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Dec. 25 (NBD) – Swiss investment bank UBS Group AG (UBS) has obtained a controlling interest in the affiliated firm UBS Securities Co Ltd (UBS Securities), becoming the first foreign financial institution gaining majority control of its joint venture (JV) in China.

The deal to raise UBS's holdings in the Chinese broker from 24.99 percent to 51 percent was completed on Monday.

Eugene Qian, general manager of UBS Securities, believes the new move will help the company to forge closer links with UBS's business in the Asia-Pacific region and seize opportunities in Chinese capital market, so as to make further contributions to UBS.

Andrea Orcel, the head of investment banking at UBS, noted expanding presence in Chinese market may decrease short-term ROE but UBS is investing for a rise in ROE. Its emphasis is on the future deployment in market in the next three to five years, and UBS will increase investment in the sector.

Data shows that the revenue of China's institution brokerage business is expected to grow fourfold to hit 13 billion U.S. dollars by 2025, and market business (market-making service and derivatives), financing business (brokerage) and investment banking business (underwriting and consulting) will generate another 87 billion U.S. dollars for the market.

Thus, foreign brokers will grab up to 25 percent of market share in China, driving a 5-10 percent surge in global earnings for brokerage giants.

However, some hold an opposite idea that foreign firms are less competitive than local counterparts.

In Orcel's view, this not only happens in China. Foreign companies should conduct market positioning to fit the new market, he said.

The investment banking sector in China is dominated by local players, and the same happens in Switzerland and Italy. Chinese institutions have more advantages in terms of clients, network, capital, credit and size. So foreign financial firms need to emphasize on their business with strong competitiveness. For instance for UBS, the cross-border business is the segment the company will work on.

Since China boosted the ceiling for foreign ownership of JV fund management companies to 51 percent from 49 percent this April, U.S.-based JPMorgan Chase & Co., Japanese brokerage leader Nomura Holdings Inc and Switzerland's Credit Suisse AG have been seeking for a nod of raising holdings from the regulator.

Mark Leung, CEO of JPMorgan Chase & Co.'s China business, stated in September that the company expects to fully own the brokerage firm in the country in the next three years. Besides, it is also negotiating with its partners, eyeing the majority control in another JV China International Fund Management Co Ltd.

Email: zhanglingxiao@nbd.com.cn