Merger of China’s top brokers ‘near’

BEIJING/SHANGHAI: China is speeding up the process of potentially merging its two biggest investment banks, in a move that would create a $82 billion powerhouse and may spark a wave of consolidation among the country’s more than 130 brokers.

In the latest proposal, CITIC Group, the parent of China’s largest broker CITIC Securities Co Ltd, will act as the main buyer of a stake in CSC Financial Co Ltd, the nation’s No. 2, according to people familiar with the matter.

CITIC Group would buy the stake from state-controlled shareholder Central Huijin Investment Ltd, making it the largest shareholder and pave the way for a consolidation of resources and operations, said the people, who asked not to be identified as the matter is private.

“While the details are still being finalised, the Communist Party committees of CITIC Securities and CSC, which are key in deciding corporate strategy, have approved the blueprint,’’ the people said.

“CITIC Group is now lobbying the State Council for support before presenting the details to Central Huijin,’’ they said.

The deal is playing out against a backdrop of seismic change in the country’s $1.2 trillion securities industry, with the potential for major domestic and foreign rivals entering the fray.

Regulators are discussing plans to allow the country’s biggest lenders to enter the securities industry as market opening to Wall Street’s giants raises urgency for local brokers to add heft to survive.

“Since 2018, Chinese regulators have been exploring a variety of ways to push for the making of high-quality investment banks,” Essence Securities analysts led by Zhang Jingwei and Jiang Zhongyu wrote in a note.

“On the one hand they are bringing in strong foreign competitors and on the other they are promoting industry consolidation and encouraging Chinese brokers to grow in size.

“While it’s too soon to tell the fate of the top brokers, smaller firms are coming under greater pressure to be weeded out,’’ they said.

Taken together, the 131 Chinese brokers have combined assets equivalent to one Goldman Sachs and less than a third of Industrial & Commercial Bank of China Ltd, the nation’s biggest lender.

They are also far from being fullservice investment banks, counting on mom and pop traders across the country for much of their revenue.

The market is also fragmented, with the top five brokers capturing just about a third of the industry’s revenue, according to Goldman research.

Representatives at CITIC Group, CITIC Securities, CSC Financial and Central Huijin’s parent China Investment Corp didn’t immediately respond to requests seeking comment.

Central Huijin, a unit of China’ sovereign wealth fund, currently owns 37.37% of CSC Financial, while CITIC Securities holds 6% in the firm.

CITIC Securities has led a series of acquisitions including a $2 billion deal to snap up smaller rival Guangzhou Securities Co Ltd last year. Still, the Beijing-based firm generated 12.2 billion yuan in profit last year, a quarter of Goldman’s.