JPMorgan (JPM) to Own 100% Stake in Securities JV in China

As China opened its financial markets to foreign firms with the removal of restrictions on ownership effective Apr 1, JPMorgan JPM has agreed to own 100% of its Chinese mutual fund joint venture (JV) — China International Fund Management Co. The bank plans to spend around $1 billion to take the full ownership of the venture from Shanghai International Trust Co., per a Financial Times article.

The development follows the opening up of the Chinese markets for foreign financial firms. China’s securities regulator — The China Securities Regulatory Commission (“CSRC”) — removed restrictions on foreign ownership. Notably, it now allows foreign companies to take full control in securities JVs by buying out their local partners or setting up their own money management and investment banks.

Notably, JPMorgan is the first U.S. bank to take full control of its mutual fund operations in China.

Financial terms of the deal remain undisclosed. However, JPMorgan paid more than 33% premium to CIFM’s net asset value and spent $35 million, while buying a 2% stake to gain controlling interest in the venture in August 2019.

“As we advance our onshore business in this critically important market, we look forward to continuing to meet the evolving needs of Chinese and international investors,” Paul Bateman, chairman of J.P. Morgan Asset Management, said in a statement.

Notably, CIFM, formed in 2004, holds $21 billion worth assets as of Dec 31, 2019.

Among other ventures, to explore the prosperous wealth-management market, JPMorgan is considering other options as well. Last year, a strategic partnership was established with China Merchants Bank, which made it a product provider to the Chinese lender’s asset-management subsidiary.

With China opening up its financial markets faster than expected, the biggest U.S. bank (in terms of total assets) also intends to get approval for full ownership of all its mainland China operations by next year. This is part of JPMorgan’s four-year investment plan in China, which was announced last year. Also, the bank will be celebrating 100 years of China operations in 2021.

Shares of JPMorgan have lost 39.7% year to date compared with the industry’s decline of 45.1%.

Currently, JPMorgan carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other than JPMorgan, several major global financial firms like Goldman Sachs GS, Nomura Holdings, Morgan Stanley (NYSE:MS) MS, BlackRock (NYSE:BLK) BLK and UBS Group have won approval or are waiting for the same to increase stakes in their respective JVs in China. Since foreign companies are allowed to conduct business in the country without any restrictions, it will aid in geographical expansion and boost revenues.

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