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By Mike Caggeso
Morgan Stanley (MS) and China Fortune Securities are planning to form an investment joint venture in China, opening up a potentially massive revenue stream in the world's fastest growing market for the New York-based lender, sources told Reuters.
Senior representatives of both companies are finalizing details of the operation including the amount of start-up capital required and compensation of the board, the sources said.
China Fortune Securities is among the country's oldest brokers. And China's fast-growing middle class is flocking to banks to finance mortgages.
Morgan Stanley already owns 34% of China's leading securities firm, China International Capital Corp. – an investment that began in 1995. But its holdings in CICC don't enable Morgan Stanley much control over its direction.
With its China Fortune Securities venture, Morgan Stanley wants a piece of management control. That's an ambitious quest for Morgan Stanley, and should it fail, the company should be thankful for what it already has.
The Chinese government has restricted which lenders and securities firms its domestic companies are allowed to partner with. Two years ago, the government disallowed foreign banks access to the country's securities sector.
However, the U.S. banking market isn't nearly as gargantuan as it was two years ago, as the subprime mortgage fallout caused many U.S. lenders to report double-digit profit losses in the third quarter. Sensing opportunity (or weakness), many foreign companies and governments bought substantial stakes in U.S. banks.
Those behind-the-scenes diplomatic ties, in addition to the bank's smaller market shares, may convince China's government that U.S. banks operating in mainland China aren't as much as a threat as they were two years ago.
Because of and/or in spite of those happenings, U.S. Treasury Secretary Henry Paulson will hold economic talks with Chinese officials.
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