Citigroup (C) May Boost Majority Stake To 51% In China JV

The U.S. bank — Citigroup (NYSE:C) — might seek an option of increasing majority stake in its Chinese securities venture, Bloomberg has reported. This move follows China’s securities regulator — The China Securities Regulatory Commission (CSRC) — lessening restrictions on foreign ownership of majority control.

Therefore, to explore opportunities in equities and fixed-income trading operations in China as well, this U.S.-based bank targets to raise stake to 51%, up from the existing 33% in its Citi Orient Securities Co Joint venture, per the source. However, though the partners are still in discussions, Citigroup might plan to join forces with a new firm rather than having any differences with Orient Securities.

“Citi is making strong progress organically in China and we are committed to further growth and are pursuing multiple engines of growth including with a local market JV,” the bank said in an e-mailed statement, without elaborating. However, Orient Securities refrained from commenting.

Notably, issues crop up in a joint venture (JV) with a local securities firm as sometimes the venture gives completion to the partner itself. Therefore, to get rid of these issues Citigroup will likely set up a separate entity with companies deprived off the securities business.

What Drives Citigroup?

Citigroup works globally. Particularly, China constitutes out of the eight Asian markets, which records revenues more than $1 billion for the bank.

Notably, in 2012, the Chinese government permitted foreign banks to boost their stakes in JV with a local firm to 49%. Therefore, Citigroup opened a JV in the same year after trying for years to enter China’s securities market. Later on, the bank expanded its onshore operations and sought various licenses for fixed-income trading apart from JV.

Other Global Banks With Same Moves

Among other global banks, Nomura Holdings Inc. (NYSE:NMR) and JPMorgan (NYSE:JPM) are also in pipeline to seek permission for majority stake. The Swiss bank — UBS Group AG (NYSE:UBS) — has also expressed interest in increasing majority stake in its Chinese securities venture with the submission of application to CSRC in May 2018.

Our Viewpoint

Global investment banks’ expansion has been limited in China for the past few years due to restrictions imposed on ownerships. Therefore, with the easing out of boundaries for global banks and growing Chinese economy, major foreign banks will be attracted to expand here.

For Citigroup, this is expected to be a step in the right direction for enhancing profitability. The company has restructured many of its global operations.

Amid troubled financial currents, Citigroup is likely to gain some financial flexibility from such moves. We believe the company is well poised to address its internal inefficiencies and setbacks. Further, we anticipate that the company’s streamlining initiatives will boost its capital position, reduce expenses and drive operational efficiency.

Over the last two years, shares of Citigroup have appreciated 17.4% compared with 20.3% growth registered by the industry.

Currently, Citigroup carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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