JungleJackpotJig| Foreign-controlled securities firms have mixed profits and losses in 2023, and many are waiting to enter the market

If you want to speculate in the stock market, you can see the research report of Jin Kirin analysts.JungleJackpotJigAuthoritative, professional, timely, comprehensive, to help you tap the potential theme opportunities!

◎ reporter Wang Youruo

Can "foreign securities firms" read the Chinese classics well? A few days ago, 10 foreign-controlled securities firms in China Exhibition Industry have released their transcripts in 2023 one after another. ExceptJungleJackpotJigIn addition to Standard Chartered Securities, which has just opened its business this year, of the remaining 9 foreign-controlled securities firms, 4 are profitable and 5 are at a loss, and their performance is differentiated, and most of them are still in the "running-in period" of the exhibition industry in China.

Annual report data show that at present, most foreign-controlled securities firms are still "small profits", brokers, investment banks and other traditional business has a greater impact on performance changes. And most of the foreign-controlled securities firms are newly established or merged, and the construction costs, fixed fees, business expenses and employee salaries of the new companies are relatively high, so it is easy to lead to losses in the financial statements in the initial stage of the exhibition industry.

However, from the perspective of industry trend, foreign securities firms have been actively developing their business in China since the restriction on foreign equity ratio was lifted in 2020. According to the China Securities Association, by the end of 2023, there were 17 foreign-owned securities companies in the industry, of which 9 were foreign-owned (excluding the newly established Standard Chartered Securities and Faba Securities). In 2023, the total assets of foreign securities companies exceeded 650 billion yuan, and the operating income exceeded 27.5 billion yuan.

Half of the foreign-controlled securities firms lost money last year.

The 10 foreign-controlled securities firms that have announced their results are Goldman Sachs (China) Securities, UBS Securities, Credit Suisse Securities, Morgan Stanley Securities, HSBC Qianhai Securities, Nomura Oriental International Securities, JPMorgan Chase Securities (China), Daiwa Securities, DBS Securities, and Standard Chartered Securities, which officially launched its business in March this year. Among them, Standard Chartered Securities released its operating data for the period from May 5, 2023 to December 31, 2023.

Subject to market conditions, establishment time, license qualifications and other problems, a total of 6 of the 10 brokerages suffered losses in 2023, including Credit Suisse Securities, Nomura Oriental International Securities, DBS Securities, Morgan Stanley Securities and Daiwa Securities. In addition, Standard Chartered Securities was approved for establishment on January 19, 2023, completed its registration on May 5, and did not officially launch its business until early 2024, so there will be no discussion.

Specifically, Credit Suisse Securities achieved operating income in 2023.JungleJackpotJig.57 billion yuan, down 45% from the same period last yearJungleJackpotJig.67%; the net loss was 199 million yuan, which was smaller than the net loss of 255 million yuan in 2022. Nomura Oriental International Securities continues the loss since its inception: operating income of 117 million yuan in 2023, an increase of 6.36% over the same period last year, and a net loss of 185 million yuan, which is also restrained from 225 million yuan in the same period last year.

Morgan Stanley Securities achieved operating income of 330 million yuan in 2023, down 23% from the same period last year, with a net loss of 68 million yuan and a net profit of 19 million yuan in 2022. In addition, both Daiwa Securities and DBS Securities were approved for formal business development in June 2021 for less than three years. According to the annual report, DBS Securities achieved an operating income of 36 million yuan in 2023, down 58% from the same period last year, and a loss of 147 million yuan, further expanding over the same period last year. In 2023, Daiwa Securities achieved an operating income of 65 million yuan, an increase of 35.42% over the same period last year, and a loss of 49 million yuan, narrowing compared with the same period last year.

From the point of view of the scale and the development of the industry, at present, foreign-controlled securities firms still show a situation of "small profits". And most of the foreign-controlled securities firms are newly established or merged, and the construction costs, fixed costs, business expenses and employee salaries of the new companies are relatively high, so it is easy to lead to losses in the financial statements in the initial stage of the exhibition industry. Therefore, in terms of loss reasons, the main factors affecting the performance of foreign securities firms in 2023 are brokers, investment banks and other traditional business.

For example, the operating income of UBS Securities in 2023 was 955 million yuan, down 19% from the same period last year, while the net profit was 19 million yuan, down 91.52% from the same period last year. According to the financial report, the net income of brokerage fees and investment banking fees of UBS Securities decreased by about 212 million yuan and 87 million yuan respectively in 2023, down about 33% and 45% respectively from the same period last year. For another example, the net income from investment banking fees of DBS Securities was 24.3422 million yuan in 2023, compared with 53.2112 million yuan in 2022, a year-on-year decline of more than 50%.

Goldman Sachs (China) Securities, HSBC Qianhai Securities

A big increase in net profit

However, there are also foreign-controlled securities firms that did well in 2023. Among them, in 2023, Goldman Sachs (China) securities operating income was 1.539 billion yuan, an increase of 163.98% over 2022, and net profit was 193 million yuan, an increase of 135.37% over 2022. HSBC Qianhai Securities achieved operating income of 727 million yuan in 2023, an increase of 44.25% over the same period last year, and a net profit of 150 million yuan, turning losses into profits over the same period last year.

According to public information, HSBC Qianhai Securities Co., Ltd. (referred to as "HSBC Qianhai") is a joint venture multi-license securities company established under the Supplemental Agreement X of the mainland and Hong Kong closer Economic Partnership arrangement (CEPA Supplementary Agreement X), which was established on August 28th. At present, the Hongkong and Shanghai Banking Corporation Limited holds a 90% stake in HSBC Qianhai Securities, Qianhai Financial Holdings Limited holds 10%, and HSBC Hong Kong is the main controlling shareholder.

In April 2022, the Hongkong and Shanghai Banking Corporation, a wholly-owned subsidiary of HSBC Holdings Limited, announced that it had completed a deal to increase its stake in HSBC Qianhai Securities from 51% to 90%. At that time, HSBC said that the increase would help HSBC Qianhai Securities to expand its business influence and continue to provide financial services to customers at home and abroad.

In terms of performance, HSBC Qianhai Securities recorded a net loss of 52 million yuan in 2022, but a significant improvement over 2021, with a net loss of 159 million yuan in 2021. In 2023, HSBC Qianhai Securities turned a profit. From the perspective of business segmentation, the net income of HSBC Qianhai securities brokerage business, net income of investment banking business, net income of investment consulting business and net income of asset management business all increased in 2023 compared with last year. Among them, the securities brokerage business grew most significantly, with a net income of 289 million yuan in 2023, an increase of more than 160% compared with 108 million yuan in 2022.

In addition, the revenue and net profit of Goldman Sachs (China) Securities increased significantly in 2023. Some people in the industry explained to reporters that this is mainly due to the impact of consolidated accounting statements. On February 18, 2023, all the original business of Beijing Gaohua, including securities proprietary business, securities brokerage business, securities investment consulting and consignment business of financial products, and business-related customer relationships, systems and personnel moved to Goldman Sachs (China) Securities as a whole.

There are still challenges in the choice of UBS and Credit Suisse licenses.

It is also worth noting that Credit Suisse, a century-old bank, will be acquired by UBS in 2023, and the business level merger of the two giants will last for months or even years. Judging from the exhibition pattern of the Chinese market, the current regulatory issues of "one participation and one control" of these two companies still need to be resolved.

According to the relevant provisions of the "Regulations on the Supervision and Administration of Securities Companies", the number of securities companies participating in one institution or multiple institutions controlled by the same actual controller shall not exceed two, of which the number of holding securities companies shall not exceed one. Under the "one participation, one control" restriction, the licenses of UBS Securities and Credit Suisse Securities face the choice of "one removal and one retention". For the combined group, find suitable buyers or suitable options for its business in China.

Previously, Castle Securities and Ant Group both participated in the bidding for Credit Suisse Securities licenses. In April this year, market rumors also said that UBS was considering changing its strategy and planned to exchange its 51% stake in Credit Suisse China Securities with Beijing City State-owned Assets Management Company Limited in exchange for its 33% stake in UBS Securities. At that time, UBS could wholly hold UBS Securities.

There are still many waiting to enter

Judging from the overall trend of the industry, China's capital market has been opening up to the outside world in recent years, and the process of international financial institutions establishing holding securities companies in China has also accelerated significantly. For foreign financial institutions, the newly established securities business platform is mainly based on the need to provide more comprehensive financial services to global customers.

In April 2024, the China Securities Regulatory Commission approved the establishment of France Pakistan Securities (China) Co., Ltd. French and Pakistani Securities is registered in Shanghai City, with a registered capital of RMB 1.1 billion. It is 100% funded by BNP Paribas. Its business scope includes securities brokerage, securities self-operation, securities investment consulting, and securities asset management.

In March 2024, Standard Chartered Securities, my country's first newly established wholly foreign-owned securities firm, officially opened its business in Beijing. Previously, in January 2023, Standard Chartered Securities was approved for establishment. According to the regulatory approval information, Standard Chartered Securities was wholly established by Standard Chartered Bank (Hong Kong) Co., Ltd., with a capital contribution of 1.05 billion yuan.

Including France Pakistan Securities and Standard Chartered Securities, the number of foreign-controlled securities firms in China has reached 11. Among them, JPMorgan Chase Securities (China), Goldman Sachs (China) Securities, Standard Chartered Securities, and France Pakistan Securities are all wholly foreign-owned securities firms. In terms of quantity, foreign-controlled securities firms are becoming a "new force" in the industry that cannot be ignored. In addition, there are currently several applications for the establishment of foreign securities firms waiting for approval. Information disclosed by the China Securities Regulatory Commission shows that there are currently foreign securities firms such as Citigroup Securities, Japan Mizuho Securities, Nikko Securities, and Qingdao Yicai Securities, waiting to enter the market.