Investment bankers pay heavy price for China’s broking pie

Overseas banks keen for a piece of China’s red-hot brokerage sector will have to swallow some rich prices to buy into domestic securities firms, which are in no hurry to make deals as they focus on their own share listings. But for investment banks such as Citigroup and JPMorgan, a strategic partnership with a local securities house is a must in the long run, if they want to cash in on China’s rapidly growing stock markets, whose capitalisation has reached nearly 20 trillion yuan ($2.65 trillion), exceeding Hong Kong.

Besides Citi and JPMorgan, banks including HSBC and Credit Suisse are shopping for Chinese partners. Even Morgan Stanley, which launched China’s first such investment banking joint venture in 1995, is eyeing its second deal, banking sources said. “You cannot ignore China if you want to explore new profit streams in emerging markets,” said Philip Leung, a Shanghai-based partner for Ernst & Young.

Mainland China is on track to overtake Hong Kong, as Asia’s biggest centre for initial public offerings this year. Analysts have said, they expected fund-raising by Chinese firms via domestic IPOs to hit 400 billion yuan this year, up from 165 billion yuan in 2006 as Beijing encourages more Hong Kong-listed firms to sell shares at home. Most overseas banks will miss out on the current IPO boom — except for Goldman Sachs, UBS and Morgan Stanley, which established partnerships in China when the industry was still mired in a severe downturn.

Read more in The Economic Times