Over 16 trillion securities giant "behemoth" is here! Guotai Junan Securities accelerates merger with Haitong Securities, what does it mean?

The announcement on the evening of Wednesday, October 9th revealed that two top Shanghai securities firms are accelerating their merger process, bringing the "giant" securities firm with total assets exceeding RMB 1.6 trillion closer to us.

According to the Wednesday announcement, Guotai Junan Securities will absorb and merge with Haitong Securities through a stock swap. Guotai Junan will issue its A-shares and H-shares to Haitong Securities shareholders at a ratio of 1:0.62, with the issued shares to be listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange. The A-shares and H-shares of Haitong Securities will be cancelled accordingly, and Haitong Securities will be delisted. After the transaction, Guotai Junan will handle the relevant industrial and commercial registration procedures such as company name and registered capital changes, while Haitong Securities will cancel its legal person status.

Guotai Junan also plans to issue A-shares to its controlling shareholder, Shanghai State-owned Assets Operation Co., Ltd., to raise supporting funds, with the fundraising amount not exceeding RMB 10 billion. The controlling shareholder will increase its holdings of Guotai Junan shares at a price higher than the pre-suspension share price, and commit not to reduce its holdings for 5 years.

Simultaneously with the announcement of the merger plan, and upon application to the stock exchange, both Guotai Junan and Haitong Securities' A-shares and H-shares will resume trading from Thursday, October 10th. This resumption date is 8 trading days earlier than the previously estimated suspension period announced for A-shares, which was scheduled to resume trading on October 22nd.

The most direct impact of the merger announcement and Thursday's resumption of trading is that the securities sector is expected to see a wave of increases. Guotai Junan and Haitong Securities missed out on the "securities bull" market that started on September 24th during the suspension period, and the rebound of these two leading securities firms is highly anticipated. From September 24th to October 9th, over the seven trading days, by the closing bell, Dongfang Fortune accumulated an increase of 132.06%, TF Securities rose by 94.51%, Guo Hai Securities rose by 72.67%, and CITIC Securities and China Merchants Securities saw increases of over 50%.

Citing industry insiders, 21st Century Business Herald reported, "The only ones left out in this securities sector rally are Guotai Junan and Haitong Securities, which were suspended. With their resumption, a high probability of valuation recovery is expected, which will drive the performance of the entire securities sector." The media also mentioned that sources close to the two securities firms stated, "The internal feedback within the companies is that the merger is accelerating continuously, progressing faster than expected, and proceeding very smoothly. It is said that many department leaders have met each other, discussed some follow-up work, and encountered little resistance."

Xu Yingying, Chief Non-bank Analyst at Caitong Securities, stated that with the rapid increase in market turnover and the significant rise in the equity market, brokerage and proprietary trading businesses of securities firms will release considerable performance elasticity, driving a substantial improvement in securities firms' performance growth rate. At the current juncture, the valuation of securities firms' stocks resonates positively with performance, and it is believed that top securities firms will continue to benefit from resource optimization integration and improvement in ROE under optimized risk control indicators

Merged Company Assets, Customer Scale, Securities and Futures Brokerage Business Rank First in the Industry with Network Coverage in 17 Countries and Regions

The merger of Guotai Junan Securities and Haitong Securities is the first major brokerage merger and reorganization since the implementation of the new "Guo Jiu Tiao". It is also the largest A+H dual-listed market absorption and merger case in the history of China's capital market, aiming to join forces to create a top-notch investment bank.

According to public data, the merged company of Guotai Junan and Haitong Securities ranks first in the industry in terms of assets, customers, and various businesses. As of the end of June this year, the total assets and net assets of the two companies after the merger were RMB 1.6195 trillion and RMB 331.1 billion respectively, both ranking first in the industry.

The scale of retail, institutional, and corporate clients of the merged company is leading across the board. According to the disclosed data in the 2023 annual report, the total number of retail clients of the two companies reached 35.93 million, net seat leasing income reached RMB 1.6 billion, and the number of A-share IPO underwriting reached 44, all ranking first in the industry. The network has expanded to 343 branches in key regions such as the Yangtze River Delta, Beijing-Tianjin-Hebei, and the Pearl River Delta, ranking first in the industry with an optimized network layout.

In terms of various businesses, the merged company excels in wealth management. The securities brokerage, futures brokerage, and margin trading businesses all rank first in the industry, aiming to build outstanding asset allocation capabilities and drive continuous and stable growth in assets under management (AUM). In terms of investment banking, the advantages in the Sci-Tech Innovation Board are significant, with IPO underwriting scale and number ranking first in the industry, focusing on building stronger industry service capabilities around new quality productivity. In terms of institutional and trading businesses, revenue from public fund separate accounts and scale of custody outsourcing both rank first in the industry. In terms of investment management business, the complementary advantages of licensing resources and product features will lead to a scale of public fund management, securities brokerage asset management, and private equity management reaching RMB 3.4 trillion.

The leading advantage in digital technology of the merged company will be further solidified. The total monthly active users of the retail client apps of the two companies consistently rank first in the industry, while the institutional client apps cover a wide range of scenarios. With the potential to leverage cutting-edge digital applications, the company aims to enhance customer service experience, optimize business models, and lead the development of digital technology in the industry.

The merged company will comprehensively enhance its cross-border financial and global comprehensive financial service capabilities, with a network covering 17 countries and regions, including major global capital markets such as Shanghai, Hong Kong, Macau, Singapore, New York, London, Tokyo, Mumbai, covering developed markets including North America and Europe, as well as emerging markets including Asia and Latin America.

The merged company will integrate and connect the domestic and international markets and resources, providing higher-quality wealth management, investment banking, and asset management services to global retail, corporate, and institutional clients. It aims to better represent the Chinese financial industry in global competition and resource allocation on the world financial stage, becoming an international first-class investment bank meeting the cross-border financial and global asset allocation needs of clients.

Leading Listed Brokerage Mergers Demonstrate Accelerated Consolidation in the Securities Industry

Securities Times pointed out that in the past two years, about 20 securities firms have undergone changes in equity ownership, showing a clear acceleration trend. On March 15 this year, the China Securities Regulatory Commission issued the "Opinions on Strengthening the Supervision of Securities Companies and Public Fund Management to Accelerate the Construction of First-Class Investment Banks and Investment Institutions (Trial)", focusing on the task goal of "cultivating first-class investment banks and investment institutions" proposed at the Central Financial Work Conference. Through the industry's own high-quality development, the continuous improvement of the institutional regulatory system, and the comprehensive enhancement of the industry's institutional governance level, a trend led by high-quality leading institutions guiding the high-quality development of the industry has been formedThe securities industry has brought a warm policy breeze, boosting expectations for securities firms' mergers and integrations.

Wall Street News previously mentioned that in addition to the merger of Guotai Junan Securities and Haitong Securities, under regulatory guidance, there have been six disclosed merger plans in the securities industry this year, representing an "acceleration key" for securities mergers. In early September, Guosen Securities announced its intention to issue shares to acquire Wanhe Securities, another Shenzhen state-owned asset, targeting cross-border business. This acquisition plan was announced just 14 days after the initial announcement of the acquisition of Wanhe Securities. Previous combinations such as "Zhejiang Merchants + Guodu", "Guolian + Minsheng", "Western + Guorong", "Ping An + Fangzheng", "Pacific + Huachuang" have emerged successively.

Securities Daily mentioned that regarding Guotai Junan's absorption and merger of Haitong Securities, Wu Yifan, Chief Analyst of Non-Banking Financial Industry at Changjiang Securities, said: "Currently, policies are driving top-down consolidation of securities firms, and industry concentration is expected to further increase."

Guojin Securities pointed out that both are listed securities firms, with a significant demonstration effect in the industry. The ongoing merger events mainly involve listed securities firms and non-listed securities firms, and are relatively easy to promote as they are all medium-sized securities firms. The merger of Guotai Junan and Haitong Securities achieves breakthroughs in the dimensions of top securities firms and listed securities firms, with greater difficulty in comparison. It is expected to set an example for the industry in terms of A/H valuation differences, stock exchange ratios, and accelerate the industry's merger process, especially among other top listed securities firms