According to the Wall Street Journal, Morgan Stanley (MS) and UBS Group AG (UBS) are looking to raise their stakes in their separate Chinese securities joint ventures to 49%. In an effort to modernize the country's capital markets and boost capital flows into the country, in 2012, China allowed foreign banks to increase their share holdings in securities joint ventures to a maximum of 49%. (See also: Wall Street Banks May Gain Greater Access to China.)
However, due to the smaller size of most of the ventures and the fact that many have struggled to break even, foreign investment banks with securities joint ventures in China have not as yet raised their stakes, the Journal noted. Growth and improved business conditions may now compel foreign investment banks to take greater risk.
"The China securities market is ripe for growth, and foreign investment banks will look to put more money there when it comes to boosting revenue. It's a long-term bet," said Benjamin Quinlan, CEO of consultancy Quinlan & Associates, reports Reuters.
One such example is Morgan Stanley, which along with Huaxin Securities – its Chinese joint venture partner – has agreed to raise its stake in the venture to 49% from 33.3%. The U.S.-based investment bank is now awaiting approval from the Chinese securities regulator, the Journal reports. (See also: Introduction to the Chinese Banking System.)
Similarly, Swiss bank UBS, which registered its Chinese securities joint venture in 2006, is also looking to raise its holding to the maximum 49% from 25%, two separate sources told Reuters. One of the sources said UBS expected the process to be completed later this year.
UBS China Country Head and President Eugene Qian confirmed the bank was working to raise its stake in its Chinese securities joint venture. "If we can make a significant increase in the percentage stake we hold, it will result in more attributable revenue and earnings to the group," Qian told Reuters.
All told, existing U.S.-based firms with access to Chinese domestic bond markets are required to partner up with domestic brokerages in joint ventures. While the joint-venture structure is better than no access at all, the Journal noted that the structure has hampered banks' ability to control operations and prioritize how to move money. (See also: China Cracks Down on Wealth Management Products, Bitcoin Surges.)