Credit Suisse AG is broadening its business in China, a move that puts the Swiss investment bank at odds with foreign rivals, some of which are reconsidering their China relationship after decades of slow growth and regulatory setbacks.
The bank announced Nov. 2 that it will open an onshore securities brokerage through Credit Suisse Founder Securities, a joint venture in which Credit Suisse retains a 33.3 percent ownership stake. The brokerage will operate in the Qianhai free trade zone in Shenzhen, and will count both Chinese and foreign institutional investors as clients.
The Swiss Bank is ramping up its China brokerage business on anticipation of greater onshore demand from the extension of the Shanghai-Hong Kong stock trading link to Shenzhen and in the future, other markets. The possible inclusion of Chinese A shares in MSCI’s widely followed global emerging markets index would also drive foreign business to Credit Suisse.
With last week’s announcement, Credit Suisse joins Goldman Sachs and UBS as the only foreign banks with brokerage capabilities in China.
JPMorgan Exits
Credit Suisse’s decision comes a month after JPMorgan said that it would exit its current joint venture JPMorgan First Capital.
While JPMorgan has denied that the sale of its First Capital stake means a full exit from the China market, it does signal that the bank is reconsidering its business model in China. JPMorgan established the China venture in 2010 for equity and debt underwriting, and similar to Credit Suisse, owned a 33.3 percent stake.
JPMorgan First Capital is profitable, but its small scale has been a drag. The joint venture generated a scant 18 million yuan ($3 million) in net profits last year. In an era where banks face increasing scrutiny from shareholders and regulators on risk management and capital deployment, Western banks have been reviewing the value of their Chinese presence.
Shut Out of China
The Chinese communist regime views banking as a core state industry and limits control and economic exposure foreign banks can hold. Wall Street banks must form a local joint-venture and are capped to a minority stake. Initially the ownership cap was one-third but in 2012 the threshold was increased to 49 percent, although no foreign bank has yet taken the step to increase their ownership.
