UBS UBS Group AG

By Julie Steinberg 

HONG KONG -- Morgan Stanley and UBS Group AG are planning to increase their stakes in their investment-banking operations in mainland China, in a sign of commitment toward developing more business in the country, people familiar with the matter said.

Foreign banks operating in China must pair with domestic brokerages in joint ventures. The joint ventures can advise on mergers and acquisitions and underwrite initial public offerings, though most don't have licenses to trade securities.

Both Morgan Stanley and UBS are planning to increase their stakes in their joint ventures to 49%, the highest threshold permitted by Chinese authorities, people familiar with the plans said. Morgan Stanley currently owns 33.3% of its joint venture and UBS 24.99%.

Morgan Stanley is expected to raise its stake in the next couple of months after it secures regulatory approval, while UBS is hoping to complete its plan within the year, the people said.

Global banks were initially allowed to own no more than one-third of the joint ventures, a threshold that was raised to 49% in 2012.

Most banks haven't bumped up their stakes, with many bankers saying that revenues earned from a larger stake wouldn't be worth the hassle. But people familiar with the banks' current plans say the move is a sign of good faith to the Chinese government that the banks intend to stay there and have confidence China will open up over time and offer opportunities. Gaining full access to Chinese markets has been a longtime dream of global banks in Asia.

Bankers have been frustrated over not owning their businesses outright. Global banks have disagreed with local partners over their strategic priorities, and have also fought over head count and compensation.

Under a U.S.-China trade and investment framework discussed last year, Beijing was considering allowing Wall Street firms to run their own investment-banking businesses on the mainland, The Wall Street Journal reported in November. But a person briefed on the discussions says it is unclear whether that potential treaty will move forward under President-elect Donald Trump's administration.

Bankers see getting to 49% one more step toward gaining eventual control of their operations on the mainland, people familiar with the matter said.

Write to Julie Steinberg at julie.steinberg@wsj.com

(END) Dow Jones Newswires

January 08, 2017 09:27 ET (14:27 GMT)

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