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Goldman (GS) to Buy Majority Stake in China Joint Venture

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Goldman Sachs (GS - Free Report) has sought regulatory approval for acquiring  majority stake in its investment banking joint venture (JV) in China. This move comes on the heels of China’s securities regulator — The China Securities Regulatory Commission (CSRC) — lessening restrictions on foreign ownership of majority control.

In a bid to explore opportunities in investment banking operations in China, the U.S.-based bank targets to raise its stake to 51%, up from the existing 33% in Goldman Sachs Gao Hua Securities Co. Currently, the joint venture, Beijing Gao Hua Securities Co. is controlled by businessman Fang Fenglei and Legend Holdings with 67% stake. The venture primarily focuses on equity and debt capital markets along with advisory services on mergers.

Notably, Goldman has been in negotiations with Fang 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 majority stake in Goldman Sachs Gao Hua, the bank will be able to expand its current business operations in China. Notably, being the world’s second-largest capital market, China attracts foreign firms.

Last month, China announced plans to remove foreign ownership limits on financial firms by 2020 with the target of opening up the industry worth $44 trillion to international competition.

Other Banks on the Same Path

Among other banks, UBS group AG (UBS - Free Report) , JPMorgan (JPM - Free Report) and Nomura Holdings Inc. (NMR - Free Report) have already received regulatory nod for acquiring majority stake in local JVs. Further, Morgan Stanley (MS - Free Report) and Credit Suisse (CS) have also sought approval for the same this year.

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. However, the task will be challenging amid ongoing global concerns.

For Goldman, the move is expected to enhance profits of its investment banking operations.

Year to date, shares of Goldman have appreciated 20.1% compared with 0.7% growth registered by the industry.


 

Currently, Goldman 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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