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Goldman (GS) Gets Nod to Set Up Majority-Owned JV in China

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The Goldman Sachs Group, Inc. GS has become the latest U.S. financial firm to receive approval for setting up a majority-owned joint venture (JV) in China. The China Banking and Insurance Regulatory Commission approved a Sino-foreign wealth management JV between Goldman Sachs Asset Management, L.P. and ICBC Wealth Management Co. Ltd., a wholly-owned subsidiary of Industrial and Commercial Bank of China Limited. The estimated asset pool will surpass $70 trillion in the next 10 years.

Notably, as China’s $53-trillion financial market is now open to foreign firms following the removal of restrictions on ownership, the U.S. bank, like other global firms, is rushing to capitalize on this opportunity. More than 40 overseas companies have already established joint ventures, while a few others have applied for greater control.

Goldman Sachs will furbish 51% of the funding for the new JV, while ICBC Wealth Management will offer 49%, according to the filing published by ICBC.

Per a Bloomberg article, Beijing-based ICBC had 680 million personal banking clients, with a balance of personal financial assets under management of 16 trillion yuan, by the end of 2020. ICBCwealth management unit had more than 25 million customers, 89,000 private banking clients and 722,000 corporate consumers. Thus, the partnership with ICBC, having more than 16,600 outlets and being the largest bank by assets, will fortify Goldman Sach’s distribution network and access to high and ultra-high net-worth consumers.

Goldman Sachs is spending massively and intends to double its workforce in China. It has been on a recruitment spree in mainland China and Hong Kong in the first four months of 2021, by hiring 320 people, including nearly 70 dealmakers.

Goldman Sachs has operated in Chinese capital markets since the 1990s and started the JV with its Chinese partner, Beijing Gao Hua Securities in 2004. Last December, it entered into an agreement with its Chinese partner to take full control of the venture.

Goldman Sachs generates revenues largely from Asia. According to its annual report, it had employed 40,500 employees last year, with 28% of them in Asia. Moreover, Asia accounted for 14% of the bank’s revenues in 2020.With this trend, the bank’s top line will likely be diversified further, geographically.

Our Viewpoint

China has surfaced as the second largest equity market globally and is one of the broadest as well as the deepest growth markets outside the United States. Goldman Sachs’ latest partnership will enhance the bank’s ability to cover securities locally and seize profit-generating opportunities in the Chinese market for its clients.

Similar Moves by Other Firms

In August 2020, BlackRock BLK received the approval for setting up a majority-owned JV in China. The China Banking and Insurance Regulatory Commission approved a wealth management JV among BlackRock, Singapore state investor Temasek Holdings Pte Ltd and China Construction Bank Corp.

Schroders plc SHNWF was given a go-ahead to set up a JV with Bank of Communications earlier this year. JPMorgan Chase & Co. JPM is investing $417 million in China Merchants Bank Co.’s wealth management unit, as reported this March.

Shares of Goldman Sachs have rallied 54.8% over the past six months, outperforming the 45% gain of the industry.

Currently, Goldman Sachs carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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