Merger of top brokers put on the fast track

Business | Bloomberg and Stella Zhai 3 Jul 2020

China is speeding up the process of potentially merging its two biggest investment banks, which is expected to create a US$82 billion (HK$639.6 billion) powerhouse and may spark a wave of consolidation among the country's more than 130 brokers as Sino-US tensions escalates and Chinese companies have a hard time in the US capital market.

In the latest proposal, Citic Group, the parent of China's largest broker Citic Securities, will act as the main buyer of a stake in CSC Financial, the second largest, according to people familiar with the matter. Citic Group would buy the stake from state-controlled shareholder Central Huijin Investment, making it the largest shareholder and paving the way for a consolidation of resources and operations, said the people.

The deal comes as mainland regulators are discussing plans to allow the country's biggest lenders to enter the securities industry and open the market to Wall Street's giants.

Taken together, the 131 Chinese brokers have combined assets equivalent to one Goldman Sachs and less than a third of Industrial & Commercial Bank of China, but are far from being full-service investment banks.

Meanwhile, a US lawmaker is seeking to ban Chinese companies from US capital markets if they engage in spying, human rights abuse, or support China's military.

Roger Robinson, a former White House official who supports curbing Chinese access to US investors, said 13 of the 20 companies designated by the Defence Department last week as backed by the Chinese military have a presence in US capital markets.

China hardliners in Washington have already targeted China's access to US capital markets as a pressure point, succeeding in halting plans by federal pension fund administrators to allow a US$40 billion fund to track an index that includes controversial Chinese companies.

US commerce secretary Wilbur Ross also called companies with headquarters in Hong Kong to rethink having those offices.

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