The birth of a giant, Guotai Junan acquires Haitong Securities late at night, ending the era of the "Three Central and One Hua" in the securities industry

Late at night on September 5th, two major brokerage firms in Shanghai released a major announcement.

Guotai Junan Securities and Haitong Securities are officially preparing for a merger!

The details of this major asset restructuring in the securities industry are as follows: Guotai Junan will absorb and merge Haitong Securities by issuing A shares to all A-share shareholders of Haitong Securities and issuing H shares to all H-share shareholders of Haitong Securities.

It is obvious that after the merger of Guotai Junan and Haitong, both are expected to dominate or challenge the industry's leading position in total revenue, total asset size, total number of employees, and many individual businesses.

The long-standing dominance of the "three central and one Chinese" leading the brokerage industry has been forcefully broken.

Late Night Announcement

In this restructuring of the two brokerage firms, Guotai Junan is the acquiring party, while Haitong Securities is the target company. The former was established in 1999, while the latter was established in 1993.

Both are significant institutions in the Chinese securities industry.

The announcement reveals the transaction mode of this asset restructuring as follows:

Guotai Junan Securities and Haitong Securities are planning for the company to issue A shares to all A-share shareholders of Haitong Securities and issue H shares to all H-share shareholders of Haitong Securities in exchange for the merger of Haitong Securities and to raise funds by issuing A shares.

The announcement also points out: "This restructuring involves A shares and H shares, with many related matters and a complex process," and at the same time, "this restructuring is conducive to building a first-class investment bank and promoting high-quality industry development. According to the relevant regulations of the Shanghai Stock Exchange, the expected suspension period will not exceed 25 trading days."

The announcement also mentions a detail: "On September 5, 2024, the company signed a 'Cooperation Agreement' with Haitong Securities, making several principled agreements regarding this restructuring."

It is worth noting that this restructuring and the formal transaction documents need to be submitted to the respective boards of directors and shareholders' meetings of the two brokerage firms for review and approval by the competent regulatory authorities before formal implementation.

Revenue Scale "Sitting in Second, Aiming for First"

After the combination of Guotai Junan and Haitong Securities, how large will this large brokerage group be in terms of business volume?

It will probably be "sitting in second, aiming for first" in the industry.

Let's first look at the most important operating income.

According to the latest semi-annual report: In the first half of 2024, Guotai Junan achieved operating income of 17.07 billion yuan, with a net profit attributable to the parent company of 5.016 billion yuan; during the same period, Haitong Securities achieved operating income of 8.865 billion yuan, with a net profit attributable to the parent company's shareholders of 953 million yuan.

Calculations show that the total revenue of the two brokerage firms in the first half of the year exceeded 25 billion yuan, second only to the industry leader Citic Securities' revenue level of 30.1 billion yuan, firmly holding the industry's second position.

However, in the first half of 2024, Haitong's performance saw a significant year-on-year reduction of over 40%. If we go back to the 2023 fiscal year, Citic Securities had a revenue of 60 billion yuan, while Guotai Junan and Haitong Securities had revenues of 36.1 billion yuan and 22.9 billion yuan respectively, very close to Citic Securities.

Let's also look at the number of branches. The two brokerage firms about to merge each have over 300 branch offices, while Citic Securities had 222 approved and operational securities branches and 45 branch offices during the same period Guotai Junan Securities and CITIC Securities, when it comes to leading the industry, have the "power to fight a battle".

Multiple Sub-sectors or Industry Leading

In addition, according to the information from the 2024 interim report, Guotai Junan Securities and Haitong Securities are leading the industry in many of their main businesses.

If the two can present a situation of "1+1=2" or "1+1>2" after merging, they are expected to truly establish a "carrier-style" institution in the securities industry.

Looking at Guotai Junan's revenue breakdown, the largest contribution to revenue comes from institutional and trading businesses, accounting for as high as 42%, followed by wealth management at 28%. Both businesses have a volume of over 4.5 billion yuan, playing a significant role in the industry.

Furthermore, the only business that achieved year-on-year growth in the first half of the year was the international business, generating higher revenue than pure investment banking.

Now looking at Haitong Securities. The business with the highest gross profit margin at Haitong Securities is asset management, followed by financial leasing, and then wealth management.

By adding the two together, it can be seen that they have the potential to achieve a strong alliance in wealth management, investment banking, and asset management, while in institutional trading, financial leasing, and other businesses, they have the potential to achieve complementary strengths.

"Industry Leading" in Number of Employees

According to Wind statistics, as of the end of 2024, Guotai Junan Securities and Haitong Securities had 14,762 and 13,346 employees respectively, with a total of over 28,000 employees between the two.

Data shows that CITIC Securities currently has a total of 26,000 employees.

In other words, after the merger of the two securities firms mentioned above, the team size will significantly exceed that of the "top player" in the securities industry.

Perhaps, one of the goals of this merger is how to smoothly transition and ultimately improve personnel efficiency to truly build a competitive and industry-leading domestic investment bank.