Chinese brokerage houses set to regroup as holding companies adhere to stricter rules
BEIJING (Reuters) – China’s securities brokerage industry is on the verge of consolidation as stricter regulations on blackout financial holding companies force owners of midsize brokerage houses to divest, analysts said and industry participants.
Private finance companies have aggressively expanded in areas such as consumer credit and asset management, accumulating enough debt to threaten market stability. In response, the authorities increased their supervision and tightened capital requirements.
New rules, said Wang Jian, analyst at Guosen Securities, are speeding up mergers between brokerage houses in an industry where half had less than $ 5 billion in assets each at the end of 2019, out of a total of 1. $ 100 billion, according to data from the Securities Association of China.
“Once we get on the path of industry consolidation, it would force each brokerage to rethink its position in the market and strive to find counterparts to merge and become stronger,” said Cao Haifeng, analyst the non-bank financial sector of UBS Securities.
The latest example of consolidation saw private group Changsha Yongjin divest its majority stake in Sinolink Securities Co Ltd. on Sunday. 600109.SS to Guolian Securities Co Ltd, backed by the government 1456.HK601456.SS.
Yongjin is also considering divesting its stake in another financial company because it is unable to reach a new threshold for owning and operating financial services companies, said a person with direct knowledge of the matter, who did not. was not allowed to speak to the media and therefore refused to be identified.
Yongjin did not respond to phone calls or an email requesting comment.
The People’s Bank of China said this month that as of November 1, companies must have at least 5 billion yuan ($ 732 million) in capital to be licensed as a financial holding company. Those with banking units need at least 500 billion yuan in assets.
If a company does not meet the requirements after a one-year grace period, the central bank can force the sale of shares.
The resulting consolidation will likely see brokerage houses backed by provincial governments buying up private rivals, analysts said.
Guolian, controlled by the government of the eastern city of Wuxi, acquired Sinolink to acquire its investment banking team, a government official said.
“This deal is market driven and makes good sense,” said the official, who was not authorized to speak publicly on the issue and therefore declined to be named.
Guolian did not respond to calls or an email request for comment. Calls to the Wuxi government advertising office went unanswered.
In April, Tianfeng Securities Co Ltd 601162.SS, backed by the government of central Hubei province, said it bought 26.5% control of Hengtai Securities Co Ltd. 1476.HK, formerly a unit of Tomorrow Holdings Co Ltd.
Reporting by Cheng Leng, Zhang Yan and Ryan Woo in Beijing; Additional reporting by Luoyan Liu in Shanghai; Editing by Sumeet Chatterjee and Christopher Cushing