UBS hits the Great Wall of China

The integration of Credit Suisse into UBS is progressing. But there are also complications. The previous plans for China have to be revised for regulatory reasons. A US financial giant could benefit from this.

Should UBS’s acquisition of Credit Suisse (CS) close today, the merged company would violate Chinese regulations. The two banks must therefore recalibrate their plans to expand their presence in the Chinese securities and fund business this year, according to the Chinese business magazine «Caixin» reported (paid article).

The two Swiss financial giants have continuously expanded their interests in the lucrative growth market of China, especially since the People’s Republic has steadily pushed ahead with opening up its financial sector in recent years.

Two don’t work

For example, Credit Suisse holds a 51 percent stake in a broker joint venture Credit Suisse Securities China. CS is seeking approval to take over the remaining shares from the Chinese partner. In 2020, she had acquired the majority in the joint venture and wanted to use it from the metropolis of Shenzhen to advance into the mass market.

But that could be problematic. Because UBS holds 67 percent of the Beijing-based company UBS Securities Co. In accordance with the regulations of the Securities Commission China Securities Regulatory Commission (CSRC), a company may not be the controlling shareholder of more than one investment firm.

potential problem

The regulations on participation in investment fund managers also pose a potential problem for UBS after the CS takeover. CS holds 20 percent in the investment fund manager ICBC Credit Suisse Asset Management – a joint venture (JV) with the state-owned Industrial and Commercial Bank of China (ICBC), the country’s largest bank by total assets.

The company is a leading mutual fund manager in mainland China. According to the ICBC, she had 1.72 trillion yuan ($247 billion) in assets under management at the end of 2022. Management fee income ranked among the top 10 mutual fund managers in China this year, it said.

Project will probably be dropped

UBS, in turn, holds 49 percent of its own JV in this area. UBS SDIC Fund Management had fund assets under management of around 237 billion yuan at the end of 2022. In itself, this company does not pose a problem. However, the Swiss bank plans to obtain a license to operate its own Investmentfondsmanagers in China to apply, as sources explained to the renowned business newspaper.

Should the license be granted and UBS go ahead with the establishment of the company, the bank would have interests in three mutual fund managers in China after the completion of the CS acquisition. This would violate Chinese regulations, according to which a company may in principle have a stake in a maximum of two such institutes. In order not to violate the regulations, UBS will give up its plan to apply for its own license for investment funds, it said.

Is Citigroup snapping up?

Meanwhile, CS is nearing completion of the purchase of the remaining shares in Credit Suisse Securities China. However, it is likely that it will sell the entire package if the regulator approves the deal, it said.

The sale would include a license to operate as a wholly owned investment firm. Caixin claims to have learned from multiple sources that Citigroup is interested. The US financial giant has yet to receive approval for a securities license, which it applied for in late 2021.

What do Switzerland and its financial center need most now?

  • Rapid integration of CS into UBS.

  • The medium-term spin-off of the Swiss CS.

  • Job security for CS employees.

  • A bonus cap for the top management of the banks.

  • Higher own funds requirements.

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2023-05-22 12:00:00

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