JPMorgan Chase & Co. (JPM) has infused nearly 2.5 billion Yuan ($394.08 million) in its Chinese subsidiary – JPMorgan Chase Bank (China) Company – with the aim to benefit from one of the fastest growing economies. JPMorgan has also received the permission from the China Banking Regulatory Commission (CBRC) to open a new branch in Suzhou.
The infusion of the additional money brings the total registered capital in JPMorgan’s Chinese division to about 6.8 billion Yuan ($1,071.9 million). The additional capital will be utilized to expand its footprints, launch new products and boost corporate lending.
Further, the additional capital will enable JPMorgan to meet stringent capital requirements. The CBRC has been working to adopt strict capital adequacy ratios in agreement with the global standard set by the Basel Committee. The capital ratio set for larger and important banks is 11.5% while for systemically less important banks it is fixed at 10.5%.
Moreover, the permission to open a new branch in Suzhou will enable JPMorgan to meet the financial and banking needs of the institutional and corporate clients in that region. Suzhou is an important financial center in the Yangtze River Delta region and is strategically located, with many global MNCs headquartered there.
Presently, JPMorgan has its branches in Shanghai, Beijing, Tianjin, Guangzhou, Chengdu and Harbin. Each of these branches offer the clients a wide range of products and services through investment banking, risk management, trade finance, loans, foreign exchange and derivatives, asset management and private equity.
Apart from these banking branches, JPMorgan also provides investment banking services in China through a joint venture (JV) with First Capital Securities Co. Similarly, the company provides asset management services through China International Fund Management Co. Ltd, a JV between JPMorgan Asset Management, a unit of JPMorgan, and Shanghai International Group.
Additionally, earlier this year, JPMorgan has planned to buy a 19.9% stake in China-based Bridge Trust Co., a trust investment firm. The deal, which is awaiting regulatory approval, would enable the company to further enhance its top line.
Investments in China by Other Foreign Banks
Over the last few years, many large international banks and financial institutions have been investing in and expanding their units on the Chinese soil. Earlier this month, Australia and New Zealand Banking Group announced its plan to invest A$300 million ($300 million) in its Chinese unit. Likewise in April, Singapore based DBS Group Holdings Ltd. had announced investments of 2.3 billion Yuan in its Chinese subsidiary.
Last year, HSBC Holdings Plc (HBC) had invested 2.8 billion Yuan into its China unit, bringing the total registered capital to 10.8 billion Yuan.
Similar to JPMorgan’s planned investment in a Chinese trust firm, other international banks like Barclays PLC (BCS), Macquarie Capital, Royal Bank of Scotland (RBS) and Bank of Montreal (BMO) also have invested in a number of Chinese trust companies.
Conclusion
With the opening up of financial system, China has been attracting a large number of foreign companies that are willing to gain market share in one of the fastest growing economies. According to the Chinese banking regulator, the combined profit of foreign banks had more than doubled to 16.7 billion Yuan ($2.58 billion) in 2011.
In 2011, JPMorgan recorded an impressive growth in its profit, which came at 297.3 million Yuan. This was much more than 70.4 million Yuan recorded in 2010. Now, with the introduction of the additional capital and the opening of new branches, we believe that the company’s profit would report an upward trend going forward.
Currently, JPMorgan retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term ‘Neutral’ recommendation on the stock.
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