Ambitious firm: Jack Ma’s Ant Group is considering becoming a financial holding company that would be regulated like a bank. — AP ATTEMPTING to regain the good graces of Chinese authorities, Jack Ma’s Ant Group is considering becoming a financial holding company that would be regulated like a bank. The move would curb its ambitions to become a future-forward fintech company that’s more than a bank or mobile-payments provider. But would that be bad? In 2008, after the collapse of Lehman Brothers, Goldman Sachs Group Inc and other Wall Street heavyweights made a similar transition, from broker-dealers to bank holding companies. Goldman turned out just fine. Ant is essentially planning to fold all units requiring a financial licence into the structure, Bloomberg News reported, citing people familiar with the matter. That follows weeks of bad news for the ambitious firm that had become ubiquitous with the future of finance, innovation and digital payments in China, puncturing hopes for what was meant to be a blockbuster initial public offering valued at over US$300bil. The potential transition follows an established formula.Ma may have to give up bigger ambitions, but making Ant a financial holding company could bring absolution and profits In September 2008, during the global financial crisis, Goldman announced it would become a bank holding company to navigate challenging financial markets. Then-chairman and chief executive officer Lloyd Blankfein said the firm would be “regarded as an even more secure institution with an exceptionally clean balance sheet and a greater diversity of funding sources.” Morgan Stanley made a similar announcement the same day. The Wall Street giants became subject to new rules for accounting, leverage tests and thicker capital buffers, growing stronger in the decade since. The plan at least brings clarity for Ant and its deflated global investors. But what does being a financial holding company mean in China, especially at Ant’s scale? In September, the State Council issued new rules to regulate such entities. They took effect Nov 1, so all this remains at fairly experimental stages. The People’s Bank of China has said the measures were made necessary because “a small number of companies expanded blindly into the financial industry (in recent years) without adequate risk control mechanisms.” If Ant is able to take a Goldman-style path, potentially having access to liquidity offered by the central bank isn’t such a bad thing. Nor would be the broader financial holding company definition of leverage. Ant’s prospects as a tech giant have grown more distant, but does it have a future as a market maker? A more organised corporate structure that provides investors with transparency around costs and margins from each unit could bring a long-run boost to valuations. Sure, that would slow the tech-like, breakneck growth they’d counted on, but it would enforce good housekeeping. Ant could become one of the largest consumer lenders in China – and that’s not a bad business. When regulators started mulling these rules in 2018, they were largely meant to clean up messy companies that had made their way into the financial sector, or just become far too unwieldy. HNA Group, Tomorrow Group and others had run amok, buying high-cash-flow businesses across all sectors, leveraging intergroup relationships and stretching their balance sheets. A host of smaller companies that cropped up across China’s provinces became problematic because they “made blind expansions that fall into regulatory gaps and bring mounting risks, ” state media said. Let’s be clear: Ma and Ant don’t fall squarely into this category. Several subsidiaries are already licensed by various regulators. But the latest version of the rules are sweeping: In addition to registered capital requirements, the central bank can deem that a company needs a license purely on supervisory grounds, even if it doesn’t meet financial asset benchmarks. They also cover market access, shareholders and risk management. Ma has effectively given a nod to the central bank’s primacy after his firm was whipsawed on Sunday by a PBoC statement saying it has “little legal awareness, ” “despised” compliance requirements and engaged in regulatory arbitrage. Based on Ant’s IPO document and the mention of regulation, this had to be coming, even if sooner than expected. But just as 2008 felt more restrictive than it ended up being and banks charted newer paths to profit, it’s likely that Ant will, too. — Bloomberg Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. The views expressed here are the writer’s own.
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