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JPMorgan to Pay 51% Premium to Own 100% Stake in China JV
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If JPMorgan (JPM - Free Report) goes ahead with its plan of owning a 100% stake in its China mutual fund joint venture (“JV”) — China International Fund Management Co., it will have to pay a minimum of 7 billion yuan ($1 billion). Per Bloomberg, the price represents a premium of 51% over the appraised value of the stake.
Notably, in August 2019, JPMorgan paid more than a 33% premium to CIFM’s net asset value and spent $35 million to boost its stake in the JV by 2% and hence gain a controlling interest.
Now, Shanghai International Trust Co. has agreed to sell its 49% stake, increasing JPMorgan’s stake from 51% to 100% in the venture.
However, JPMorgan’s representative has not made any comment on the price of the stake yet.
With China opening up its financial markets to foreign firms faster than expected with the removal of restrictions on ownership, the biggest U.S. bank (in terms of total assets) has decided to get the full ownership of all mainland China operations by next year. This is part of JPMorgan’s four-year investment plan in the country.
In fact, last year, JPMorgan was the first bank in the United States to have received approval to take full control of its securities JV in China. At that time, the company’s CEO Jamie Dimon said, “We will continue to invest in and fully support our business in the country, which has become a critical market for many of our domestic and global clients.”
Also, in June 2020, JPMorgan received a nod to increase its stake from 49% to 100% in its China-based futures JV, J.P.Morgan Futures Co. Currently, Shenzhen Wallace Rand Equity Investment Fund Management holds a 50% stake in the JV, while a local investment firm in Jiangsu owns 1%.
Given that foreign companies are now allowed to conduct business in China without any restrictions, their revenues are expected to improve. Also, it will help these firms in geographical expansion.
In addition to JPMorgan, various global finance companies are seeking to expand operations in China. Many of the firms have already started taking advantage of the options available. Recently, BlackRock (BLK - Free Report) received a nod to set up a majority-owned JV in China.
Firms like Goldman Sachs (GS - Free Report) , Nomura Holdings, Morgan Stanley (MS - Free Report) and UBS Group have either won approval or are waiting for the same to increase stakes in their respective JVs in China.
Our Take
JPMorgan’s initiatives to expand branch network in new markets will likely continue supporting profitability. The acquisition of InstaMed, reversal in the mortgage banking business and focus on credit card operation are expected to further support the bank's financials in the quarters ahead.
Shares of JPMorgan have lost 21% over the past six months compared with the industry’s decline of 26%.
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
JPMorgan to Pay 51% Premium to Own 100% Stake in China JV
If JPMorgan (JPM - Free Report) goes ahead with its plan of owning a 100% stake in its China mutual fund joint venture (“JV”) — China International Fund Management Co., it will have to pay a minimum of 7 billion yuan ($1 billion). Per Bloomberg, the price represents a premium of 51% over the appraised value of the stake.
Notably, in August 2019, JPMorgan paid more than a 33% premium to CIFM’s net asset value and spent $35 million to boost its stake in the JV by 2% and hence gain a controlling interest.
Now, Shanghai International Trust Co. has agreed to sell its 49% stake, increasing JPMorgan’s stake from 51% to 100% in the venture.
However, JPMorgan’s representative has not made any comment on the price of the stake yet.
With China opening up its financial markets to foreign firms faster than expected with the removal of restrictions on ownership, the biggest U.S. bank (in terms of total assets) has decided to get the full ownership of all mainland China operations by next year. This is part of JPMorgan’s four-year investment plan in the country.
In fact, last year, JPMorgan was the first bank in the United States to have received approval to take full control of its securities JV in China. At that time, the company’s CEO Jamie Dimon said, “We will continue to invest in and fully support our business in the country, which has become a critical market for many of our domestic and global clients.”
Also, in June 2020, JPMorgan received a nod to increase its stake from 49% to 100% in its China-based futures JV, J.P.Morgan Futures Co. Currently, Shenzhen Wallace Rand Equity Investment Fund Management holds a 50% stake in the JV, while a local investment firm in Jiangsu owns 1%.
Given that foreign companies are now allowed to conduct business in China without any restrictions, their revenues are expected to improve. Also, it will help these firms in geographical expansion.
In addition to JPMorgan, various global finance companies are seeking to expand operations in China. Many of the firms have already started taking advantage of the options available. Recently, BlackRock (BLK - Free Report) received a nod to set up a majority-owned JV in China.
Firms like Goldman Sachs (GS - Free Report) , Nomura Holdings, Morgan Stanley (MS - Free Report) and UBS Group have either won approval or are waiting for the same to increase stakes in their respective JVs in China.
Our Take
JPMorgan’s initiatives to expand branch network in new markets will likely continue supporting profitability. The acquisition of InstaMed, reversal in the mortgage banking business and focus on credit card operation are expected to further support the bank's financials in the quarters ahead.
Shares of JPMorgan have lost 21% over the past six months compared with the industry’s decline of 26%.
Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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