UBS to seek full control of Chinese securities joint venture by 2020

UBS became first foreign lender to receive approval to take majority stake in its securities joint venture in December
Move comes as China has relaxed rules on foreign ownership of financial companies ahead of schedule

Banking & finance

Chad Bray

Published: 7:06pm, 22 Oct 2019

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UBS said on Tuesday that it expects to take full control of its securities business in mainland China next year as Beijing moves to further open up the country’s financial sector.

The Swiss bank received approval in November to take a controlling stake in UBS Securities China, making it the first foreign bank allowed to do so after ownership rules were relaxed last year.

In July, the Office of Financial Stability and Development Committee and the State Administration of Foreign Exchange announced the country would undertake a series of measures to open up China’s financial sector, including removing shareholding limits on foreign ownership of securities, insurance and fund management companies next year. That was a year earlier than planned by Chinese authorities.

“The accelerated removal of the ownership caps for securities companies means that UBS is expected to be permitted to increase its stake in UBS Securities China from the current level of 51 per cent to 100 per cent by 2020,” UBS said as part of its third-quarter results on Tuesday. “The exact effective date remains to be clarified.”

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A UBS spokeswoman declined further comment when contacted by the South China Morning Post.

The bank said that its third-quarter profit fell 16 per cent to 1.05 billion Swiss francs (US$1.06 billion), a decrease from 1.25 billion francs in the year-earlier period. The Swiss bank reported a 59 per cent drop in pre-tax profit in its investment bank, offset by gains in its global wealth management and personal and corporate banking businesses.

UBS is one of several foreign banks and financial companies that are expected to take advantage of the elimination of ownership restrictions to take full control of their Chinese businesses.

HSBC, which has made a big bet on growth in the Pearl River Delta, became the first foreign bank to receive approval to form a majority-controlled securities joint venture, HSBC Qianhai Securities, in the mainland in 2017.

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In November 2018, the German insurer Allianz received approval from the China Banking and Insurance Regulatory Commission to open the first wholly owned insurance holding company by a foreign insurer in China. A few days later, the French insurer AXA agreed to pay 4.6 billion yuan (US$650 million) to acquire the 50 per cent stake in its Chinese joint venture that it did not already own.

In March, JPMorgan and Nomura received approval from Chinese authorities to open majority-owned securities broker joint ventures in China. In April, Credit Suisse said it would take a controlling stake in its securities joint venture, injecting 628.7 million yuan into the company and taking a 51 per cent holding.

In August, Goldman Sachs sought approval to take a majority control of its securities joint venture in China. The US investment bank currently owns 33 per cent of Goldman Sachs Gao Hua Securities and has said it plans to take full control of the joint venture as soon as it is allowed under Chinese rules.

Morgan Stanley also is seeking approval to take a majority stake in its Chinese securities joint venture.

JPMorgan Asset Management in August won an auction to take a controlling stake in its asset management joint venture in China. “We are pleased that we have finalised the commercial agreement for the 2 per cent stake, and we are now working with our joint venture partner on the required documentation, before we proceed to regulatory approval,” a JPMorgan Asset Management spokeswoman said recently.

Beijing moved to relax the ownership rules against the backdrop of a trade war that has raged between the United States and China for more than a year, as well as a slowing economy.

US President Donald Trump has placed tariffs on some US$380 billion of Chinese-made goods as he tries to force Beijing to change decades of industrial and trade policy, with China responding with its own tariffs.

The Chinese government has previously said it wanted to increase the speed of financial market liberalisation in the country, but has moved quickly to open up parts of the financial sector in recent months.

This article appeared in the South China Morning Post print edition as: UBS set to take full control of China securities venture

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