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JPMorgan to Set up Majority-Owned Joint Venture in China

Zacks Equity Research

Against the challenging backdrop of the U.S.-China trade war, JPMorgan Chase & Co. JPM has finally received regulatory approval to set up a majority-owned securities joint venture (JV) in China. The banking giant will set up a completely new unit in the country, which will offer brokerage, investment advisory, underwriting and sponsorship services.

The development follows the opening up of the Chinese markets for foreign financial firms. China’s securities regulator — The China Securities Regulatory Commission (“CSRC”) — lessened restrictions on foreign ownership of majority control. Notably, it now allows foreign companies to increase majority stake to 51% in securities JVs, up from the prior ceiling of 49%.

Notably, in August 2019, JPMorgan won a 2% stake to gain controlling interest in its China fund management JV — China International Fund Management — in an auction at the Shanghai United Assets and Equity Exchange. However, the deal is still subject to regulatory approval.

JPMorgan’s chairman and CEO, Jamie Dimon, stated, “We will continue to invest in and fully support our business in the country, which has become a critical market for many of our domestic and global clients.”

Notably, JPMorgan is the first U.S. bank to receive permission for setting up a majority-owned JV in China.

Among others, in December 2018, UBS Group UBS became the first foreign bank to receive consent from the regulator since the rules on foreign investment in brokerages were announced in 2017.

Also, Japan-based firm Nomura Holdings Inc NMR received regulatory nod to operate a majority stake JV in the country last month.

In August 2019, Goldman Sachs GS also sought regulatory approval for acquiring a majority stake in its investment banking JV in China.

Conclusion

Global banks’ expansion had been limited in China for the past few years due to restrictions imposed on ownership. This resulted in difficulties for firms in incorporating JVs with global operations.

With the easing of regulations for global banks and a growing China economy, several foreign banks are expected to expand presence in the region.

Shares of JPMorgan have gained 25.3% over the past six months, outperforming 21.2% growth recorded by the industry.






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