Morgan Stanley, Goldman Get Nod for Majority Stakes in China JV

Zacks Equity Research

Two major global investment banks — Goldman Sachs GS and Morgan Stanley MS — have received nod from the China Securities Regulatory Commission to increase stake in their mainland securities joint ventures (JVs) to 51%. Both the companies had filed for approval of majority interest in their JVs last year.

Morgan Stanley’s JV — Morgan Stanley Huaxin Securities — offers investment banking services and proprietary trading of bonds. The JV, formed in 2011, is based in Shanghai. The company will increase its stake to 51% from the present level of 49%.

Goldman will be raising its stake in Goldman Sachs Gao Hua Securities to 51% from 33% at present. The company, which controls day-to-day operations of the JV, had set up with Beijing Gao Hua Securities in 2004. The JV provides investment banking services including equities and bond underwriting, as well as M&A advisory.

Also, Todd Leland, co-president of Goldman for Asia-Pacific, excluding Japan, said “We will be seeking to move towards 100 per cent ownership at the earliest opportunity.” Early this year, the company had announced plans to double its workforce in China over the next five years.

Amid coronavirus-related economic slowdown, approvals of these two applications can be attributed to China’s continued efforts to open financial markets. The country has been opening up financial markets since 2018.

Swiss major UBS Group AG was the first foreign bank to get approval of majority stake in the China securities business under the new rules, while Japanese brokerage house Nomura Holdings and JPMorgan JPM got approval last year. Additionally, JPMorgan intends to get approval for full ownership of all mainland China operations by next year. Another major global bank, Credit Suisse is still awaiting approval for increasing stake in securities JV. Major U.S. bank, Citigroup C is planning to establish a majority-owned securities JV.

Thus, once foreign banks are allowed to conduct business in China without any restrictions, these banks can expand geographically, which will boost revenues and market shares. Also, as the current global operating backdrop looks challenging, global diversification is likely to further support their financials.

Both Morgan Stanley and Goldman currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Hottest Tech Mega-Trend of All

Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
 
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
 
Citigroup Inc. (C) : Free Stock Analysis Report
 
Morgan Stanley (MS) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research