Citi in China: The financial world does not want decoupling
Citibank, one the world’s biggest financial institutions, has a new license for the lucrative custody banking sector. But will China remain open for American banks?
U.S. moves to decoupling and global financial uncertainty are not stopping American banking giants from charging ahead in China. The latest new venture:
Citibank has won a domestic fund custody license (in Chinese) from the China Securities Regulatory Commission (CSRC).
- Custody services involve a bank holding its clients’ assets, including securities and cash for safekeeping. The custodian bank is also often responsible for settlements, reporting, and legal compliance, and sometimes even investing on the clients’ behalf.
- The bank makes money by charging fees for its services. It is “reliably lucrative,” according to the Financial Times, and in China, demand for foreign service providers “should grow rapidly” as “China opens its doors to offshore funds.”
- It’s already a huge business for Citibank. The FT says that the American bank has “over a tenth of the global market,” comprising more than $160 trillion of assets under custody.
Previously, of more than 50 fund custodians in China, the U.K.’s Standard Chartered Bank “was the only foreign company to have obtained the license,” according to Caixin. Citibank becomes the second foreign bank and the first American bank to get one.
- The background, explains Caixin, is that in the phase one trade deal signed in January, China promised to “allow branches of U.S. financial institutions to provide securities investment fund custody services” within five months.
- The other foreign banks that have applied for custody licenses this year are HSBC and Deutsche Bank.
Another result of financial opening: “Singaporean banking giant DBS Bank Ltd. has won regulatory approval to set up a majority-owned securities joint venture on the Chinese mainland,” reports Caixin.
- DBS will own 51% of the company; four Shanghai companies will own the rest of the shares.
- DBS is “the eighth foreign company to take majority ownership of a securities venture on the mainland.”
Our question
Opportunity for America’s biggest financial institutions in China’s financial opening is one of the rare areas of the U.S.-China relationship where there is some agreement, or at least, an absence of violent disagreement.
But will financial titans like Citibank be able to stay above the fray of worsening U.S.-China relations? Or perhaps the question is better phrased: How long will Citibank, J.P. Morgan, Goldman Sachs, and their ilk be able to avoid the heat?
