US banks believe trade tensions could delay or prevent approvals to increase their stakes in Chinese subsidiaries, possibly enabling European banks to an gain upper hand.
The US-China trade war could disrupt American banks’ plans to expand in mainland China, according to an FT report.
Foreign banks in China have struggled with low profitability and limited market share, due in part to the inability to own a majority stake in their subsidiaries. They have just a 2 percent share of China’s banking market by assets.
The share is higher in investment banking, but fee revenue has shrunk from over 60 percent in 2006 to less than 30 percent this year. Securities trading revenue has also been declining for foreign firms, due to weaker trading volumes and shrinking brokerage margins.
However, the recent liberalisation on foreign ownership of securities and fund management firms (from 49% to 51%) has given foreign banks a path to achieving full management control of Chinese subsidiaries, including on hiring, IT systems and compliance checks.
However, according to the FT, US bank executives believe the trade war could delay or prevent them from obtaining approval to increase their stakes in Chinese affiliates. So far JP Morgan, Goldman Sachs, Citigroup and Morgan Stanley all plan to increase their stakes in Chinese subsidiaries to 51 percent.
Meanwhile, European banks hope the US-China trade tensions could gain them an advantage over American rivals, the FT said. Switzerland’s UBS was indeed one of the first banks to submit its application to increase its stake in its Chinese subsidiary UBS Securities.
Last month, Deutsche Bank received a long-awaited licence to underwrite bonds in China just days after premier Li Keqiang visited Germany, indicating that approvals are often the result of political bargaining.
Currently, a Chinese delegation is visiting with US Treasury officials trying to find a way out of the trade dispute. This is the first formal interaction between US and Chinese officials since June, although President Trump has indicated he does not anticipate much from the talks.