The Bank of New York Mellon Corporation (BK - Free Report) is selling its 49% stake in China fund-management joint venture (JV) to Shanghai Leadbank Asset Management Co, according to a recent report in The Wall Street Journal. The sale of the unit – BNY Mellon Western Fund Management Co. – reflects BNY Mellon’s efforts to restructure its Chinese business to suit the changing regulatory and market conditions. The value of the deal, which is pending a regulatory nod, remains undisclosed.
The JV was established nearly four years ago. China’s Shaanxi Province-based Western Securities Co. owns the remaining 51% stake in the JV. The unit has been reporting losses in recent quarters.
What Incited the Sale?
In order to enter the lucrative Chinese market, many foreign fund houses had set up joint ventures with Chinese partners. BNY Mellon was among those. With the recent changes in the regulations of asset management business in China and opening up of the industry, BNY Mellon has decided to make a fresh start of its management business in the mainland. The latest deal is only a step toward that goal.
Further, the JV has been reporting losses in recent quarters. This might have prompted BNY Mellon to offload its stake.
What China Offers Now?
Last year, China Securities Regulatory Commission loosened its stringently controlled mutual-fund industry, allowing securities firms, insurance companies and private funds to enter the market for the first time. Before that, only licensed fund-management firms were allowed to conduct such business.
In this new business environment, foreign companies are re-strategizing their asset management business in China. Many are contemplating setting up wholly owned enterprises in China, instead of joint ventures, as the former would allow more room for implementation of strategies.
We expect BNY Mellon to be able to grab this lucrative opportunity with its balance sheet strength.
BNY Mellon currently carries a Zacks Rank #3 (Hold). Some better-ranked bank stocks include Central Pacific Financial Corp. (CPF - Free Report) , S&T Bancorp Inc. (STBA - Free Report) and Univest Corporation of Pennsylvania . All these stocks sport a Zacks Rank #1 (Strong Buy).