HONG KONG: Citigroup Inc is planning to include an investment banking unit in China to take advantage of an expected steady stream of big stock deals as the nation opens up and liberalises its financial markets, a person familiar said.

In intensifying discussions in recent months, the bank’s senior executives in Asia have been lobbying the bank’s top brass in New York to revive an application as part of a plan to form a China securities business, the person said, asking not to be identified before a final decision is made.

Its local executives last year considered opting out of establishing an investment bank, balking at the costs of hiring at least 35 people as regulations require, people familiar said at the time.

The United States bank initially planned to focus only on building its brokerage and futures trading business and expanding its custodian services.

The strategy shift, which will require more capital, comes after the introduction of a new technology board in Shanghai, as well as eased rules for selling shares to the public, which is expected to generate lucrative fees on a slew of new economy initial public offerings (IPOs) over the next few years.

The bank will now need to play catch up with rivals, including JPMorgan Chase & Co and Goldman Sachs Group Inc, who have already won approval to take control of Chinese securities operations after the country this year opened fully to foreign banks.

Citigroup has tread carefully in China amid increased political tension between the two powers as well as regulatory pressure in the US.

The bank has been dogged by issues of risk controls, having fines imposed on it by US regulators. Some executives have expressed concerns it may not receive the blessing by the US Federal Reserve for its China expansion, the person said.

The lender was this month assessed a US$400mil penalty by the Office of the Comptroller of the Currency, which also demanded the bank seek its approval before “significant new acquisitions” and advance approval for anything beyond “hedging, market making and securitisation transactions”.

A Citigroup spokesman declined to comment.

Citigroup is one of four sponsors arranging a massive IPO from billionaire Jack Ma’s Ant Group, which is said to seek to raise about US$35bil with dual listings in Shanghai and Hong Kong.

Share sales on the mainland have jumped 63% this year, partly driven by the emergence of the country’s new Nasdaq-style STAR board which opened last year, according to data compiled by Bloomberg.

The US bank generates more than US$1bil of revenue a year from its China-based clients - a tenfold increase from a decade ago.

Its locally incorporated bank currently has outlets in 12 Chinese cities and held 178 billion yuan (US$27bil) of assets by the end of last year, according to its annual report.

It also operates four small lending entities in China, according to its website.

 - Bloomberg