Securities houses see poor performance
By Sun Min (China Daily)
Updated: 2004-07-21 08:37

Shenyin & Wanguo Securities Co, one of China's biggest securities houses, reported a net loss of 251.3 million yuan (US$30.4 million) in the first half of this year, according to statistics released on an official website.

The company declined to comment on its financial status yesterday, but analysts said that loss-making is not a rare phenomenon among securities houses as the stock market fluctuates and their management does not improve much.

In an unaudited report released on www.chinamoney.com.cn, an official website for China's foreign exchange trading and interbank markets, the Shanghai-based securities company said it realized altogether 796.5 million yuan (US$96.2 million) of earnings from commission, proprietary investment and interest income during the first six months of the year.

But its 265 million yuan (US$32 million) of losses on investment management, plus the fund used to digest old debts, still led to a net loss of 251.3 million yuan (US$30.4 million) during the period.

A spokeswoman with Shenyin & Wanguo Securities said yesterday that the company had no comment on the figures so far, but it would try to provide an explanation later.

The disclosure of the financial figures is compulsory for members of the interbank market.

Eight securities houses have released their interim report accordingly.

Beijing Securities also posted a net loss of 87.2 million yuan (US$10.5 million) between January and June, including 51.5 million yuan (US$6.2 million) of losses from proprietary investment.

Other firms, though they managed to make ends meet, did not make high profits.

"The losses in proprietary investment and the historic burden of the securities firms are the major reasons for their unsatisfactory financial results," said Dong Chen, an analyst with China Securities Co.

Some encountered failure in securities investment as the stock market fluctuated and bond market tumbled in the first half of the year, even though the income from brokering commission has actually increased as investor confidence recovered in a bullish run in the first quarter.

The market environment has improved a lot compared to the past few years, when the bourse was bearish, said Dong.

But it is still not easy to give an accurate prediction of the market moves, which are hard to trace.

Meanwhile, as regulators tightened supervision on irregularities, more securities houses were forced to pay back the funds they had embezzled from their clients, which also added up to their financial burden.

China Securities itself, a big name in the business, for example, is also reported having funding problems, with big holes to be filled in due to failure in bond and stock investment and irregularities in the use of client fund.

But a senior official with the company said yesterday that the municipal government of Beijing had come to the rescue, with the replacement of top company executives and plans of fresh fund injection to help resolve the debts.

At the beginning of this year, control of the scandal-hit Southern Securities was taken by the municipal government of Shenzhen and regulators and managed to stay in business then.

However, that is exactly the problem with the securities business in China, some said.

The business should be fully market-oriented, so poor-performers withdraw if they can not live on their own, said an analyst who declined to be named.

Xu Gang, manager of the research department of CITIC Securities Co, also said that China's securities companies, after the ups and downs over the past decade, should reposition themselves in the market place.

They should further develop the investment banking business instead of putting the focus on proprietary investment and brokering, he said.

Lack of legal funding channels also lured many to seek irregular measures like embezzlement of client fund.

Meanwhile, it is also urgent for regulators to upgrade the regulatory framework and strengthen supervision on the investment management business and relative information disclosure requirements.