The headquarters of Morgan Stanley. Picture: REUTERS
The headquarters of Morgan Stanley. Picture: REUTERS

Hong Kong — Morgan Stanley and UBS Group are in talks with local partners to boost holdings in their China securities businesses, a sign of growing confidence in those operations, according to people familiar with the matter.

The banks are engaged in separate discussions on raising their stakes to 49%, the maximum allowed under regulations, the people said, asking not to be identified because the negotiations are confidential.

UBS owns about 25% of its China securities firm, which has a licence to trade domestic shares. Morgan Stanley holds 33% of its venture, which mostly provides investment-banking services and research.

For UBS, "talks are still under way, we can’t tell you much more than that", chairman Axel Weber said in a Bloomberg Television interview on Monday from Shanghai. "We have a strong interest in increasing our footprint and our presence in China. We want to build a long-run, steady presence."

Foreign firms have been allowed to own up to 49% of the joint ventures since 2012, when China raised the cap from 33%, and an increase in profits generated in China encouraged both companies to move forward with their plans.

Not all overseas banks have taken that opportunity, deterred by losses or a desire for more control. JPMorgan Chase withdrew from its joint venture by selling a 33% stake to partner China First Capital Securities for 307-million yuan ($44.4m).

The New York-based firm hopes to find a new partner for a venture in which it can wield greater control, people familiar with the matter said in October.

UBS had been in talks with multiple shareholders since 2016 about buying their stakes through the exercise of call options held by the Zurich-based bank, one person said.

While the firm had informed China’s securities regulator of its intention to boost its holding to as much as 49%, an application would not be submitted until a new shareholder agreement was signed, the person said.

Net profit at UBS Securities, the local joint venture, more than doubled to 296-million yuan in 2015, according to the latest public data available from Securities Association of China.

In the same year, Morgan Stanley reversed years of losses at Morgan Stanley Huaxin Securities, turning a profit of 30-million yuan.

China stepped up opening its capital markets after it was admitted to the World Trade Organisation in 2001. In November 2016, the finance ministry reiterated its commitment to allowing foreign banks own bigger stakes in securities and fund-management joint ventures.


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