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Citi to set up wholly owned securities business in China: sources
[HONG KONG] Citigroup Inc, which is dissolving its investment-banking joint venture in China, is now planning to set up a wholly-owned securities business in the world's second-largest capital market, according to people with knowledge of the matter.
The New York-based bank may initially focus on brokerage and futures trading while expanding its custodian services in China, the people said, asking not to be identified because a final decision has yet to be made. It plans to apply for a futures licence as early as the first half of 2020, according to the people.
A late entrant into China's securities market, Citigroup is among the first global banks planning to take advantage of China's decision to allow full foreign ownership of financial services companies in the country. The securities regulator last week said overseas institutions can apply for total control starting in 2020. Rivals JPMorgan Chase & Co and Goldman Sachs Group Inc also are seeking full ownership of their securities ventures in China.
Citigroup's new securities operation may opt against establishing an investment-banking unit in China initially, deterred by the high costs of hiring at least 35 people on the ground under current requirements, said the people. Goldman and UBS Group AG, which are active in the space through their local joint ventures, have faced challenges. Goldman's venture in China reported a 64 per cent slump in investment-banking fees last year, while UBS's mainland investment-banking revenue dropped 48 per cent.
"Citi continues to evaluate opportunities to further support its clients in China," the bank said. A spokesman declined to give additional details.
Citigroup, which generates more than US$1 billion of revenue a year from its China-based clients - a tenfold increase from a decade ago - is betting on foreign investors' continuing appetite for mainland-listed stocks, bolstered by the stock connect programme, which links China's mainland markets and the Hong Kong Stock Exchange, and MSCI's gradual inclusion of Chinese stocks in its index, with a 20 per cent weighting set for next month.
The China Securities Regulatory Commission said in August it's working on plans to give global investors more access to the commodity futures market to better serve the economy.
Since China permitted majority control of financial services firms last year, UBS, Nomura Holdings Inc and JPMorgan gained control of local securities joint ventures. Goldman Sachs, Morgan Stanley and DBS Group Holdings Ltd have applied to follow suit. Nomura is on track to have more than 100 employees in its Chinese securities venture when it starts operations in December, focusing on wealth management and institutional brokerage.
Instead of offering onshore investment-banking services, Citigroup would focus on helping local clients raise capital and make acquisitions overseas, mainly through its Hong Kong hub, said the people with knowledge of the plans.
Citigroup already has a custody business for overseas entities, and would need a separate licence to offer the service to onshore investors.
Last year, Citigroup decided to exit a securities joint venture with Orient Securities Co, in which it had a 33 per cent stake, to set up a business in which it could have majority control and push into equities and fixed-income trading - a move that would put it in direct competition with its Chinese partner.