JPMorgan Chase

JP Morgan says it’s still firmly on track to launch China venture next year, regardless of trade spat

In an exclusive interview with SCMP in Hong Kong, Daniel Pinto outlines how the biggest bank in the US views China, the progress on its plans in the country, and what effect the trade dispute with Washington is having

PUBLISHED : Monday, 22 October, 2018, 9:00am
UPDATED : Monday, 22 October, 2018, 7:24pm

JP Morgan’s co-president Daniel Pinto still hopes its new China securities venture will be approved next year, and insists the US giant’s aspirations in the world’s second largest economy will not be “derailed” there by the country’s ongoing trade war with the US.

The biggest bank in the US by total assets, JP Morgan applied to the China Securities Regulatory Commission last May to open a securities firm in which it will hold a 51 per cent stake.

It has said it will increase the stake to 100 per cent over the next few years as allowed by regulations.

The move followed China’s surprise decision in November to open its financial industry to foreign control.

“We haven’t been granted the license. The processing will probably take a year. But so far things are going fine,” said Pinto in an interview with the South China Morning Post in Hong Kong.

He said the regulator has accepted the application.

“We hope it will be next year that we get the approvals.”

In January, JP Morgan named Pinto and Gordon Smith as co-presidents and co-chief operating officers.

Pinto leads its corporate and investment banking business, while Smith runs consumer and community banking, and commentators predict the appointments map a clear road ahead for the banking powerhouse, with the two now in poll position to succeed Jamie Dimon, the current CEO, if the need arises.

The US-China trade war has escalated this year. Last month, the US’s latest tariffs of 10 per cent on US$200 billion of Chinese goods came into effect. US President Donald Trump said the tariffs would rise to 25 per cent on January 1.

The tariffs on China will marginally slow the Chinese economy. But fiscal and monetary stimulus and currency weakness will compensate some of that [slowdown]. So we believe China will grow about 6.1 per cent next year
Daniel Pinto, JP Morgan’s co-president

Pinto added that he expected the trade war to reduce China’s growth to about 6.1 per cent next year, after taking into account the country’s stimulus measures and yuan policy that could partially offset the impact.

On Friday, government statistics showed China’s economic growth slowed to 6.5 per cent year-on-year in the third quarter, missing market expectations. It marks the weakest pace since the first quarter of 2009.

“The tariffs on China will marginally slow the Chinese economy. But fiscal and monetary stimulus and currency weakness will compensate some of that [slowdown]. So we believe China will grow about 6.1 per cent next year. How much more, will depend on the tariffs.”

He hopes the two countries can sit down to solve the trade problems.

“I’m excited about opportunities in China. Hopefully that opportunity doesn’t get derailed because of the trade issues.

“[Hopefully] at some point, the two governments [will] sit and negotiate and decide the way forward. So we will know how our business will continue in China.”

Still, as China’s economy grows at a relatively fast pace and the country’s financial services sector is projected to expand rapidly, Pinto is upbeat about the bank’s business expansion there.

JP Morgan has made some changes to its China strategy since earlier this year, including a management reshuffle and plans to expand its lines of business and workforce.

“The fact we are being allowed to have a majority-controlled entity is a very positive event. It gives us confidence to invest more. And we are going to invest across all of our products – trading equities, fixed income, banking, corporate banking, asset management, private banking, all lines of business,” Pinto said.

In May, the bank appointed Mark Leung as the new CEO of China. He has worked with the bank for 21 years, and his previous position was co-head of global equities and prime services.

We are going to hire more people in that business and continue to grow it in China, beyond what we do in the securities venture
Daniel Pinto, JP Morgan’s co-president

David Li, who joined JP Morgan from UBS in 2014, remains senior country officer for China and also became vice-chairman of global banking.

The bank’s strategy is to help bring more of its global network and resources to China. Leung will be responsible for managing onshore and offshore activities while Li will dedicate more of his time to advising key clients in the region.

In June, the bank said it will expand its workforce in China by between 40 and 50 per cent over the next three years. It also retooled the China banking team into seven new sectors to better capture opportunities in China’s new economy.

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In addition to the majority-owned securities venture, the bank’s asset and wealth management business is also seeking to up its current stake in China International Fund Management to a majority interest, subject to its agreement with its partner and regulatory approval.

“We are going to hire more people in that business and continue to grow it in China, beyond what we do in the securities venture.”

JP Morgan also plans to hold its annual global TMT (technology, media, and telecommunication) conference in Hong Kong next month.

Pinto is optimistic about global growth. He expects the US economy to grow 3 per cent this year and 2 per cent in 2019. The euro zone and the UK, separately, he said will expand around 2 per cent this year and between 1.5 per cent and 2 per cent for 2019.

“The concept of synchronised growth is still there.”

He described the recent global stock market turbulence as a “small correction”, adding, “what we are seeing in the US is that we are 10 years into the growth cycle. We believe this cycle will continue for the next two or three years.

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“I don’t believe this is the beginning of the end of a cycle. This is similar to what happened in February.

“As soon as companies report their earnings, the norm of buy-back comes back, the market will stabilise. It has already stabilised now. ”

He acknowledged the trade war is a “challenge” to US company earnings, but so far the size of tariffs is still small and has not really affected the US economy.

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“We don’t believe consumers or businesses in the US are losing confidence in the growth of the economy and changing behaviour. That’s why the economy is growing at the moment and we believe it will grow next year too,” he said.

“If the situation with tariffs with China becomes bigger and the issue doesn’t get resolved, then there will be consequences. But at the moment, the impact is really just marginal.”