On Wednesday, Bank of New York Mellon Corporation (BK) received the regulatory approval from China Securities Regulatory Commission (“CSRC") for setting up a joint venture (JV) fund management company in China. The initial agreement to form a JV was signed in November 2007.
The new company, BNY Mellon Western Fund Management, will be 49% owned by BNY Mellon and Western Securities will hold the remaining 51%. Established in 2001, Western Securities is based in Xian, with 20 Securities Services offices and 34 Securities Branches across China.
Initially, the Shanghai based BNY Mellon Western Fund Management will look after domestic Chinese securities in a range of local retail fund products. Eventually, the size and capability of BNY Mellon group will help JV to further expand its business. JV will likely focus its attention on leveraging distribution in the Chinese banking and securities sectors.
By pursuing Qualified Foreign Institutional Investor (“QFII") sub-advisory deals with a large number of foreign institutional investors (“FII") and providing access to new products in China through JV, BNY Mellon looks forward to become one of the premier QFII advisors. The company had received the QFII license from CSRC in November 2009.
BNY Mellon is also trying to get the approval of the State Administration of Foreign Exchange (“SAFE") for an initial investment quota. This will allow BNY Mellon Asset Management International Limited to invest in Shanghai- and Shenzhen-listed 'A' shares and Renminbi-denominated treasuries on behalf on the overseas investors.
Last month, BNY Mellon received the authorization from China Banking Regulatory Commission (“CBRC") to open a banking branch in Beijing to provide services to its institutional clients.
BNY Mellon sees immense potential in China and expects it to offer considerable growth prospects in the future. By giving the license for opening a banking branch in Beijing and approving the formation of a JV, the Chinese establishments are showing their eagerness of converting China into a global financial hub.
Following the approval to form a JV in China, BNY Mellon becomes yet another major bank to enter the Chinese capital market apart from JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and UBS AG (UBS).
BNY Mellon is reaping the benefits of its partnership with already established institutions and leveraging their local presence with its global capabilities. Given the huge growth potential of the overseas securities markets and the rise in complex new securities, the long-term growth prospects for the industry are promising. BNY Mellon is expected to make further inroads into the South-East Asian regions as the company already has its presence in Japan, Taiwan and India.
Though BNY Mellon enjoys a strategic position to benefit from the growth of global financial assets, supported by an effective expense management, modernization of public pension schemes and growth in cross-border investing, we expect interest-bearing deposit costs to rise faster than asset yields due to the mounting competitive pressure, thereby negatively affecting net interest margin and net interest income. This justifies BNY Mellon’s current Zacks #3 Rank (Hold), implying that the stock is expected to perform in line with the broader U.S. equity market over the next one to three months. We recommend a Neutral rating on the stock.
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