Weak sentiment takes shine off mainland brokers

PUBLISHED : Friday, 18 January, 2013, 12:00am
UPDATED : Friday, 18 January, 2013, 5:47am


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Mainland brokerages reported declining profits for a third year in 2012 as jittery investors and a sluggish market for initial public offerings (IPOs) added to weak trading conditions.

The lacklustre performance is likely to spur firms whose revenues mainly come from underwriting and trading to accelerate diversification amid a cloudy outlook for the stock market.

According to the Securities Association of China, a government-backed industry association, the mainland's 114 brokerages earned a combined 32.9 billion yuan (HK$41 billion) last year, down 16.6 per cent from 2011. The decline followed a drop of 50 per cent in 2011 and 16.8 per cent in 2010.

The association said 15 brokerages failed to post a profit last year but did not release their names.

On the mainland, trading commissions collected from clients normally account for 60 per cent of brokerages' revenues.

The China Securities Regulatory Commission (CSRC) slowed IPO approvals last year to underpin the beleaguered market, denting the brokerages' underwriting business.

The IPO market was suspended temporarily in October last year and the CSRC has yet to say when to resume approvals.

"Brokerages' earnings were within expectations," said Dazhong Insurance fund manager Wu Kan. "They must double efforts to compete with other financial institutions in the asset management sector."

The mainland's brokerage industry has been criticised for its incapacity to generate profits in challenging times. In 2009, the brokerages reported a 90 per cent profit jump, thanks to an 80 per cent increase in the benchmark Shanghai Composite Index. But they normally post lacklustre earnings when the market is stuck in a downward spiral.

Their total profits of 32.9 billion yuan in 2012 were less than the net income of US$7.48 billion by Goldman Sachs.

Haitong Securities, the mainland's second largest publicly traded brokerage, said yesterday that its 2012 earnings fell about 2.5 per cent to three billion yuan.

The CSRC is now encouraging brokerages to develop their asset management businesses, including offering consultancy services and managing assets for clients.

By the end of last year, total assets under management by brokerages were valued at 1.89 trillion yuan, according to the association. The figure represented only a quarter of the total assets in the trust sector.

The CSRC is also striving to create new growth engines by expanding margin-trading and short-selling mechanisms.

Under the margin-trading system, brokerages can lend cash to clients to buy equities while short selling allows them to lend shares to retail investors to sell. The brokerages can collect fees from the businesses.