Citic Securities Co., China's largest brokerage firm by market value, is seeking to enter the U.S. market, according to people familiar with the matter, to secure a bigger role in helping Chinese companies expand abroad.
Fresh from its $1.7 billion initial public offering in Hong Kong in October, Citic Securities has applied with U.S. regulators for a securities license that would allow it to underwrite stocks and bonds in the world's largest economy, the people said. The step, they said, is in keeping with the firm's overseas strategy, which focuses on raising capital for Chinese companies looking to branch out in foreign markets.
A spokeswoman at Citic Securities declined to comment on the firm's plans in the U.S. while the company is in a quiet period ahead of an earnings release. Citic Securities ranked 20th among investment banks in terms of net revenue last year in the Asian-Pacific region, and ranked 53rd globally, according to data provider Dealogic.
One advantage Chinese firms like Citic Securities have is their long experience in the yuan business, which is expected to grow as the government pushes ahead with its drive to boost the status of the yuan internationally.
In April last year, Citic Securities Vice Chairman Yin Ke told The Wall Street Journal, "I can't compete with leading global banks." He added: "I can't build that international presence overnight. But in the next five years, China's increasing internationalization will make a lot of opportunities for us."
The move by Citic Securities underscores the global ambitions of China's financial institutions, which have grown increasingly comfortable venturing outside their home markets after having emerged from the financial crisis largely unscathed.
Beijing has been encouraging Chinese banks and brokerages, as well as manufacturers, to invest more in foreign markets as a way to put to better use China's swelling foreign-exchange reserves, which currently total more than $3 trillion—the world's largest—and mostly sit in U.S. Treasurys and other low-yielding instruments. The reserves are held by China's central bank, and when Chinese companies expand overseas they often apply to the central bank to get foreign currencies in exchange for yuan.
Chinese commercial and investment banks hope to better support Chinese companies in their pursuit of a bigger presence overseas, while guarding against losing their customers to U.S. and European financial institutions that already have world-wide networks. Chinese banks and brokerage firms also see opportunity in offering yuan-linked products for foreign investors looking to gain exposure to China's appreciating currency.
Several Chinese financial institutions already have marched into the U.S. investment-banking business. Industrial & Commercial Bank of China Ltd., China's largest commercial bank by many measures, in 2010 got into the broker-dealer business in the U.S. by acquiring the Prime Dealer Services unit of Fortis Securities, controlled by France's BNP Paribas SA. China International Capital Corp., a big investment-banking firm on the mainland, received a securities license in 2007 from the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority, an independent regulator.
While Chinese financial institutions are expanding overseas, China's market is slowly opening to foreign competition. So far, foreign firms including Goldman, UBS AG, Deutsche Bank AG and Citigroup Inc. have received China's approval to set up securities operations in the mainland market through joint ventures.
Chinese financial institutions have in the past encountered difficulties in gaining access to the U.S. market. For example, it took almost two years for ICBC to get approval from the Federal Reserve to open its New York branch, which has so far focused on commercial lending. The green light was given shortly before President George W. Bush's trip to Beijing for the Summer Olympics in 2008.
Today, ICBC is still waiting for approval from U.S. regulators to go ahead with its proposed acquisition early last year of a majority stake in the U.S. subsidiary of Hong Kong-based Bank of East Asia Ltd. That deal, if approved, would make ICBC the first Beijing-controlled bank to acquire retail bank branches in the U.S.
U.S. regulators often demand that foreign financial firms prove they are adequately supervised in their home markets and have proper anti-money-laundering procedures in place before allowing them to set up operations, legal experts say. It is unclear how long it will take U.S. regulators to review Citic Securities' application.
The firm, which has bulked up through the years by acquiring local brokerages around China, has been actively pushing for a bigger international profile for China's financial institutions. It picked an all-Chinese team of underwriters to manage its Hong Kong IPO last year.
Citic officials have said developing financial products linked to the Chinese yuan will be a primary focus for its business outside the mainland. They have described the firm's work as financial adviser for Hui Xian Real Estate Investment Trust, the first yuan-denominated stock to list outside mainland China, as an important milestone.
"The renminbi can be a driver for creativity and overall development" for Citic Securities, Mr. Yin said in the interview last year, using another name for the yuan.
