Ant Group Co. outbid Citadel Securities LLC for Credit Suisse’s investment bank venture in China, in a surprise move that will be subject to close regulatory scrutiny, people familiar with the matter said.

The bid by Jack Ma-backed fintech giant to build a securities business using Credit Suisse’s operations will face a thorough review because China favors a foreign buyer, the people said. The investment banking and brokerage license was originally awarded to the Swiss bank to help open the financial sector to global competition, one of the people said, asking not to be identified discussing private matters.

That preference poses a dilemma for UBS Group AG, which now owns Credit Suisse. For now, the bank will have to choose between the higher local bid from Ant, or the lower Citadel offer that’s more likely to win government approval, the people said. The negotiations are ongoing and other bidders may still join the fray, one of the people said.

Representatives for UBS and Ant declined to comment.  

UBS is struggling to attract interest in the unit from global firms because of escalating geopolitical tensions, a crackdown on bank data flows and the struggling economy. The bank faces a difficult balancing act because the venture’s Chinese partner, Founder Securities, may reject the lower offer from Citadel, delaying the sale process, the people said. 

Citadel Securities, founded by billionaire Ken Griffin, was the only global firm to submit a bid in late December, offering about 1.5 billion yuan ($210 million) to 2 billion yuan, people said at the time. 

Credit Suisse has sought around 2 billion yuan for the entire China unit, including the stake held by Founder Securities. Before it collapsed in March, the Swiss bank had offered to buy out the remaining stake from its partner for 1.14 billion yuan, valuing the firm at about 2.3 billion yuan. The agreement was nixed after the UBS takeover, people familiar said earlier. 

UBS is required to find a buyer for the Credit Suisse platform because it already controls a securities firm in China and can’t hold two licenses in the same business. The Credit Suisse unit in China mainly consists of investment banking and a brokerage, after the wealth operation closed last year. Play Video

Ant’s bid comes after Chinese regulators wrapped up an almost three-year probe into the fintech firm founded by Ma, imposing a 7.12 billion yuan fine in July. The billionaire’s run-in with Beijing has cost his empire—including Ant and Alibaba Group Holding Ltd.—more than $800 billion in lost valuation, while derailing what would have been the largest initial public offering ever. 

Alibaba’s shares fell about 1% in Hong Kong trading on Monday, underperforming the Hang Seng Index which also declined.

Before the crackdown, Ant had ambitions to start a securities business in China though the plan was shelved, one of the people said.

Winning such a permit would help the fintech giant plug a gap, adding one of the last missing pieces to its financial footprint. The company’s operation spans from online payments to wealth management and lending — the reason why the company is applying to a financial holding license to appease regulators’ demands for greater supervision.

The company has been planning a restructuring that will break off some operations that aren’t core parts of its China financial-related business. It’s looking at leaving its blockchain, database management services and international business out of the main entity that will be used to apply for the financial holding permit, people familiar have said

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