Morgan Stanley one step closer to buy 100% of China securities venture

abdelaziz Fathi

Morgan Stanley is set to increase its stake in its Chinese brokerage venture after a mainland partner had put up 4.06% of its ownership for sale, an exchange filing showed on Wednesday.

Morgan Stanley

The US financial services giant will pay $110 million to boost the capital of the joint unit it formed with state-owned brokerage China Fortune Securities Co. in 2011.

The change requires the approval of the China Securities Regulatory Commission (CSRC) and other government authorities. If the purchase succeeds, Morgan Stanley would effectively own 94 percent of the securities joint venture, which equals to 1.71 billion yuan in capital. China Fortune will retain the remaining 5.94 percent stake, down from the current 10 percent of the fund joint venture.

The move comes as US banks continue to take advantage of the opening up of China’s financial sector. Most recently, the China Banking and Insurance Regulatory Commission approved plans by Goldman Sachs to acquire a majority stake in its mainland securities venture, becoming the latest global bank to take advantage of Beijing’s commitment to ease foreign-ownership restrictions.

In 2020, Goldman Sachs signed an agreement to take its holdings in Beijing-based Goldman Sachs Gao Hua Securities from 51 percent to 100 percent. The joint unit was first established in 2004 to underwrite local stock sales and provide financial advisory services to clients in mainland China.

FinanceFeeds webinar: Expert panel to discuss market data for multi-asset brokerages  

China pledged to open its financial markets

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.

Moreover, JPMorgan has applied to win an auction to purchase the shares needed for a 70 percent majority equity stake in its Chinese futures joint venture. The lender was bidding for an extra 20% stake in its mainland business, J.P.Morgan Futures Co., a joint venture between the bank and its local partner.

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 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.

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