Citic Securities, the mainland's largest brokerage, plans to buy back a 10 per cent stake in mutual fund house China Asset Management, in a move to boost its sliding margins.
The company said it would spend up to two billion yuan (HK$2.53 billion) to buy the stake from Wuxi Guolian Development Group, raising its ownership of the asset management firm to 59 per cent.
The transaction follows a policy change by the China Securities Regulatory Commission aimed at introducing more competition in the mutual fund sector.
Citic was forced to sell down its stake in China Asset Management in 2011 after the regulator ruled a single domestic investor dealing with securities businesses could not hold more than 50 per cent in a fund management firm.
Wuxi Guolian had bought the 10 per cent stake for 1.6 billion yuan.
The CSRC recently waived the rule, allowing brokerages to directly enter mutual fund businesses, hoping to offer investors more options in selecting their money managers.
The regulator also scrapped the ownership ceiling, letting Citic own a controlling stake in China Asset Management, the mainland's largest mutual fund firm.
In March, Citic said it would expand into asset management to offset the dwindling investment banking and prime brokerage businesses.
"The acquisition will allow Citic to become a controlling shareholder of [China Asset Management] and consolidate financial statements, which could help boost the firm's declining profits," fund consultancy Z-Ben Advisors said in a research note.
Citic reported a 66 per cent drop in net profit last year as it fell victim to a stock offering drought and dwindling market turnover.
Mainland securities firms at one time benefited greatly from a buying euphoria of retail investors, raking in massive brokerage fees and posting handsome earnings. But the sluggish share market in the past three years dented their profits, making them anxious to find new growth engines.