China creates $230b brokerage giant through merger

China is consolidating its brokerage industry by merging two of its largest state-backed firms, Guotai Junan Securities and Haitong Securities. This move aims to create a powerful new player in the $1.7 trillion sector amid a decline in deal activity.

The combined entity, with assets of $230 billion, will surpass Citic Securities as the largest brokerage in China. The merger plan is subject to approval from company boards, shareholders, and regulators.

This consolidation aligns with President Xi Jinping’s vision for cultivating top-tier investment banks in China to compete with global firms. The nation’s securities regulator has also supported consolidation efforts, aiming to create two to three globally competitive investment banks by 2035.

The merger involves a share swap between Guotai Junan and Haitong Securities. Guotai Junan will issue new shares to Haitong shareholders in both Shanghai and Hong Kong, and will also conduct a new share placement for additional funding.

Both companies will temporarily suspend trading starting on Friday.

The Shanghai State-owned Assets Supervision and Management Commission holds significant stakes in both Guotai Junan and Haitong.

China’s brokerage sector has faced challenges in recent years, including a slump in deals, sluggish capital markets, and declining profits. The “common prosperity” campaign has also led to cost-cutting measures within the industry.

This merger represents a significant step towards China’s goal of creating a large-scale brokerage firm to compete with Wall Street banks. While previous attempts at consolidation have stalled, this latest move could reshape the Chinese brokerage landscape.

Attribution: Bloomberg