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UBS Group AG Gets Nod to Boost Majority Stake in China JV

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Swiss bank — UBS Group AG (UBS - Free Report) — became the first foreign bank to get approval from China's securities regulator — The China Securities Regulatory Commission (CSRC) to increase majority stake in its securities joint venture. This move follows CSRC’s easing restrictions on foreign ownership of brokerages announced last year.

"This will be the first foreign-controlled brokerage approved by the securities regulator since the rules on foreign investment in brokerages were implemented," the CSRC said on social media website Weibo late on Friday.

Notably, indicating its readiness to allow greater access to global banks into the country’s financial markets, the Chinese securities regulator allowed foreign companies to increase majority stake to 51% in securities JVs, up from the existing ceiling of 49%. Regarding this, the CSRC detailed the guidelines and experience mandatory for foreign shareholders along with the scale of businesses that can be recognized.

In order to explore opportunities for its investment banking, wealth and asset management operations in China, this Zurich-based bank targeted to raise stake to 51%, up from the existing 24.99% of shares in the USB Securities Co. Ltd joint venture and had submitted an application for the same in May 2018.

"Growing our China business is key element of our strategy. The further opening up of China's financial sector represents great opportunities for our wealth management, investment bank and asset management businesses," UBS chief executive Sergio Ermotti said in a statement.

Other Global Banks on the Same Path

Among other global banks, Nomura Holdings Inc. and JPMorgan (JPM - Free Report) are also looking to seek permission for a majority stake. Notably, last year, a 51%-owned securities joint venture was initiated in China by HSBC Holdings (HSBC - Free Report) ), under rules permitting special rights to Hong Kong-based firms.

Morgan Stanley (MS - Free Report) and Goldman Sachs (GS - Free Report) ) are also among the major brokerages likely to acquire majority stakes in their Chinese joint ventures.

Following the trade tensions with the United States, Beijing is on the verge of relaxing rules in its financial sector to give more access to foreign ownership in life insurance and asset-management joint ventures.

Conclusion

Global investment banks’ expansion has been limited in China for the past few years due to restrictions imposed on ownerships. This resulted in difficulties for firms in incorporating joint ventures with global operations. With the easing of regulations for global banks and a growing Chinese economy, major foreign banks are expected to expand their presence in the region.

Over the last six months, shares of UBS Group AG have decreased 13.5% compared with the 9.8% decline registered by the industry.


 

Currently, UBS Group AG carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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