UBS confirms stake in Bank of China

The Bank of China has gone into partnership with UBS Keystone

Switzerland's largest bank UBS has confirmed it is taking a SFr645 million ($500 million) or 1.6 per cent stake in Bank of China (BOC).

Unconfirmed reports also suggest that UBS rival Credit Suisse has failed with an investment plan of the same value in China Construction Bank.

UBS said in a statement on Tuesday that it was entering into a strategic partnership deal with state-backed BOC in investment banking and the securities business.

“We regard this agreement as a natural development of our long-term relationship with Bank of China,” said UBS chief executive Peter Wuffli.

“The combination of Bank of China’s brand, distribution and customer base and UBS’s products, services and experience will be powerful.”

On Wednesday UBS confirmed it was in talks to restructure and take over Chinese brokerage Beijing Securities.

The bank said it expected to invest SFr270 million ($210 million) in the restructuring in return for an equity stake.

If the deal goes through, UBS will become the first foreign financial institution to buy into a Chinese brokerage.

Meanwhile Credit Suisse is remaining tight-lipped about a report from news agency Reuters claiming that China Construction Bank had pulled the plug on their investment plans.

Setback

But the reported setback will not hurt Credit Suisse in the long-term as the investments are relatively small scale with more opportunities bound to come, according to analyst Christoph Ritschard of Zurich Cantonal Bank.

“These initial investments are too small to have any direct result on UBS profits in the next year, so Credit Suisse will not be hurt by these developments,” he told swissinfo.

China’s GDP has grown by an average eight per cent over the last decade, making it the seventh largest economy in the world.

But Ritschard pointed out that the Chinese banking sector is still some way behind Japan, “where the music is playing right now”, and could be potentially volatile with such high growth.

“Both banks are looking for a slice of the Chinese market, but have adopted a cautious strategy with small investments,” he said.

“They are looking for footholds in this growing market, but are aware that you can sometimes get a bloody nose. They are both looking at China with a long-term view.”

swissinfo, Matthew Allen

Key facts

China’s main four banks are BOC, Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China.
Established in 1912, the state-run BOC is the oldest bank in China.
Swiss Economics Minister Joseph Deiss visited China in July to push trading links between the two countries.