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UBS in Talks to Buy Majority Stake in China Securities JV

(Bloomberg) -- UBS Group AG is in discussions to acquire a majority stake in its Chinese securities joint venture, Chief Executive Officer Sergio Ermotti said, as global banks rush to take advantage of Beijing’s pledge to further open its financial markets.

UBS has started talks with its local partners on taking a 51 percent stake in the venture, Ermotti said in an interview in Shanghai on Monday with Bloomberg Television’s Tom Mackenzie. He also said UBS is ahead of its plan to double headcount in China over a five year period, saying the Zurich-based bank may have 1,200 staff in the country by the end of this year.

"So we are in line with our plans to grow our business, regardless of the stake,” Ermotti said. “But of course if we can have a more rounded financial participation in our business here, we do welcome that," he added. He said the discussions on a 51 percent stake could be concluded in “a matter of months.”

Other global securities giants such as Morgan Stanley and Goldman Sachs Group Inc. have already signaled a desire to take majority stakes in their Chinese ventures, following the government’s announcement in November it would relax foreign ownership restrictions. China said it plans initially to allow 51 percent stakes before abolishing the cap completely after another three years.

The Swiss bank announced in early 2016 it planed to add about 600 people in China across wealth management, investment banking, equities, fixed income and asset management businesses over a five-year period.

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It’s the first time UBS has confirmed talks on taking a majority stake in its China venture. Before the government announcement, UBS had been working on a plan to boost its stake in its local venture to 49 percent, up from 25 percent at present. The four Chinese companies in the venture are Beijing Guoxiang Asset Management Co., China Guodian Capital, COFCO Group and a Guangdong transport company. 

Goldman Sachs has quietly been laying the groundwork for taking control of its onshore securities business in China, holding discussions with its local partner Fang Fenglei, people familiar with the matter said in November. Morgan Stanley has already raised its stake in its local securities joint venture to 49 percent from one third, and aims to hold a majority once China gives details on how the rule change will be implemented.

However, Ermotti noted that a majority stake for UBS would be less significant because it already has management control over the venture. “Honestly, strategically speaking it doesn’t really change at lot because we have been in full control from the managerial standpoint" in China, he said.

Ermotti also said:

  • Recent hires in China were across the board, and included new staff for the bank’s risk management and technology functions. “So we are also developing knowledge and know-how that we export for the rest of the group from China,” he added.
  • He welcomed extra clarity on Basel capital requirements but said it’s “premature” to make any announcement on share buybacks by UBS.
  • He expects financial market volatility to increase. “If I look into 2018, I do expect probably a more normalizing environment for volatility than the ones we saw in the last few quarters," he said.
  • He declined to comment on UBS’s relationship with HNA Group Co.

(Updates with bullet points on other Ermotti remarks at the end.)

--With assistance from Jun Luo

To contact the reporters on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net, Tom Mackenzie in Shanghai at tmackenzie5@bloomberg.net.

To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Dale Crofts

©2018 Bloomberg L.P.

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