Most joint ventures don’t have licenses to trade domestic securities. This is a lucrative business for local Chinese brokers and one that has allowed them to build big retail-sales networks that have helped them win bond and IPO deals on the mainland.
Some global bankers said the joint ventures have helped drum up business offshore. Citi Orient Securities Co., Citigroup Inc.’s joint venture, this year worked with Chinese online lender Lufax on an IPO in mainland China. When Lufax decided it would list in Hong Kong instead, Citi Orient referred the company to Citi’s Hong Kong team, said people familiar with the matter. A spokeswoman for Lufax declined to comment. Western bankers say they have the advantage of large international investor bases that they can draw on for deals.
Still, joint-venture profits have been thin. Although some revenue from the joint ventures may be counted in global operations, eight foreign investment-banking joint ventures collectively eked out profits of just $116 million in 2015 and $38 million in 2014, on revenue of $664 million and $493 million, respectively, according to the Securities Association of China. By contrast, Goldman Sachs alone last year reported world-wide pretax profit of $8.78 billion on $33.82 billion in revenue.
Executives at many Western investment banks privately said they are rethinking partnerships on the mainland. J.P. Morgan is discussing selling its stake in the joint venture to its partner, while Credit Suisse Group AG is considering increasing its stake or finding a new partner, among other options, people familiar with the matter said.
“Can the globals make enough of an inroad to make it interesting against the very strong mainlanders? That’s the crux of the issue,” said Ken Koo, deputy general manager of Citi Orient Securities. China is “a bit of a longer game, but this is not going away in terms of the opportunity.”