Thin trading slashes securities firms' profit

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Last updated at: (Beijing Time) Wednesday, December 10, 2003

Thin trading slashes securities firms' profit

China's prolonged bearish stock market and fierce competition in investment-bank business are sending many domestic securities houses to the verge of bankruptcy, analysts say.

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China's prolonged bearish stock market and fierce competition in investment-bank business are sending many domestic securities houses to the verge of bankruptcy, analysts say.

Latest statistics show that domestic securities firms suffered 3.4 billion yuan (US$409 million) in losses in the first three quarters of this year, according to a report in Shanghai Securities newspaper.

"If the sluggish performance of the stock market continues in the last quarter, losses of the industry will very likely surpass that of last year, which was 3.7 billion yuan (US$445 million)," the newspaper said.

Among the nation's 131 brokerages, 98 posted losses totalling 4.1 billion yuan (US$493 million) in the January-September period, while 29 made profits of 700 million yuan (US$84 million).

This compared with the situation a year ago when 60 firms made profits and 65 were in the red.

Analysts attribute this mainly to shrinking income from agent and investment-bank business as trading was thin and funds raised from IPOs dropped drastically.

An average of only about 70 billion yuan (US$8.4 billion) is being raised through the stock market every year, down from the about 150 billion yuan (US$17.6 billion) in 2000.

In contrast, brokerages qualified to be lead underwriters rose from less than 30 to nearly 70.

In the first half of this year, only 29 companies launched IPOs while 25 sought re-financing in the stock market.

In addition, the lacklustre market is driving many investors to leave the market, along with their guaranteed funds.

By August, outstanding guaranteed funds of stock investors dropped to about 300 billion yuan (US$36 billion), compared with some 700 billion yuan (US$84 billion) in 2000, which means securities houses are earning far less from the funds.

Struggling for survival, many brokerages are calling for more policy support to help them overcome current difficulties.

They were overjoyed when the long-awaited regulations allowing securities companies to raise funds through issuance of corporate bonds took effect on October 1.

However, both banks and issuance companies are prudent on such bonds and no securities house has so far secured a guarantee letter from a commercial bank.

Experts say some small securities firms without diversified business are very likely to go bankrupt amid fierce competition.

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