Haitong diversifies as fee war rages on

Hong Kong's highly competitive stockbroking business has forced one of the mainland's largest brokerages to transform itself into a universal bank in an effort to rely less on fee-based income and to add new and stable profit streams.

Haitong International Securities, the flagship offshore arm of the mainland's No 2 securities firm, recently set up a new department of fixed-income, currencies and commodities (FICC), which will use its own balance sheet to finance transactions to meet clients' demands.

Lin Yong, vice-chairman and chief executive of the firm, told the South China Morning Post in an exclusive interview it was the right time for mainland securities firms to move beyond conventional broking business as a commission war among local brokers eroded profit margins.

"It's definitely time for change. In fact, we [mainland securities companies] call this a change, but big foreign investment banks like Goldman Sachs and UBS have been doing these other businesses for a long time," said Lin, referring to the wide range of financial services to be offered by Haitong's new FICC unit.

"We believe we can be the one to play a leading role in this shift in business strategies. If you don't change now, you will be left behind sooner or later and you may not even survive in the end," said Lin, who holds a doctorate degree in economics and has more than 16 years of securities industry experience.

Lin compared the commission war among local brokers with the impact on retail businesses of rising rents in Hong Kong.

"Some years ago when I first came to Hong Kong, I remember there were still some local family-run small stores selling cigarettes, drinks, and fruit. But when you look around today there are so many 7-Eleven or ParknShop chain stores that it has become difficult to find these small local stores."