Buoyed by relaxed norms, JPMorgan eyes majority-owned JV in China

At a time when business ties between the US and China are on the threshold of a major shift, investment bank JPMorgan Chase (JPM) is all set to return to the securities business in China after a two-year hiatus. While selling its two-third stake in a joint venture with Shenzhen-listed First Capital in 2016, the bank had hinted at reviving its Chinese franchise in the future.

As a first step in that direction, the New-York based financial holding company filed an application with the Chinese securities regulator to enter into a joint venture with a local securities broker, but with a twist.  Unlike in the past, this time the company wants to hold a majority stake in the partnership.

The move comes in the wake of Beijing relaxing the norms pertaining to brokerages, allowing foreign banks to hold more than 50% stake in joint ventures with local players. Taking advantage of the new rule, which gives Hong Kong-based banks an edge over other overseas financial institutions, HSBC Holdings has already obtained the green signal to forge such a partnership.

Hitherto, not being able to hold the controlling stake in such joint ventures was a cause of frustration for American investment banks operating in China. Moreover, increasing competition from local entities further dampened the prospects of firms like Goldman Sachs (GS), Morgan Stanley (MS) and UBS Group who are now shifting their focus to China once again, encouraged by Beijing’s new rules.

The bank has filed an application with the Chinese securities regulator to enter into a joint venture with a local firm

While the Chinese regulators are still reviewing the application, JPMorgan has appointed senior executive Mark Leung as CEO for its Chinese operations. Leung will be heading the joint venture securities firm the bank is planning to set up in that country.

The lender expects that the controlling power over the firm would help its corporate and investment banking arms in expanding their businesses by attracting more local clients. Leung’s appointment also complements the bank’s plan to broaden its research coverage of companies listed in China. While JPMorgan is yet to disclose the details of its prospective joint venture partner, it is learned that the bank might raise its stake significantly in the long term, if rules permit.

Last month, the Chinese division of JPMorgan Chase Bank Company Limited launched a branch in Shenzhen, China. Opening of the new branch, the eighth in China, is viewed as a pivotal step in the company’s efforts to expand market share in the local economy.