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 signalled 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 planned to add about 600 people in China across wealth management, investment banking, equities, fixed income and asset management businesses over a five-year period.
It’s the first time UBS has confirmed talks on taking a majority stake in its China venture, over which it already has management control. 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 of its management control. “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 declined to comment on UBS’s relationship with HNA Group Co.
‘Volatility set to become more normal in 2018’
UBS Group AG Chief Executive Officer Sergio Ermotti said he expects market volatility to increase this year from the “very low” levels which have hampered trading income and fees.
“If I look into 2018, I do expect probably a more normalized environment for volatility than the one we saw in the last few quarters,” Ermotti said in an interview with Bloomberg Television on Monday, adding that volatility in foreign exchange trading and equities is still “very, very low.” Low volatility hurts investment-banking revenue by removing trading opportunities. Deutsche Bank issued a profit warning, saying that revenue at the German bank’s securities unit probably dropped about 22 percent in the final quarter because of persistent low volatility in markets and muted client activity. Analysts had
expected revenue to increase.
UBS’s investment bank has contributed less than a quarter of pretax profit in recent years after Switzerland’s largest lender pulled out of riskier trading activities to focus on managing the money of the world’s wealthiest individuals. Andrea Orcel, the investment bank head, last month predicted 2018 will be another challenging year for securities firms.