China May Let Wall Street Banks Run Own Mainland Units, WSJ Says

(Bloomberg) -- China may give Wall Street firms long-sought permission to run their own investment-banking arms on the mainland, the Wall Street Journal reported, citing unidentified people briefed on the talks.

Officials in Beijing are considering the move amid discussions for a new trade and investment framework with the U.S., the newspaper said. Under existing rules, U.S. firms offer services to companies on the mainland by taking minority stakes in joint ventures with China's domestic brokerages.

Such arrangements have long frustrated some of the world's biggest banks, which have struggled to challenge local players in China while relinquishing control of key decisions, as well as a share of profits. JPMorgan Chase & Co., the largest U.S. bank, said last month it's in talks to sell a stake in a partnership, JPMorgan First Capital Securities, potentially freeing itself to get more control through a new venture.

People briefed on China's deliberations cautioned that talks are continuing and that details would need to be worked out with regulators, the Wall Street Journal said. An agreement also would need to be ratified by the U.S. Senate, the paper said.

Small Share

Firms including Goldman Sachs Group Inc. and UBS Group AG also established Chinese joint ventures more than a decade ago. But most foreign-backed joint ventures remain minnows in China.

JPMorgan First Capital ranked 120th out of China's 125 securities firms by net income in 2015, according to the Securities Association of China. UBS Securities Co. whose 296 million yuan ($44 million) profit was the biggest among foreign-backed joint ventures, came in at 95th place.

JPMorgan's local partner, First Capital Securities Co., has said it's held talks to buy the U.S. firm's stake. The joint venture generated 156 million yuan of revenue in the first half.

JPMorgan has weighed options including forming a new joint venture under a framework established in the Shanghai Free Trade Zone, people familiar with the matter said last month. That framework opens the door for overseas banks to achieve greater control of local ventures and pick partners that aren't in the securities business, they said. Even so, the rules have yet to be finalized, the people said.

To contact the reporter on this story: David Scheer in Seattle at dscheer@bloomberg.net. To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net, David Scheer, Sylvia Wier