Goldman Sachs ( GS Quick Quote GS - Free Report) might become the first foreign bank with 100% ownership in securities joint venture (JV) in China. The bank has entered into an agreement to purchase its China JV partner, acquiring full ownership, per an internal memo. Per the source, the bank has also sought regulatory permission for boosting its stake from 51% to 100% in the Goldman Sachs Gao Hua (GSGH) venture. "One hundred percent ownership of our franchise on the mainland represents a significant commitment to and investment in China, outlined in our China strategic plan," the Goldman memo said. Notably, a spokesman for Goldman in Hong Kong has confirmed the memo content. The venture primarily focuses on equity and debt capital markets, along with advisory services on mergers. Notably, Goldman had been in negotiations for years over restructuring of business in China after regulators permitted foreign firms to acquire majority stakes in local JVs. What's in Store for Goldman?
The existing Beijing Gao Hua mainly deals in sales, trading and investment management. Therefore, on acquiring full ownership in Goldman Sachs Gao Hua, the bank will be able to expand its current business operations in China. Remarkably, being the world’s second-largest capital market, China attracts foreign firms on estimated profits of $47 billion in investment banking by 2026.
The latest move will end the 17-year long pact with Beijing Gao Hua Securities and allow Goldman in pursuing its expansion plans, including increase in employees in China to 600, and boosting asset and wealth management. In the process of full ownership, the bank’s all onshore businesses under Gao Hua will be migrated to Goldman Sachs Gao Hua, which will be renamed Goldman Sachs (China) Securities Co. Ltd. Other Banks on the Same Path
Most global banks in China are the owners of 51% of their securities businesses with majority in investment banking operations, with a Chinese partner and are moving toward full ownership gradually. This November,
JPMorgan ( JPM Quick Quote JPM - Free Report) raised its stake in its Chinese securities joint ventureto 71%. In July, Credit Suisse ( CS Quick Quote CS - Free Report) too had hinted at 100% ownership, though the regulatory process is yet to begin. Several other firms like BlackRock, Nomura Holdings, Morgan Stanley ( MS Quick Quote MS - Free Report) and UBS Group have either won approvals or are waiting for the same to increase stakes in their respective JVs in the country. Our Viewpoint
Global investment banks’ expansion has been limited in China for the past few years due to restrictions imposed on ownerships. Therefore, with the easing of restrictions, major foreign banks will look to expand in the market. Amid the coronavirus-related economic slowdown, such moves can be attributed to China’s continued efforts to open financial markets. The country has been opening up financial markets since 2018. However, the task will be challenging amid the ongoing global concerns.
Goldman’s latest move is expected to enhance profits of its investment banking operations. In the past six months, shares of Goldman have appreciated 9.3% compared with 22.3% growth registered by the industry.
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