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Exclusive - Credit Suisse plans on raising stake in Chinese joint venture: sources

06/30/2016 | 12:27am EST
The logo of Swiss bank Credit Suisse is seen outside their branch in Bern

HONG KONG (Reuters) - Credit Suisse (>> Credit Suisse Group AG) is planning to boost its stake in its Chinese securities joint venture to the maximum permissible 49 percent, which would make it the first foreign bank to take advantage of relaxed Chinese investment rules introduced four years ago, three people with direct knowledge of the matter said.

HONG KONG (Reuters) - Credit Suisse (>> Credit Suisse Group AG) is planning to boost its stake in its Chinese securities joint venture to the maximum permissible 49 percent, which would make it the first foreign bank to take advantage of relaxed Chinese investment rules introduced four years ago, three people with direct knowledge of the matter said.

The Swiss bank, which currently owns 33.3 percent in Credit Suisse Founder Securities Ltd, is betting that boosting its shareholding in the business will help put it in a position to win a bigger share of China's burgeoning deals business, the people added.

Credit Suisse and Beijing-based Founder Securities (>> Founder Securities Co Ltd) formed the joint venture in 2008 to provide services, including sponsoring and underwriting of China's A-shares and Chinese government and corporate bonds.

The bank's bigger push in China comes at a time when a pickup in onshore equity and bond issuance in China is helping the nation's home-grown investment banks to grab a bigger share of the fee pool in the world's second-largest economy.

Of the top 10 investment banks in the Asia-Pacific equity capital market league table in the first half of this year, seven of them were Chinese firms, according to Thomson Reuters data. Credit Suisse was ranked 11th.

When contacted by Reuters, an investor relations executive at Credit Suisse Founder Securities said he was not aware of any plans to change joint venture shareholdings. Founder Group, which owns Founder Securities, did not respond to request for comment.

A Credit Suisse spokeswoman declined to comment.

One of the sources said that the plan could still be shelved, and Credit Suisse could work on other options to bolster its presence in China.

    The sources who disclosed the plan declined to be identified as the discussions are confidential.


Credit Suisse Chief Executive Tidjane Thiam said in April this year that the investment bank was eyeing a bigger China presence and would continue to invest in a country where it had been "underweight". 

    Since taking the helm at the Zurich-based bank in July 2015, Thiam has visited China a number of times already, and is due to make another trip later this year, as he looks to build its various businesses there, one of the sources said.

    China has also been gradually opening up its financial services sector, though the pace has frustrated some foreign banks.

China allowed foreign banks to boost shareholdings in securities joint ventures to a maximum 49 percent in 2012 from the previous cap of a third to help modernise the country's capital markets and boost capital flows into the country.

    But foreign investments banks with securities joint ventures in China haven't as yet raised their stakes in the ventures as most of the ventures were very small or struggling to break even due to sluggish onshore deals.

Credit Suisse Founder is one of the few foreign joint ventures in China that has been mostly profitable since it started in 2008.

It posted net fees and commission income of about 123.9 million yuan ($18.7 million) last year, up 10 percent from 2014. The joint venture made a profit of 16.2 million yuan last year, rebounding from a loss of 25.9 million yuan in 2014.

It was not immediately clear how much it would cost Credit Suisse to raise the stake. The Swiss bank invested 266.4 million yuan for its initial 33.3 percent stake in the joint venture, according to the venture's annual report.

Increasing the stake would put the Swiss bank in a stronger position if China allows foreign banks to take control of local joint ventures, the sources said.

One of the sources said that after finalising details, including the value of additional shares to be purchased and board seats Credit Suisse would take, the joint venture would approach the local regulators for their approval.

Almost all leading global investment banks, including Goldman Sachs (>> Goldman Sachs Group Inc), UBS (>> UBS Group AG), Morgan Stanley (>> Morgan Stanley), Deutsche Bank (>> Deutsche Bank AG) and JPMorgan (>> JPMorgan Chase & Co.) have securities joint ventures with local firms in China.

Goldman Sachs and UBS have operational control of their Chinese securities ventures as they got in before the new rules were framed in 2007, all others own a third of their respective ventures.

Last November, Europe's biggest lender HSBC Plc (>> HSBC Holdings plc) announced it was setting up a joint venture in which it would own up to 51 percent. It is allowed to have the higher stake because it is using its Hong Kong-based banking subsidiary, the Hongkong and Shanghai Banking Corporation Limited, for the investment.

Besides the securities joint ventures, these foreign banks - including Credit Suisse - also have a presence in China through other financial services businesses, including corporate and investment banking, and asset management services.

Foreign banks are keen to tap a bigger share of the fees generated from an increasing level of dealmaking by Chinese companies.

    Two of the sources said that Credit Suisse's push has been triggered by worries that HSBC could take away business from the existing banks with its new venture.

($1 = 6.6350 yuan)

(Additional reporting by Joshua Franklin in Zurich; Tris Pan and Lindsy Long in Hong Kong; Editing by Denny Thomas and Martin Howell)

By Sumeet Chatterjee and Michelle Price

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