All but one of China’s global investment banks finally managed to turn a profit last year after Beijing allowed them to take full control of their operations and expand their influence in the country’s colossal financial sector.

After years of losses or meager returns, six of seven Wall Street and European financial institutions with investment banking businesses in mainland China — including JPMorgan Chase, Goldman Sachs and Morgan Stanley — turned a profit in 2021, according to figures reported by banks and seen by the Financial Times.

Morgan Stanley, which was the first Wall Street bank to form an investment banking partnership in China in 1995, made a profit of Rmb30 million ($4.5 million) in 2021, financial reports show. . In the previous three years, its onshore investment bank had a combined loss of around $38 million.

JPMorgan, which set up its first investment banking joint venture in China in 2010 but was forced to abandon it and start over in 2019, made $11 million in profits last year. His losses in 2019 and 2020 totaled $39 million. The banks did not comment on their financial results.

The limited profits underscored the difficulties faced by Western banks in China, where they have been plagued by operational setbacks and prohibitive regulations that have capped investment.

But a change in regulations over the past two years, as China opened its financial markets to foreign competition, raised hopes that years of investing could finally start to produce consistent rewards.

After Beijing removed foreign ownership limits in the securities and mutual fund sector in April 2020, banks were able for the first time to take full ownership of their Chinese operations and better integrate them into their global business. Both JPMorgan and Goldman decided to take over their joint ventures while Morgan Stanley increased its stake to 90%.

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However, lenders still face an uphill battle to compete with Chinese investment banking giants and grab a slice of the huge domestic deal market. Chinese brokerages made a net profit of Rmb191.12 billion ($28.4 billion) in 2021, up about 21% from a year earlier, according to Securities Association data. of China.

Geopolitical tensions between Beijing and Washington have also halted a stream of lucrative charges for global banks listing Chinese companies in New York and Hong Kong, which had for years justified their loss-making operations ashore.

HSBC’s Chinese partnership HSBC Qianhai Securities posted a loss of $24 million, bringing its total losses since 2018 to $89 million

Goldman Sachs, which gained full ownership of its 18-year partnership with Gao Hua Securities last year, made a profit of $12 million in 2021. Swiss bank UBS was the best performer of the group, making a profit of $22 million.

“The goal is not to compete to be in the top three national underwriters in China,” said a source close to Goldman Sachs. “The goal is to focus on areas of the domestic market where we can differentiate ourselves and bring international capital to China in a way that our domestic competitors find more difficult.”

Goldman’s results showed the investment bank’s revenue rose last year from $1 million to $24 million, in part due to its role as co-sponsor of the IPO of $3.5 billion in Shanghai from the biotech company BeiGene.

On Tuesday, Goldman revamped its leadership in China, moving Singapore chief executive and global markets banker Eg Morse to Shanghai to become co-head of China alongside investment bankers Wei Cai and Sean Fan.

JPMorgan also took full ownership of its Chinese investment bank last year, allowing it to funnel more business through its wholly owned entity, according to a person familiar with the bank. Banks must demonstrate to Chinese regulators that their onshore businesses are profitable in order to apply for certain licenses, for example to trade derivatives.

Banking progress is expected to stagnate this year as China’s zero Covid policy has hurt its economy and markets, and closures of China’s Shanghai financial hub have made it harder to expand offices or attract customers.

“It’s a year of jamming, not a year of doing something groundbreaking,” said the managing director for Asia of a Wall Street bank in China, who added that the bank had been forced to postpone its growth plans for 2022.

The threat of Russian-style sanctions against China by the West, as well as a regulatory crackdown in sectors such as technology, real estate and education, have also undermined the expansion plans of Wall Street banks. , said a person close to one of the banks. However, they added: “We have to put up with it and move on because the opportunity is so great.”