It has come to light that Credit Suisse, the Swiss banking giant, is making moves to divest its securities brokerage operations in China. This decision has been precipitated by the impending takeover by UBS, a fellow Swiss financial behemoth.
As the unfolding situation unfolds, industry insiders reveal a keen interest from potential buyers.
Eyeing the Chinese market
Navigating the regulatory rules within the Chinese financial sector is no easy task. The unique regulation stipulates that one entity cannot hold more than one license for a majority-owned brokerage.
This stipulation creates a quandary for Credit Suisse, which currently holds a 51% stake in the loss-making Credit Suisse Securities China (CSS).
The Swiss bank, which is in the process of acquiring its partner Founder Securities, is now faced with the need to offload the China-based brokerage operation due to UBS’s pre-existing 67% stake in a lucrative securities venture with Beijing State-owned Asset Management.
CSS, established in 2008, operates from Beijing. Credit Suisse, which originally held a third of the ownership, increased its stake to a majority 51% in 2020.
The firm’s multifaceted license allows it to engage in brokerage, underwriting, sponsoring, proprietary trading, and investment consultancy services.
In the scramble to find a buyer for CSS, Citigroup had emerged as a potential suitor. Led by CEO Jane Fraser, who was recently in China, Citigroup is in the process of establishing a securities brokerage in the country.
The acquisition of CSS would have offered a quick route to market expansion. However, Citigroup chose to stick to its original plan of organic growth, citing its desire to create its business from the ground up.
The question of the potential deal value for the CSS operation hangs in the balance. This is especially notable given the firm’s recent financial performance, with a recorded net loss of 254 million yuan (approximately $36 million) in 2022 and a headcount of 234 at the year’s end.
Next steps for Credit Suisse and UBS
On the horizon, UBS plans to publicly announce the completion of its merger with Credit Suisse as early as next Monday. The newly consolidated group will face the monumental task of streamlining their combined operations in China.
These operations span investment banking, wealth management, and fund management.
Meanwhile, Credit Suisse has reportedly halted its plans to establish a locally incorporated bank in China. Insiders suggest that potential regulatory conflicts spurred by the UBS acquisition prompted this decision.
The potential sale of CSS, coupled with the impending UBS merger, represents a significant shift in Credit Suisse’s presence in the Chinese market.
As the story continues to unfold, industry stakeholders eagerly await the final deal announcement and the impact it will have on the financial landscape.