Goldman Sachs Group Inc. is moving to acquire 100% ownership of its securities joint venture in China, deepening its investment in the world’s second-largest economy after partnering with a domestic brokerage for 17 years.
The New York-based bank is applying with Chinese regulators to take full control of Goldman Sachs Gao Hua Securities Co. and has signed an agreement to acquire the 49% share of the venture it doesn’t own, according to an internal memo seen by The Wall Street Journal.
Goldman is the first global bank to seek full ownership of its securities business in China and intends to rename it Goldman Sachs (China) Securities Co. In March, the country’s securities regulator approved the firm’s bid to take majority control of the Beijing-based unit.
“One hundred percent ownership of our franchise on the mainland represents a significant commitment to and investment in China,” Chief Executive David Solomon, Chief Operating Officer John Waldron and Chief Financial Officer Stephen Scherr said in the memo dated Tuesday.
U.S. investment banks, asset managers and credit-card companies have long coveted a bigger presence in China but were held back for decades by ownership restrictions on financial businesses in the country. Wall Street has emerged as a big winner in the trade war between Washington and Beijing, after a pact signed in January promised greater access to China’s financial sector for American institutions.
JPMorgan Chase & Co. and Morgan Stanley have both taken majority control of their local securities joint ventures. The former also has full ownership of a futures unit in China. Citigroup Inc. has been awarded a custodian license that allows it to service mutual and private funds domiciled in China.
China is the only major economy in the world expected to achieve growth this year, and its capital markets are booming, with scores of companies going public and raising money from stock and bond sales domestically and abroad. Foreign banks have a tiny share of stock and bond underwriting business in mainland China.
Goldman has financed or invested in companies in China for more than 25 years. Full ownership of its China securities business would enable Goldman to better manage its operations in the country and invest in growth in areas such as asset management and private wealth, the firm’s executives have said previously.
The existing venture with a domestic brokerage, Beijing Gao Hua Securities Co., was set up in 2004, with Goldman owning 33% and the Chinese firm owning 67% at the outset. The business handles underwriting of stocks and bonds, and merger and acquisition advisory work in China.
Gao Hua was founded that year by Fang Fenglei, a renowned Chinese rainmaker, and investment firm Legend Holdings. Mr. Fang had previously worked at state-owned lenders, including Industrial and Commercial Bank of China and Bank of China. He helped start China’s first Western-style investment bank, China International Investment Corp., in the mid 1990s with Morgan Stanley and other firms. Mr. Fang also heads Hopu Investments, a private-equity firm.
Goldman didn’t say how much it plans to pay for the remaining shares in the China venture. As regulatory approvals can take some time to secure, the transaction would likely be completed in 2021. The firm laid out a five-year expansion plan for China late last year and plans to double its head count in the country to 600.
Goldman Sachs Gao Hua recorded the equivalent of $79.3 million revenue, or 518 million yuan, in 2019, up 14% from the previous year, according to its annual report. Its net profit last year fell 5% to $10 million.
In 2019, the securities firm underwrote one initial public offering and seven bond deals, the report showed.
Write to Jing Yang at Jing.Yang@wsj.com
View more information: https://www.marketwatch.com/story/goldman-sachs-to-acquire-100-of-china-venture-2020-12-08