Big is beautiful – merger of brokerage houses

chiny24.com 9 months ago

It all points to the fact that China will be the largest safety trading company. 2 leading Chinese brokerage offices, or GuoTai JuNan Securities Co. Ltd. (chin. 国泰君安证券有限公司) and HaiTong Securities Co. Ltd. (chin. 海通证券有限公司) announced their intention to merge. If this occurs, it will be the most spectacular transaction since China's decision-makers and regulators, at the end of last year, announced their support in creating top-class investment banks through restructuring or merger of leading securities companies. Given the willingness of the authorities to approve the merger of the 2 companies by regulatory authorities, board of directors and shareholders, there should be no peculiar difficulties.

The trading of shares of both companies, which are listed on stock exchanges in Shanghai, Shenzhen and Hong Kong, was temporarily suspended. This is expected to last no longer than 25 working days. The merger will take place by stock exchange.

After the merger, the fresh brokerage company will have assets of a full value of 1.68 trillion RMB (about PLN 916 billion) and will outperform the state-owned company (Citic Securities Co. Ltd. (chin. 中信证券有限公司), which was so far the largest manufacture in China.

Astronomical amount, but inactive a fresh company will be located in terms of asset value far behind leading global investment banks specified as JPMorgan pursuit & Co., Goldman Sachs Group Inc. or Morgan Stanley.

The aim of the merger of 2 Chinese brokering giants – as analysts believe – is to increase investor interest in broker shares in the short term, as well as to aid the financial sector to reconstruct balance in hard capital marketplace cycles and in a tightened regulatory environment.

Context. The Chinese government has been calling on the brokerage sector for more than a decade to consolidate. In 2005, the Council of the PRC issued a communication aimed at reducing risks in securities trading companies. The authorities already encouraged companies with the right possible to enter alliances, lead to mergers and acquisitions (M&A). In turn, the weaker ones were advised to restructure to increase hazard management capacity and improve improvement prospects. In 2008, the State Council introduced a policy whereby 1 entity could simultaneously hold a controlling stake in 1 company in the securities sector and a number stake in another, which triggered a wave of mergers and acquisitions as companies began to comply with this requirement.

According to analysts, these consolidations were mainly due to government policy alternatively than marketplace needs.

In 2023, the sector saw another wave of mergers and acquisitions, but transactions were mainly driven by the request of tiny and medium-sized companies to deal with interior management issues or debt crises in the face of stock marketplace collapse.

In October of this year, the Central Financial Conference (chin.中央财政工作会议), held twice over a decade by the most crucial decision-makers in the financial sector, undertook to "support the creation of top-class investment banks".

In early November this year, the Chinese Securities Commission (CSRC, chin. 中国证券监督管理委员会) presented more details, promising support for leading securities companies in the field of restructuring or mergers and acquisitions. In March this year, the CSRC issued guidelines to accelerate the creation of first-level banks and investment institutions, aiming to make around 10 industry-leading banks and investment institutions in about 5 years. The guidelines aim to make 2 to 3 investment banks with global competitiveness and a leading position in the global marketplace by 2035.

According to data from the Chinese Securities Commission, 121 licensed securities trading companies operated in China at the end of July this year.

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