Maybe this is relevant! Something specific surely spooked them.
Global Firms Barred From Running China Brokerages (Update2)
By Cathy Chan and Zhao Yidi Enlarge Image/Details
Oct. 3 (Bloomberg) -- China may prevent foreign investors from taking control of domestic brokerages, a setback to Wall Street's ambitions to tap the world's fastest-growing stock market, people familiar with the planned rules said.
Overseas companies will be limited to owning stakes in publicly traded brokerages, with the foreign holding capped at 20 percent, said the two people, asking not to be identified before the rules are approved. The China Securities Regulatory Commission has submitted the draft rules to the State Council, the nation's highest decision-making body, they said.
Goldman Sachs Group Inc. and UBS AG are the only global securities firms that control investment banking units in China, where 47 million new stock trading accounts have been opened this year. The new rules would prevent rivals such as JPMorgan Chase & Co. and Merrill Lynch & Co. from obtaining controlling stakes in the nation's brokerages.
This is ``a step which will limit foreigners' ability to take control of a broker in the same way as Goldman Sachs, UBS,'' said Tim Ferdinand, vice chairman of Euro Securities Ltd., the Chinese investment banking venture of CLSA Ltd. ``Foreign investment banks will have to accept that the Chinese are not going to open their financial markets quickly.''
Foreign firms aren't licensed to set up their own brokerages in China.
WTO Pledge
Chinese Vice Premier Wu Yi pledged during a May meeting with U.S. Treasury Secretary Henry Paulson to open China's securities industry to overseas firms. China said it would stop taking applications for new investment or licenses in September last year, saying domestic securities firms needed time to get ready for competition.
``UBS and Goldman were special cases,'' said Liang Jing, a Shanghai-based analyst at Guotai Junan Securities Co. ``The restriction of licenses doesn't meet the general expectation of a full-scale opening up when one uses those two foreign investment banks to compare.''
Liu Fuhua, a Beijing-based spokesman at the CSRC, declined to comment. Spokespeople at JPMorgan and Merrill Lynch in Hong Kong also declined to comment.
Previous investments in Chinese securities firms were made by special arrangement with regulators.
Morgan Stanley helped set up China International Capital Corp. 11 years ago, taking a 34 percent stake in the nation's first investment bank. The New York-based firm surrendered management responsibilities at CICC in 2000 following a dispute with the Chinese company's management.
UBS, Goldman
UBS AG, Europe's biggest bank by assets, won approval in June last year to set up UBS Securities Co. The Zurich-based firm holds a 20 percent stake in the company it bought for $210 million. UBS said in September 2005 that it will manage the firm.
Goldman has a 33 percent-owned investment banking venture with Beijing Gao Hua Securities Co. Goldman loaned about $100 million to mainland banker Fang Fenglei to set up Gao Hua. Goldman's Hong Kong-based spokesman Edward Naylor said the firm doesn't disclose details of the arrangement.
The new rules at least set a level playing field for new entrants, CLSA's Ferdinand said.
``What was very frustrating for foreign investment banks was that nobody knew who was going to be next to be given a special exemption,'' he said. ``Nobody knew what to propose to the CSRC in order to get such a special exemption.''
Booming Stock Market
Foreign firms can take 33 percent of investment banking ventures with Chinese partners, allowing them to directly engage in underwriting stock and bond sales, the people said. These ventures may be granted brokerage, asset management and advisory licenses over time, the people said. No deadline was given for extending licenses.
The nation's booming market for stocks has made the shares of Chinese brokerages, including Citic Securities Co., more expensive. Citic, the world's fourth-biggest securities firm by market value, reported in August first-half profit jumped more than five times from a year earlier. Trading commissions contributed 62 percent of sales, while its underwriting business accounted for only 4.4 percent.
Citic's market value has risen to 320 billion yuan ($43 billion) today from 10.5 billion yuan in March 2005. Its stock price of 96.71 yuan values the company at 34.8 times estimated earnings for this year, compared with 9.48 times for Goldman Sachs.
Trading Accounts Surge
China's stock markets have almost tripled in size this year. The $3.37 trillion value of the companies traded in Shanghai and Shenzhen trails only London, Japan and New York, according to data compiled by Bloomberg.
Total trading accounts in China have swelled to 125 million. In the U.S., brokerages manage more than 83 million accounts with total assets of $3.85 trillion, according to 2006 statistics from the Securities Industry and Financial Markets Association.
The Financial Times earlier reported China planned to allow investments of as much as 20 percent in existing brokerages. Buying into a failed, closely held securities firm would allow foreign investment banks to negotiate for management control.
``It's going to be easier for the regulators to control the foreign shareholder if the company is a publicly listed company,'' Ferdinand said. ``There's not a lot of opportunity for behind-the-scenes deals.''
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