What merger, China's top brokerages say

Shares of CITIC Securities and China Securities (CSC) rise amid speculation Beijing wants to create world's biggest investment bank

by Chris Gill, Jim Pollard
What merger, China's top brokerages say
CITIC Tower, the world's eighth and China's fourth highest building, also known as China Zun, middle, stands in the central business district in Beijing in November 2019. Photo: Pu Feng / Imaginechina via AFP

(ATF) China may have started merging its two biggest brokerages in a bid to create a giant investment bank that can rival the best in the West. There is speculation that the government wants Citic Securities to tie up with China Securities to make a stronger investment bank as it opens up its vast financial sector. 

The companies involved – Citic Securities Co Ltd and China Securities Co – have denied that a merger is in play, despite a surge in share prices on the Hong Kong Stock Exchange yesterday and reports that shareholders and regulators are assessing how to wed the two banks.

The two Beijing-based companies are estimated to have assets totalling about 1 trillion yuan ($142 billion) and would create an investment bank larger than Goldman Sachs and Morgan Stanley, which have market capitalisation of at least $60 billion each. 

Late on Tuesday April 14, the price of A shares and H shares in Citic Securities and China Securities surged. The Guangzhou Daily reported that shares of CSC rose by about 10% at one point, before the price of the two giants fell back to normal levels. The increase was seen as speculation that the two brokerages would merge. Last night, the two brokerages issued a clarification, saying they had not received any written or oral instructions from a government department about a merger.

For a time, China wanted to build a head brokerage that some likened to a "Financial Death Star" – a giant super weapon that featured in Star Wars – and this rumoured initiative has attracted market attention again.

'Aircraft-carrier size'

In December last year, the China Securities Regulatory Commission responded to talk of a super merger and said that it would continue to encourage and guide securities companies to enrich capital, enrich service functions, optimize incentive and restraint mechanisms, increase investment in technology and innovation, improve the international layout, strengthen compliance risk management and control, and actively promote the creation of "aircraft-carrier size" financial institutions.

Despite this nod of encouragement the head securities company indicated that healthy and sustainable development of the securities industry should hold sway.

And while both brokerages issued clarification announcements, the Guangzhou Daily disclosed shareholdings of China Securities. It said the state-owned Asset Management Centre is the largest shareholder, holding 35.11%, and Central Huijin is the second largest shareholder, holding 31.21%. The fourth largest shareholder is Citic Securities, which has 5.01%. Jinghu Investment and Citic Securities were allegedly acting in concert, which meant that Citic Group holds a total of 9.61% of the shares in CSC.

In January this year, Citic Securities announced that the Guangzhou Securities Asset Transfer Procedure and related industrial and commercial registration changes had been completed, and that 100% of its shares had been transferred to Citic Securities Investment Co Ltd.

Today, Citic shares fell 1.87% and those of CSC were down 3.43%.