securities for 307 million yuan (44 million US dollars).

China Daily reported at the time that JPMorgan was still looking to work in China, but was seeking new joint ventures “in which it could yield greater control.”