Goldman Sachs and Morgan Stanley win control of Chinese ventures

Chinese regulators on Friday gave Goldman Sachs and Morgan Stanley permission to take majority control of their local joint ventures in securities, a sign that China will continue to open its financial markets despite the disruption caused by the coronavirus epidemic.

According to bank announcements, Wall Street banks, two of the leading foreign players in the Chinese investment banking industry, will be allowed to increase their holdings in existing securities companies to 51%.

Morgan Stanley holds a 49% stake in Morgan Stanley Huaxin Securities and Goldman owns 33% of Goldman Sachs Gao Hua Securities.

Todd Leland, co-chair of Goldman in the Asia-Pacific region excluding Japan, said the bank would continue to seek to take full control of the company.

“We will seek to move to 100% ownership as soon as possible,” said Leland in a statement.

Morgan Stanley also said it would continue to invest in the joint venture.

The transition to majority control of the two banks comes after decades of breakthrough in the Chinese market.

Foreign banks began creating joint ventures in China 25 years ago, starting with CICC, a joint venture investment bank founded by Morgan Stanley and the China Construction Bank in 1995. Clashes with management then led Morgan Stanley to sell its stake in private equity groups KKR and TPG, but the bank created a joint venture with Huaxin Securities in 2011.

Goldman created the first Sino-foreign securities joint venture in 2004 with Chinese financier Fang Fenglei. A number of other western banks followed suit, and the model has become the most common platform for accessing the Chinese investment banking market.

UBS became the first foreign bank to increase its stake in a securities joint venture to 51% in 2018. JPMorgan became the first US bank to receive approval to do so late last year. Nomura has also launched a similar operation.

Foreign banks will be allowed to apply for 100% ownership from April. Leland noted that the change in ownership would allow Goldman Sachs Gao Hua’s operations to be concentrated under one entity.

The coronavirus epidemic that started in China in January has caused severe disruption to the Chinese economy and financial markets, raising questions about whether regulators will continue to deny access to foreign groups for crisis. The approval of the two banks is a sign that the opening of the market has progressed.

Leave a Comment