The profits of Goldman Sachs, Morgan Stanley and several other Western banks in China said last year that the coronavirus lockdown and geopolitical tensions may finally make their business in China lucrative. Expectations were dashed and profits fell sharply.
Credit Suisse, Deutsche Bank, Goldman Sachs and HSBC report losses in China-based divisions in 2022, while Morgan Stanley’s profits fell, figures announced by the financial institutions and confirmed by the Financial Times became clear.
Of the seven Wall Street and European groups with investment banking units in mainland China, JPMorgan and UBS were the only banks to see higher profits, while HSBC’s losses were smaller than in previous years.
Western banks have invested in small, loss-making operations in China for years in the hope that their foothold in the world’s second-largest economy will eventually turn profitable. But the numbers show how difficult that gamble has become as relations between the United States and China have soured.
“They established this [mainland units] At a time when China was only looking for growth. . . There was no geopolitics in the background,” said a veteran Hong Kong investor. “In fact, a lot has changed.”
A snapshot of an interactive graphic is shown. This is most likely due to being offline or having JavaScript disabled in your browser.
The lackluster performance marks a reversal from 2021, a record year for global investment banking, when the Chinese government will take full ownership of the sector for the first time following a trade deal with China. After granting permission, 6 out of 7 banks turned a profit on mainland operations. America.
Lenders cite US-China tensions, COVID-19 restrictions, a property crisis in China, a decline in domestic stock trading, restructuring costs, and fierce competition for losses and marginal gains, according to company filings.
Progress has stalled as global banks assess how hard their operations in China will be hit by U.S. sanctions and increased government surveillance. Banks have also been asked by Chinese regulators to cut executive pay and defer bonus payments, in line with President Xi Jinping’s “shared prosperity” mantra.
Others are starting to forego potentially lucrative jobs to avoid running into U.S. sanctions.
“AI is the next big thing, and five years ago I would have spent a lot of time covering Chinese AI companies,” said a top executive at a Western investment bank in Hong Kong. “But not now. They could end up on the US entity list.”
Together, they accounted for just 0.1% of the 395 billion yuan ($56 billion) in revenues made by China’s 140 investment banks last year. The mainland division represents all of the money a bank makes in China, as profits from some business lines are often booked elsewhere, such as advising Chinese companies on U.S. and Hong Kong listings. It doesn’t mean there is.
“As long as the big U.S. banks can build their brands among China’s wealthy, they have the potential to significantly grow their business in China’s $10 trillion wealth management sector,” said Victor of the University of China. Professor Shi said. San Diego, California. “It will be difficult for them to navigate the regulatory environments of both the US and China.”
JPMorgan Chief Executive Jamie Dimon is set to visit China this month for the first time since he was forced to apologize in 2021 for saying the bank would outlive the Chinese Communist Party. He will arrive in Shanghai on May 30th for a series of conferences before heading to Hong Kong for the conference.
In the first half of last year, global banks failed to win big deals in the burgeoning market for initial public offerings (IPOs) on mainland exchanges. The number of listings on the market soared as exchanges in New York, London and Hong Kong struggled with declining IPOs.
Executives at two of the banks said their banks were hesitant to participate because underwriting standards were sometimes lower than in other markets.
The Shanghai Stock Exchange’s fast-growing Star Board, which raised RMB 17.9 billion in 11 IPOs in the first quarter of this year, is asking banks to invest their own money in public offerings they advise.
The listing of Chinese companies in New York, once a lucrative source of fees for Western banks to justify losing money on the mainland, has waned as Beijing tightens regulations and U.S. regulators tighten their scrutiny.
Global banks still dominate Hong Kong’s listed market, but Chinese rivals are beginning to challenge that position. A mainland business executive at a global bank said Chinese banks are increasingly “trying to squeeze” in by telling clients that IPOs in Hong Kong should hire not only foreign banks but also mainland banks. .
The China sector is small in terms of global banking operations as a whole. JPMorgan’s China securities arm posted a profit of $38 million last year, compared with $38 billion for the bank as a whole. Goldman’s net loss in China of $58 million came within a global profit of $11.3 billion.
HSBC said it was “fully committed” to its mainland securities division and was “showing good momentum”. Other banks declined to comment.
More foreign banks are in the early stages of setting up operations on the mainland. Citi has applied for a wholly-owned securities arm in 2021 but has not received approval. Standard Chartered received a license to set up a fully managed securities division in January.
Despite the headwinds, Western financial institutions are unlikely to abandon their mainland sector. “They planted the seed,” said one senior banker. “It costs money to get a license and hire people.
