China economy

Weak trading, bleak commissions drag profits down for China's brokers

Chinese brokerages scale back to keep costs in check

PUBLISHED : Saturday, 25 March, 2017, 4:14pm
UPDATED : Saturday, 25 March, 2017, 10:35pm

Chinese brokerages, including the country’s biggest, CITIC Securities Co, reported a sharp drop in profits in 2016 as lacklustre stock market activity dragged down commission incomes.

Brokers in China have been struggling after a stock market boom came to a turbulent end in 2015. The reality of continued weakness on the Shanghai and Shenzhen markets has prompted some brokerages to slash commissions and scale back staff benefits to keep costs in check.

Two of China’s top listed brokerages – GF Securities and Changjiang Securities – saw their 2016 net profit dive 39.2 per cent and 36.8 per cent, respectively, last week.

CITIC Securities posted its lowest annual profit in three years, of 10.4 billion yuan (US$1.5 billion), down 47.6 per cent from 2015, as lacklustre stock market activity pushed down net fee and commission income by almost a quarter.

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Amid bleak prospects at home, CITIC plans to cut operating costs of its international arm, CLSA, by 25-30 per cent, CLSA Chairman Tang Zhenyi said on Friday. The brokerage also plans to increase the revenue it gets from CLSA to 30 per cent of its total in five years, from 10 per cent now, Tan said.

CITIC is looking to acquire advisory assets in the United States and a deal could be announced by the end of this year, CLSA Chief Executive Jonathan Slone said.

“We are looking at everything. But we are certainly in no rush to acquire anything,” Slone said.

Many Chinese brokers, highly dependent on trading fees, have been badly hit by a 50 per cent plunge in average daily turnover in stocks and funds to 500 billion yuan last year, according to a January report by Haitong Securities.

Chinese brokerage profits slump 55pc in 2016 as trading volume shrinks

Government curbs on margin financing continued to weigh on trading, while crackdowns on property-related and other structured products also hit revenues.

“Asset management ... is shrinking under the management of the China Insurance Regulatory Commission,” said Jiahe Chen, chief strategist at Cinda Securities.

One of last year’s worst performers was Shanxi Securities , whose annual profits cratered 67.8 per cent, preliminary results show. The brokerage said it plans to issue public corporate bonds worth 2 billion yuan.

However, this year, bond issues, IPOs and mergers and acquisitions will remain bright spots for China’s brokerages, according to analysts.