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In China We Trust
Posted by Rick Carew –With Victoria Ruan
Foreign banks are scouring China for opportunities to break into the trust industry. The latest: Royal Bank of Scotland (RBS). RBS received approval Friday from China’s banking regulator to buy 20% in eastern China’s Suzhou Trust, a person familiar with the situation tells Dow Jones Newswires.
The bank already holds a stake in one of China’s four biggest banks, Bank of China, so why mess with a little trust company in Suzhou? (Besides the famed beauty of Suzhou’s gardens). Buying into a Chinese trust company offers two potential paths to profits: wealth management and private equity.
Trust companies in China are allowed to buy stakes in companies that are mostly off-limits to commercial banks or securities firms. The trust firm then repackages those assets into products that it can sell to wealthy individuals. That’s the wealth management bit.
People in the industry are expecting that government regulators will also eventually allow trust companies to keep those investments on their books, allowing them to act similarly to private equity firms. It’s still too early to tell which of the two types of business will come to dominate the industry as a government push to consolidate and weed out smaller players is under way.
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