JPMorgan in talks to buy Bohai Securities stake

SHANGHAI, Mar 19 (Reuters) JPMorgan is in talks with China's Bohai Securities about a potential stake purchase, its latest effort to tap the country's booming capital markets, two sources familiar with the situation said on Monday.

The Wall Street bank has been in discussions with mid-sized Bohai Securities in the northern Chinese city of Tianjin, for a few months, a Chinese executive close to Bohai told Reuters.

At least two other foreign firms, including a French broker and an Australian bank, had also approached Bohai for partnership, though Bohai is more interested in a deal with JPMorgan, said the source, who declined to be identified.

If successful, it would allow JPMorgan to arrange domestic stock and bond deals. Its rivals, including Goldman Sachs and Morgan Stanley, have already set up brokerage ventures in China.

''JPMorgan is eager to get a local partner for brokerage business, while Bohai also has a strong desire to boost its capital and reputation,'' said the source.

JPMorgan declined comment. Bohai Securities was not immediately available for comment.

The sources said JPMorgan might get Beijing's support for the potential deal, partly because the government was now making efforts to boost Tianjin as its new regional economic centre by offering special financial policies.

Bohai Securities, with a registered capital of 2.32 billion yuan, has 31 branches in China, including 15 in Tianjin alone, according to its Web site (www.ewww.com.cn).

Although JPMorgan and Bohai have yet to reach any agreement on price or stake size, the sources expected JPMorgan would take a stake of between 20 and 25 percent, making it the second largest shareholder of Bohai, controlled by TEAD Group -- the investment arm of the Tianjin government.

Last week, TEDA said in a statement that Bohai was not planning a backdoor listing, and it had no comment on local media reports that Bohai was seeking foreign partners.

Global investment banks are keen to tap China's capital markets, particularly as Beijing has been encouraging its largest companies to issue shares domestically.

Beijing has put a freeze on approving new brokerage joint ventures, but there is no lack of interest from players like Citigroup and Credit Suisse, which have expressed strong interest in setting up their own ventures.

''It's an open secret in the industry that it is unlikely that CSRC will give its approval to a new brokerage joint venture after the UBS deal last year,'' said the first source, referring to China Securities Regulatory Commission.

''That means if you want government approval, you have to lobby top leaders at the State Council, such as Premier Wen Jiabao, for special permission,'' he added.

Late last year, UBS won initial official approval to invest 0 million in state-owned Beijing Securities for a 20 percent stake and de facto management control.

In late 2005, JPMorgan was in talks to buy a controlling stake in Liaoning Securities. The talks did not go ahead due mainly to a lack of official support, sources have said.

REUTERS PV HT1600