Morgan Stanley in talks to buy China broker
(Reuters)
Updated: 2006-02-14 21:02

INDUSTRY CLEAN-UP

Beijing is trying to clean up China's loss-making brokerage industry, crowded with more than 100 securities houses, with the aid of foreign capital and expertise as it pursues efforts to foster viable capital markets.

And several top global investment banks are vying to invest.

Late last year, Switzerland's UBS A.G. became the first foreign firm to announce plans to win de facto management control of a Chinese brokerage by investing 1.7 billion yuan for 20 percent of Beijing Securities.

HSBC Holdings Plc. , Credit Suisse and Citigroup Inc. are also exploring investments in Chinese securities houses, sources have said.

State media reported late last year that Morgan Stanley had tried, unsuccessfully, to buy into China's Shanxi Securities. At the time, Morgan Stanley Asia chief Alasdair Morrison said the company was on the hunt for potential opportunities in China.

The two industry sources said that Morgan Stanley's efforts with AJ would be similar to the UBS deal with Beijing Securities.

"Morgan Stanley is also seeking management control of troubled AJ, trying to revamp the Chinese firm as a completely new broker venture," said the second source.

It was unclear if a Morgan Stanley bid for AJ Securities would be cleared by regulators, which state media said in December had suspended all new foreign investment in brokerages after receiving a flurry of criticism from local players who were worried that such stakes were being sold too cheaply.

AJ Securities' parent, the property-to-textiles giant AJ Corp., has had its share of troubles. Its ex-chairman Liu Shunxin was arrested and sentenced to five years in jail in June 2005 after he illegally siphoned off 500 million yuan of deposits.

AJ Securities was then forced to recover the losses.

"Now AJ really needs a strong outside investor to recover its image and business," the Shanghai-based second brokerage source said.