Credit Suisse scraps China bank plan to sidestep regulatory headache
Credit Suisse has shelved its plans to establish a locally incorporated bank in China due to concerns about potential regulatory conflicts arising from its merger with UBS. The Swiss lender had been working on this initiative for several years to strengthen its presence in the mainland by creating a wholly owned local bank.
This approach would have provided Credit Suisse with the opportunity to create a branch network to attract deposits and expand its onshore wealth management business in China. However, the troubled bank is currently facing challenges, and the decision to abandon these plans reflects its cautious regulatory considerations associated with its merger with UBS.
Specifically, UBS, which is in the process of acquiring Credit Suisse as part of a government-backed rescue effort, already possesses a locally incorporated bank in China. Chinese regulations permit only one license of this nature per financial entity.
UBS was the first foreign-controlled brokerage approved by the securities regulator to upgrade its ownership in a local joint venture to controlling stake since the mitigated rules were implemented in late 2017.
The move also indicates a potential future trend for both Credit Suisse and UBS regarding other aspects of their businesses in China. The two lenders may need to take similar actions in the asset management and brokerage activities, where both institutions currently have operating units.
Many western banks have taken advantage of Beijing’s commitment to ease foreign-ownership restrictions. China has repeatedly pledged to open its financial markets, including allowing foreign firms to own as much as 51 percent of their securities ventures, up from the previous 49 percent ceiling.
Other global investment banks, including Morgan Stanley, also sought a bigger controlling stake in its Chinese business under the new rules. Having spent years operating with limitations, where they were not authorized to surpass a 49 percent limit, banks signaled a desire to fully control their Chinese ventures in order to expand their mainland’s business.
Securities firms in China, which are mostly dominated by state-owned banks, generate more than $100 billion in revenue a year, official data shows.
Chinese President Xi Jinping said that the nation would accelerate the opening up of its financial sector, including measures to facilitate foreign access to the Chinese insurance industry and easing restrictions for entry and expansion of foreign financial institutions.