Morgan Stanley and UBS Group AG are set to raise their stakes in separate Chinese securities joint ventures to 49 percent, people with direct knowledge of the moves said, betting on strong deals momentum in the world's second-largest economy. China allowed foreign banks to boost share holdings 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.
Foreign investments banks with securities joint ventures in China, however, have not as yet raised their stakes as most of the ventures were small or struggling to break even due to sluggish onshore deals.
But the prospect of China moving soon to allow global banks to own majority stakes in securities joint ventures and growing volumes of equity issuance and trading businesses have motivated some foreign banks to explore raising their holdings.
"The China securities market is ripe for growth, and foreign investment banks will look to put more money there when it comes to boosting revenue. It's a long-term bet," said Benjamin Quinlan, CEO of consultancy Quinlan & Associates.
Morgan Stanley and its Chinese joint venture partner, Huaxin Securities, have agreed to a proposal to raise the US investment bank's stake in the venture to 49 percent from 33.3 percent, two people with knowledge of the plan said.
The stake increase by Morgan Stanley is awaiting approval from the Chinese securities regulator, one of the sources said.
Swiss bank UBS, which registered its Chinese securities joint venture in 2006, is also in talks to raise its stake in UBS Securities to 49 percent from 25 percent, two separate sources told Reuters.
One of the sources with knowledge of the UBS plans said the bank expected the process to be completed later this year.
All the people declined to be named as the details of the stake hikes were not public yet. Spokesmen for Morgan Stanley and UBS declined to comment. News of the plans was first reported by the Wall Street Journal.
GROWING DEALS
Morgan Stanley Huaxin Securities' offerings include underwriting and sponsoring of stocks and bonds. UBS China securities joint venture businesses include fixed income, equity underwriting and financial advisory.
Morgan Stanley China securities joint venture posted a net profit of 30 million yuan ($4.33 million) in 2015, according to the latest data on the website of the Securities Association of China, compared with a loss of 470,000 yuan in 2014.
The net profit at UBS China securities joint venture in 2015 was 296 million yuan, up from 118 million yuan a year ago.
Reuters reported in June last year that Credit Suisse was also planning to boost its stake in its Chinese securities joint venture to 49 percent, up from 33.3 percent now.
The foreign banks' 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.
Equity capital market deals in Shanghai rose 2.8 percent in 2016, while volumes at Shenzhen's SME board and its tech-heavy ChiNext board surged by 74 percent and 64 percent respectively, buoyed by follow-on share sales, Thomson Reuters data showed.
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