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Citi to Set Up Wholly Owned Securities Business in China
Published on: 2019-10-17
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040Citigroup Inc., which is dissolving its investment-banking joint venture in China, is now planning to set up a wholly owned securities business in the world’s second-largest capital market, according to people with knowledge of the matter.

The New York-based bank may initially focus on brokerage and futures trading while expanding its custodian services in China, the people said, asking not to be identified because a final decision has yet to be made. It plans to apply for a futures license as early as the first half of 2020, according to the people.

042A late entrant into China’s securities market, Citigroup is among the first global banks planning to take advantage of China’s decision to allow full foreign ownership of financial services companies in the country. The securities regulator last week said overseas institutions can apply for total control starting in 2020. Rivals JPMorgan Chase & Co. and Goldman Sachs Group Inc. also are seeking full ownership of their securities ventures in China.

Citigroup’s new securities operation may opt against establishing an investment-banking unit in China initially, deterred by the high costs of hiring at least 35 people on the ground under current requirements, said the people. Goldman and UBS Group AG, which are active in the space through their local joint ventures, have faced challenges. Goldman’s venture in China reported a 64% slump in investment-banking fees last year, while UBS’s mainland investment-banking revenue dropped 48%.

041"Citi continues to evaluate opportunities to further support its clients in China,” the bank said in an emailed statement. A spokesman declined to give additional details.

Citigroup, which generates more than $1 billion of revenue a year from its China-based clients -- a tenfold increase from a decade ago -- is betting on foreign investors’ continuing appetite for mainland-listed stocks, bolstered by the stock connect program, which links China’s mainland markets and the Hong Kong Stock Exchange, and MSCI’s gradual inclusion of Chinese stocks in its index, with a 20% weighting set for next month.

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