JPMorgan in talks to sell out of Chinese securities

[October 20, 2016]  By Sumeet Chatterjee and Julie Zhu

HONG KONG (Reuters) - JPMorgan Chase & Co is in talks to sell out of a Chinese securities joint venture with First Capital Securities Co Ltd in what would be the first departure by a top-tier global investment bank from China's securities segment.

Wall Street banks like JPMorgan hold only minority stakes in such ventures. The resulting lack of control and limited contribution to total revenue have brought banks frustration at a time when domestic competition has become acute.

Almost all leading investment banks, including Goldman Sachs Group Inc, UBS Group AG, Morgan Stanley, Deutsche Bank AG and Credit Suisse Group AG have securities ventures with local firms.

Shenzhen-listed broker First Capital, in an exchange filing on Thursday, said it is in talks to buy JPMorgan's 33 percent of JP Morgan First Capital Securities Co. It said no transaction has been finalised and that any purchase remains uncertain.

JPMorgan confirmed the content of the filing.

"China is a key market for the firm globally and for many of our clients outside China. J.P. Morgan believes in the long term prospects of China and remains fully committed to our China franchise," the U.S. bank said in an emailed statement.

Neither JPMorgan nor First Capital gave reasons for the move.

Some analysts said the U.S. bank could return to China's securities market with a new partner as the outlook for onshore deals remains attractive.

Rival Morgan Stanley launched a securities joint venture with Huaxin Securities in 2011, a year after it sold its 34.3 percent of China International Capital Corp Ltd (CICC), the country's top investment bank at the time.

"It has been a difficult ride (for foreign banks), but we really feel that it's at tipping point in terms of opportunities and the banks have just a lot left on the table," said Benjamin Quinlan, CEO of financial services consultancy Quinlan & Associates.

"There is no alternative avenue for foreign players to go in and China is sending a clear signal that it is liberalizing and I do think they (foreign banks) will be able to get to a stage where they have effective management control of the entity."

A view of the exterior of the JP Morgan Chase & Co. corporate headquarters in New York City May 20, 2015. REUTERS/Mike Segar/Files

China's securities regulator approved the establishment of JPMorgan First Capital Securities Co at the end of 2010. The venture, headquartered in Beijing, offers services such as stock and bond underwriting and merger advisory.

It posted net profit of 52 million yuan ($7.72 million) for January-June, versus a loss of 23 million yuan in the same period a year earlier, showed information First Capital filed at the exchange.

A stake sale would come as rival HSBC Holdings PLC awaits regulatory approval to launch a majority-owned joint venture, taking advantage of rules favoring Hong Kong-established banks.

HSBC would own up to 51 percent of the venture, while the cap for other foreign banks in such ventures is 49 percent. China has been gradually opening up its financial sector, though some foreign banks have called for the pace to increase.

Despite the challenges, no other top-tier foreign bank has exited securities joint ventures in China, betting on long-term opportunities in the world's second-largest economy.

Foreign banks that have exited since 2007 include BNP Paribas SA, CLSA, Daiwa Securities Group Inc and Royal Bank of Scotland Group PLC, showed a Quinlan & Associates report.

(Reporting by Julie Zhu and Sumeet Chatterjee; Editing by Lisa Jucca and Christopher Cushing)

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