China's 300 Trillion Won Mega Securities Firm Emerges... "Challenge to Wall Street"

Top 3 Securities Firms Guotai Junan and Haitong Merge

Bloomberg reported on the 6th (local time) that China has challenged Wall Street by creating a 'securities giant' worth $230 billion (approximately 306 trillion won).

According to the report, Guotai Junan Securities, one of China's top three securities firms, announced yesterday that it would merge with Haitong Securities, stating, "This merger will help build a first-class investment bank and raise the standards of the securities industry."

The merger between the two securities firms is expected to be conducted through a stock swap, with Guotai Junan issuing shares to Haitong shareholders instead of cash. Once completed, the merged entity will become a mega securities firm with total assets of 1.6 trillion yuan (approximately 306 trillion won), surpassing China’s largest securities firm, CITIC Securities.

This merger news comes about a year after Chinese President Xi Jinping declared the advancement of China’s capital markets. Last October, at the Central Financial Work Conference, President Xi called for the cultivation of world-class investment banks and institutions. Following this, in March, the China Securities Regulatory Commission (CSRC) set goals to develop ten excellent securities firms within five years and to nurture two to three investment banks that can stand shoulder to shoulder with global financial institutions by 2035.

The merger is expected to be a boon for China’s capital markets, which have recently been experiencing a downturn. Haitong Securities previously reported a 75% decrease in operating profit for the first half of the year, and its stock price on the Hong Kong Stock Exchange has fallen about 12% this year. Leading financial firms such as CITIC Securities and China International Capital Corporation (CICC) also faced poor first-half results and implemented salary cuts.

Poor performance has led to significant layoffs. On the 1st, China Securities Journal reported that the number of employees in 50 domestic listed securities firms (or their parent companies) decreased by 6,760 compared to the end of last year, based on their semi-annual reports. The Shenzhen Composite Index, which was around 1,800 at the beginning of the year, stood at 1,529.62 as of the 5th, while the Shanghai Composite Index fell below 3,000 points in June and has struggled to recover since.

Bloomberg evaluated, "China’s capital markets have been shaken by economic slowdown and declining trading activity," adding, "(This merger) is a significant step toward China’s ambition to establish an aircraft carrier-class securities firm to challenge Wall Street."

Huachang Securities assessed, "Haitong’s financial condition is not very healthy, resulting in a low corporate valuation," and "This merger is likely to resolve Haitong’s business concerns."