Securities industry: Expect mergers?

The previous discussion mentioned that the securities industry has matured, innovative businesses are becoming more cautious, and the industry's profit ceiling has been reached. Mergers and restructuring may be the way to grow and strengthen.

Looking back at the growth history of the industry leader, CITIC Securities, it merged with Jintong and Wantong in 2003 and 2005. Under efficient management, it evolved from a mediocre brokerage into an industry leader.

The securities industry is heavily regulated, unlike other industries that undergo natural selection. It can only grow through industry consolidation. Therefore, industry consolidation is a crucial factor affecting the industry. In my memory, there hasn't been significant consolidation in over ten years.

Mergers and restructuring are essential for growth, but the process is challenging due to intricate interests behind the scenes. If the consolidation involves entities with the same actual controller or from the same region, it might be relatively easier.

Based on this idea, let's review the holding relationships and information about actual controllers of brokerage firms.

Currently, there are 49 listed companies in the entire securities industry. Looking at their shareholder backgrounds, they can be categorized into several types:

Central Enterprise (央企) Background:

Securities firms under central enterprises have actual controllers affiliated with central entities such as the State Council, the Ministry of Finance, and the State-owned Assets Supervision and Administration Commission (SASAC).

Examples include CITIC, CMB, Everbright, CR, Poly, China Railway, and China Construction. These are central enterprises, totaling 96 in the country.

Securities firms under central enterprises include CITIC, CMB, Everbright, and CICC, with Central Huijin being the largest shareholder, serving as the financial investment platform of the State Council.

Local State-Owned Enterprise (国企) Background:

Securities firms affiliated with local state-owned assets are connected to regional SASACs or departments. Examples include Shanghai International Group, Shanghai Shipping Group, and Beijing Financial Holdings.

While not as influential as central enterprises, they hold certain resources and rights within their provinces or cities. Securities firms affiliated with local state-owned enterprises can be categorized into different factions based on provinces or regions.

Private Securities Companies:

These companies have a background that is not affiliated with central enterprises or local state-owned enterprises. They include companies like Guotai Junan, Haitong, Dongfang Securities, Huatai Securities, and GF Securities.

Companies Without an Actual Controller (无实控人):

This category includes companies like GF Securities, Huachang, Changjiang, and Pacific Securities. They have major shareholders and a board of directors but have relatively dispersed ownership, making it difficult for any single entity to exercise absolute control.

In the past year, there have been some mergers and consolidations in the securities industry:

• In December 2022, CITIC Securities saw changes in its major shareholder and actual controller, with China Ping An becoming the actual controller after regulatory approval.
• In March 2023, China Securities Regulatory Commission (CSRC) approved Wuxi State-owned Development (Group) to become the major shareholder of Minsheng Securities, with speculation about possible future mergers with Guolian Securities.
• In December 2023, CSRC provided feedback on the change of major shareholder for Pacific Securities. Huachang Securities is set to successfully control Pacific Securities, a significant move for both entities.

These developments suggest ongoing changes and potential consolidation within the securities industry.