Will Citi’s China banking agreement become the latest plank in the bank’s mainland platform?

Citigroup has signed an agreement with a Chinese partner to establish a mainland investment banking joint venture, ahead of an expected opening of the sector to more overseas participation.
People familiar with the situation said the US bank had agreed a partnership with Central China Securities, a mid-sized brokerage. The venture is expected to apply for regulatory approval in the coming weeks. Citigroup declined to comment and officials at Central China Securities were not available to comment.

The agreement comes as Beijing is poised to relax a two-year ban on foreign investment in the country’s booming domestic securities industry.

Citigroup’s move follows those of Credit Suisse and Morgan Stanley, which last month signed separate agreements with Chinese partners to establish mainland investment banking joint ventures. Credit Suisse signed a deal with Founder Group, a Chinese conglomerate that owns a securities arm. Morgan Stanley has signed a preliminary agreement with China Fortune, one of the country’s oldest brokers.

Central China Securities has its headquarters in Zhengzhou, in the central province of Henan, although it’s main investment banking operations are in Shanghai. The company’s website says it has 500,000 brokerage clients.

Citigroup already advises mainland companies on overseas IPOs and mergers and acquisitions. The joint venture, if approved, would become the latest plank in the bank’s mainland platform. It has a stake in Shanghai Pudong Development Bank, de facto control of Guangdong Development Bank and its own retail branch network.

Goldman Sachs and UBS won approvals for mainland securities joint ventures before China stopped such deals, fearing that the better managed and more experienced overseas companies would dominate the industry.

The inability of most foreign groups to underwrite mainland IPOs or trade domestic securities has proved costly, with the stock market booming and A-share listings in Shanghai and Shenzhen raising more than $60bn last year. Analysts warn that it could take several months before any joint venture receives approval from the Chinese Securities Regulatory Commission. Several other companies are understood to be discussing joint venture deals.

How will Citigroup’s joint venture impact the country’s booming domestic securities industry?