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JPMorgan (JPM) to Buy 10% Stake in China Bank's Wealth Unit

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JPMorgan’s (JPM - Free Report) asset-management unit – J.P. Morgan Asset Management – plans to buy a 10% stake in China Merchants Bank Co.’s wealth-management subsidiary. While the deal is yet to receive regulatory approval, the U.S. banking giant is expected to pay approximately $410 million for obtaining the minority stake.

China Merchants Bank, known as the nation’s king of retail banking, is the first financial company in China to have allowed a foreign firm to make a strategic investment in its wealth management subsidiary.

Given that China’s $53-trillion financial markets are now open to foreign firms following the removal of restrictions on ownership, firms have till date applied to form joint ventures (“JVs”) in China with the wealth-management divisions of Chinese firms. None of the foreign firms have till now invested directly in a Chinese firms’ wealth-management subsidiary.

In fact, now that foreign firms are also allowed to gain full control of their mutual fund JVs in China, more than 40 such companies have set up JVs in the nation and a few have applied for greater control.

China Merchants Bank stated, “The investment would deepen the cooperation between the bank and the strategic investor and is good for CMB Wealth Management to enhance its internal governance.”

Notably, as part of its four-year investment plan in China, JPMorgan has decided to get full ownership of all of its mainland China operations by the end of this year.

In the second half of 2020, the Wall Street biggie raised its stake in its China securities JV to 71%, which came after the bank purchased a 20% stake in the JV from one of the local partners — Shanghai Waigaoqiao FTZ — for 177.7 million yuan ($26 million).

Moreover, the bank has already obtained full control of its futures JV in China, J.P.Morgan Futures Co., after receiving regulatory approval from the China Securities Regulatory Commission to increase the stake to 100% from 49%.

Moves by Other Firms to Expand in China

In August 2020, BlackRock (BLK - Free Report) received approval for setting up a majority-owned JV in China. The China Banking and Insurance Regulatory Commission approved a wealth-management JV among BlackRock, Singapore state investor Temasek Holdings Pte Ltd and China Construction Bank Corp.

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 are expected to continue supporting profitability. Its inorganic expansion strategy along with a strong mortgage banking business is likely to aid growth.

Shares of JPMorgan have gained 67.3% over the past six months compared with 66.8% growth recorded by the industry.

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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