Twenty-one securities firms reported a combined 1.2 billion yuan (US$148 million) loss in their 2005 pre-audited financial reports, with losses mainly in traditional brokerage and proprietary business.

 

BOC International China, one of the leading domestic investment banks in the country, suffered a 139 million yuan (US$17 million) loss, mainly due to a 320 million yuan (US$39.5 million) provision for a drop in the value of its intangible assets.

 

Other bad performing firms included Dong Wu Securities and Minsheng Securities, which lost 99.8 million yuan (US$12.3 million) and a 76.3 million yuan (US$9.4 million) respectively last year.

 

This is the fourth year in succession that the industry has recorded heavy losses.

 

Some of the firms are able to withstand the losses because they made fantastic profits in previous years.

 

Assets provisions, high expenses and low margins were the main causes of the losses. Due to China's gloomy stock market, traditional businesses, such as brokerage and proprietary business, declined heavily, and did not contribute to revenue.

 

In response, some firms are sacking staff and closing branches.

 

Some 42 securities firms have so far published their annual pre-audited financial reports, generally revealing how bad the industry is performing.

 

Despite that, several firms still made large profits. China International Capital Co Ltd (CICC), a leading investment bank in China, was expected to come out top of the good-performing list.

 

The company made 588 million yuan (US$72.6 million) profit in 2005, mainly form its investment banking business.

 

Among CICC's revenue, 1.4 billion yuan (US$173 million) was from its investment banking business and 134 million yuan (US$17 million) was earned from its securities trading activities.

 

China Securities Regulatory Commission (CSRC) announced earlier it would bring in a tighter financial measurement system to assess domestic securities firms' capability to trade stock. It is aiming to get rid of poor players from the securities industry.

 

The new measurement system, namely the net capital measurement, is a more prudent way to measure a company's financial strength and tighten its internal controls.

 

Under the new rules, a securities firm will not be able to carry out certain business unless it meets the CSRC's net capital requirements.

 

China has about 130 securities firms, about 63 of which are reportedly "problematic."

 

More than 20 securities firms in China have reportedly been listed by the CSRC as needing "high-risk monitoring," meaning the firms are under close supervision.

 

Chinese authorities are hoping to reshuffle the market by quickly removing poor players and increasing support for solid performers. The government had closed or taken over 19 bad-performing securities firms by the end of last year.

 

Experts said that acquisitions between security firms would enhance the centralization of the sector's capital and resources, help to lower transaction costs and reduce competition.

 

(China Daily January 24, 2006)