American Morgan Stanley and Swiss UBS are planning expansions in China, raising their stakes to 49 percent in separate joint venture deals. The two foreign banks committed to expanding their operations in the country.
Morgan Stanley and its local partner, Huaxin Securities, are planning to raise the stakes to 49 percent from the current 33.3 percent. According to sources, the joint venture is still awaiting approval from the Chinese securities regulator.
Meanwhile, UBS plans to raise their stakes to 49 percent from the current 25 percent of UBS Securities. Registered in 2006, UBS Securities became the first foreign-invested and fully licensed securities firm in China.
The Swiss firm currently holds the second largest stake of the mainland brokerage, just behind Beijing Guoxiang Property Management who owns about a third of the stakes.
Morgan Stanley China posted a net profit of 30 million yuan in 2015, as compared to a loss of 470,000 yuan in 2014. UBS Securities on the other hand posted a net profit of 296 million yuan in 2015 versus 118 yuan during the previous year.
Since 2012, China has allowed foreign firms to own up to a maximum of 49 percent of joint ventures from its previous 33 percent. Together with the increase in profits generated from its China-based business, these increased the confidence of both companies to push forward with the raising the stakes up to the cap.
However, not all foreign companies followed suit because most of the securities joint ventures in China were either small or were struggling to reach breakeven because of slow growing onshore deals.
"The China securities market is ripe for growth, and foreign investment banks will look to put more money there when it comes to boosting revenue. It's a long-term bet," said Benjamin Quinlan, chief executive of consultancy firm Quinlan & Associates.
Going through with the securities deal and expanding its operations in China is a good investment. This will definitely keep Morgan Stanley and UBS as top firms in China for many years to come.