Nomura is merely first in line for new China risk

China Securities Co

26/09/2023 03:58

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
    By Una Galani
       MUMBAI, Sept 25 (Reuters Breakingviews) - A decision to
bar Charles Wang Zhonghe from leaving mainland China is a
wake-up call for global banks committed to doing business in the
world’s second-largest economy. The travel restriction on
Nomura’s  8604.T  Hong Kong-based chair of investment banking
for the country is connected to an investigation authorities are
conducting into another dealmaker, according to the Financial
Times, who was detained earlier this year. It’s a small problem
for the Japanese bank and a big one for the industry. 
    Larger peers may be tempted to dismiss the issue as a
one-off or irrelevant to their own businesses. After all, Nomura
is a minnow in China, ranking 82nd in investment banking in the
country by net revenue in 2021, data from Dealogic shows. That
was the most recent year any foreign names including Goldman
Sachs  GS.N , Morgan Stanley  MS.N  and UBS  UBSG.S  appeared in
the top 10 for fees, a realm that has become the near-exclusive
reserve of domestic names like CITIC  0267.HK  and China
Securities  6066.HK . What’s more, Wang is not a giant
rainmaker. Prior to joining Nomura in a newly created role to
strengthen client coverage in 2018, he worked at a unit of
state-run Industrial and Commercial Bank of China  601398.SS 
 1398.HK  which provided credit to China Renaissance  1911.HK ,
whose founder Bao Fan took tech giants like JD.com  9618.HK 
 JD.O  public and who hasn’t been seen since February. It’s
those links that are now in focus. 
    Yet as China’s policymaking grows fiercer under President Xi
Jinping and geopolitical tensions grow, many foreign companies
like Apple  AAPL.O  are diversifying to other countries. Banks
have been one of the few notable exceptions. Some financial
institutions have quietly relocated roles from Hong Kong to
Singapore, but overall the industry has remained committed to
building their businesses in the People’s Republic. Chinese
executives are regularly detained in China without explanation
and sometimes released within days, but Wang’s travel freeze is
the most high-profile incident involving a foreign bank. 
    Like most of its more successful global investment banking
peers, Nomura has an eye on deepening its business in China. It
acquired a license for a majority-owned securities joint
venture, Nomura Orient International Securities, in 2019. For
now, Chinese and international banks are busy cutting headcount
and waiting for the markets to thaw. When activity resumes in
earnest, bankers’ enthusiasm for China may be tested even more.
    Follow @ugalani on Twitter
    
    CONTEXT NEWS
    Authorities in China have barred Charles Wang Zhonghe, China
investment banking chair at Nomura, from leaving the mainland,
Reuters reported on Sept. 25 citing two sources with knowledge
of the matter. The Financial Times newspaper, which first
reported the matter earlier in the day, said the ban was
connected to China’s investigation into top technology dealmaker
Bao Fan and his former colleague Cong Lin.
    Beijing’s investigation into Cong, former president of China
Renaissance Holdings, resulted in the investment bank’s founder
Bao being taken away by Chinese authorities in February. Cong
was believed to be facing investigation for suspected wrongdoing
while he was chief executive of ICBC International, a unit of
state-owned Industrial and Commercial Bank of China Ltd (ICBC),
Reuters and other media outlets reported in February. Nomura’s
Wang overlapped with Cong at the unit from 2011 to 2016, his
LinkedIn page shows.

 (Editing by Antony Currie and Oliver Taslic)
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