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JP Morgan, seeking a foothold in China's potentially lucrative financial services sector, is in talks to buy a major slice of domestic brokerage Liaoning Securities, three sources familiar with the matter said October 13.
The Chinese securities house is also in talks with other potential foreign buyers, sources close to the firm said.
JP Morgan, which is said to be lobbying hard for Beijing to ease existing ownership curbs, becomes the latest global investment bank to try to buy access to the country's securities market, now mostly closed to overseas players.
Switzerland's UBS A.G. on September 28 unveiled plans to invest 1.7 billion yuan ($210.6 million) for 20 percent of Beijing Securities, becoming the first foreign firm to buy into a Chinese brokerage and winning de facto management control. "JP Morgan is trying to seek a controlling stake in Liaoning Securities, which is now the major concern of JP Morgan in the negotiations," said a senior China-based financial industry executive close to the situation.
The sources did not say what stake JP Morgan was eyeing. A JP Morgan spokesman in Hong Kong declined to comment.
The government has chosen Jianyin Investment - owned by an investment arm of China's central bank - to become a major shareholder in Liaoning Securities after it finishes restructuring, said another, Beijing-based source.
"Jianyin ... won approval to look for foreign partners to jointly invest in Liaoning Securities," he said.
Jianyin is also a major shareholder of top Chinese property lender Construction Bank, with 10.653 percent.
Beijing is trying to clean up China's loss-making brokerage industry, crowded with more than 100 securities houses, with the aid of foreign capital and expertise even as it pursues efforts to foster viable capital markets.
Its reform effort involves shutting or seizing troubled firms. Liaoning Securities, based in the north-eastern city of Shenyang, was taken over by Cinda Asset Management Co, one of four state debt clearing agencies, in October 2004.
JP Morgan is lobbying regulators to ease ownership rules in China, so it may buy a stake exceeding a current ceiling of 33 percent. "So far, it's all uncertain," the first source said.
"It's not only JP Morgan. Other foreign investment banks are also lobbying the government for higher stakes in Chinese brokers."
Goldman Sachs and Morgan Stanley are among the global banks that have struck deals to engage in domestic underwriting in China, a potentially lucrative business as Beijing restructures burgeoning markets. JP Morgan, which was first reported to be interested in Liaoning by the Financial Times, would have to buy some of the firm's debt if it opted to purchase a stake, said one Shenyang-based Cinda executive.
The brokerage now runs more than 20 business branches and offices, mostly in the frigid north-eastern province of Liaoning province, which borders North Korea.

Copyright Reuters, 2005

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