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Credit Suisse’s China Partner Offers to Exit Joint Venture

Nov. 22 (Bloomberg) -- Founder Securities Co., Credit Suisse Group AG’s Chinese partner, said it will offer to pull out of a five-year-old investment banking venture with the Swiss bank as it prepares to acquire a competitor.

Founder plans to offer Credit Suisse the option to request that the Chinese brokerage sell part or all of its 66.7 percent stake in Credit Suisse Founder Securities Co., the Changsha-based firm said in a statement to Shanghai’s stock exchange today. Founder said it’s working on a proposal to acquire Minzu Securities Co., which also has an investment-banking business.

Overseas firms have struggled to make inroads into China’s stock underwriting market, which was dominated last year by domestic players Guosen Securities Co. and Citic Securities Co., data compiled by Bloomberg show. Credit Suisse was ranked 21st, while Minzu was 34th, the data show.

Credit Suisse’s venture with Founder has arranged just three IPOs since December 2008 when it was formed, the data show. Josephine Lee, a Hong Kong-based spokeswoman for Credit Suisse declined to comment on Founder’s proposal.

The Swiss bank owns a third of the venture, which competes with similar partnerships between Chinese firms and global banks including UBS AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. Foreign banks are allowed to underwrite stocks and bonds in China only through joint ventures with local firms.

Management Control

Goldman Sachs and UBS are the only foreign firms to have management control of their local ventures. The two banks got their underwriting licenses in China before the government put a moratorium on new joint ventures in September 2006.

Credit Suisse, based in Zurich, was the first foreign bank to establish a local joint venture after the ban was lifted at the end of 2007. JPMorgan, Morgan Stanley, Deutsche Bank AG and Citigroup Inc. followed.

Founder’s proposals follow the Chinese government’s announcement a week ago of policy changes that portend the end of a 14-month ban on initial public offerings that had damped brokerages’ investment-banking revenue. China last year relaxed rules to let foreign investment banks increase their stakes in domestic joint ventures to 49 percent from 33 percent.

Policy makers will push forward on a so-called registration system on IPOs, according to a Nov. 15 statement posted on the Chinese government’s website detailing decisions from a meeting of the Communist Party’s Central Committee last week. The system may hasten the approval process for the more than 700 companies still awaiting regulatory permission to proceed with share sales.

To contact Bloomberg News staff for this story: Aipeng Soo in Beijing at asoo4@bloomberg.net; Cathy Chan in Hong Kong at kchan14@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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