HONG KONG (Reuters) – Shanghai-based Guotai Junan Securities is set to acquire its cross-town rival Haitong Securities via a share swap, creating a state-backed sector leader with $230 billion in assets as Beijing tries to consolidate the industry amid challenging markets.
Following are comments from investors and analysts.
ZHIYONG ZHENG, BEIJING-BASED INDEPENDENT SECURITIES AND FUND INDUSTRY ANALYST
“China’s securities firms share great similarities in their organisational structure and business focus which leaves little room for the combined entity to keep duplicate infrastructure.”
“In the case of Haitong and Guotai Junan, they can leverage the same set of middle and back office, which would likely trigger large redundancies across all business lines.”
GARY NG, HONG KONG-BASED ASIA-PACIFIC SENIOR ECONOMIST, NATIXIS
“China’s securities industry has been increasingly competitive in recent years, making it sensible to consolidate to cut costs and create synergies. The market size is here, but the income is getting squeezed.”
“With a lower profit margin, only large securities firms will likely have a bigger chance to survive in the future. More mergers and acquisitions may happen, and it can become a rare investment theme amid the lack of momentum in China.”
HUANG YAN, SHANGHAI-BASED FUND MANAGER OF QIUYANG CAPITAL CO
“There have been talks of a potential deal and the shoe has dropped…This marks the start of an industry-wide consolidation that will see more mergers between major brokerages.”
HONG KONG-BASED ANALYSTS WITH MORGAN STANLEY IN A RESEARCH NOTE
“We note the complexity and challenges of merging two large brokers with overlapping businesses and extracting synergy should not be underestimated.”
“In the meantime, we think the other leading brokers could see opportunities to expand their client franchises and try to gain more market share as well as client relationships.”
SHENZHEN AND SHANGHAI-BASED ANALYSTS WITH HUATAI SECURITIES IN A RESEARCH NOTE
“Medium and large securities firms with high-quality shareholder resources, comprehensive capacity, and excellent management teams are expected to stand out.”
“Overall, this integration may effectively boost short-term market sentiment and expectations for mergers and acquisitions in the sector… It is recommended to pay attention to securities companies controlled by the same shareholder.”
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