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china's capital market is experiencing a historic turning point! guotai junan's late-night merger with haitong securities may end the era of "three zhongs and one hua" in the securities industry.

late at night on september 5, guotai junan securities and haitong securities both announced that they were planning to merge haitong securities and issue shares to raise matching funds. the two companies will begin to suspend trading from the opening of the market on september 6 (friday).

analysts said that after the merger of guotai junan and haitong, both are expected to occupy or challenge the first position in the industry in terms of total revenue, total asset size, total number of employees, and many individual businesses. this also means that the pattern of "three zhongs and one hua" leading the securities industry that has monopolized the industry for many years will be broken, opening up space for subsequent integration of leading securities firms.

the "super aircraft carrier" of the securities industry was born, and its assets and capital ranked first in the industry

xu kang, chief analyst of huachuang non-bank, analyzed that based on the 2023 annual report data, if guotai junan and haitong securities merge, the total assets and net assets will reach 1.68 trillion yuan and 330.2 billion yuan respectively, both ranking first in the industry:

1) asset scale: the total assets/net assets after the merger will reach 1680 billion yuan/330.2 billion yuan respectively, both ranking first in the industry; guojun’s total assets/net assets in 2023 will be 925.4 billion yuan/167 billion yuan respectively, ranking second/third in the industry.

2) profitability: the combined total operating revenue/net profit attributable to shareholders reached 59.1 billion yuan/10.4 billion yuan, ranking 2nd/3rd in the industry; guojun’s revenue/net profit in 2023 were 36.1 billion yuan/9.4 billion yuan, ranking 3rd/3rd in the industry respectively.

3) revenue breakdown: after the merger, the net income of brokerage/investment banking/asset management/capital-heavy businesses will be 10.6/7.2/6.0/16.5 billion yuan, ranking 1/1/3/2 in the industry; guojun's ranking in 2023 will be 2/4/4/3 in the industry respectively.

xu kang said that the merger of the two parties would resolve potential business concerns for haitong, and it would be a positive if the acquisition price is appropriate. haitong is likely to be the acquired party. haitong securities has been affected by overseas business and investment banking business events, and the overall quality of its underlying assets is not very healthy, which also leads to the low valuation of haitong securities in the industry. if the merger is successfully achieved at this time, it will help resolve risks related to international business.

it is also good news for guojun. although guojun is the merging party and needs to consider multiple factors such as the acquisition price and goodwill asset risk, it is not as direct as haitong's asset risk resolution. however, the brokerage business scale after the merger is larger, which has some benefits for financing costs and business expansion.

for example:

1) make the investment banking business bigger and stronger. haitong securities has a deep foundation in investment banking, with a high proportion of revenue and strong business capabilities. however, in recent years, due to penalties/public opinion and the influence of senior executives, the business has been suppressed. if haitong and guojun merge smoothly, relying on the brand effect of both investment banks, the space for investment banking business is expected to be further opened up, and the investment banking business will be made bigger and stronger.

2) the transformation of proprietary business is promoted. the non-directional development of proprietary business is restricted by net capital, resulting in a natural upper limit for the industry's non-directional business. since haitong securities has not obtained the qualification of a primary dealer, there is not much room for the development of its derivatives business. if the two parties' businesses are merged, the expansion of net capital will help the new entity to better obtain room for the development of derivatives business with its own business volume.

opening up space for mergers among leading securities firms, accelerating industry integration

under policy guidance, the integration pace of small and medium-sized securities firms has significantly accelerated since the beginning of this year, but the merger of leading securities firms has previously remained at the "rumor" stage.

the proposed merger of guotai junan securities and haitong securities is the first merger and reorganization of leading securities firms since the implementation of the new "nine national policies". it is also the largest a+h bilateral market absorption merger in the history of china's capital market and the largest a+h integration case of listed securities firms.

citic securities pointed out that since the china securities regulatory commission called for encouraging mergers and acquisitions in november 2023, the securities industry has continued to make breakthroughs in mergers and acquisitions. guolian minsheng, zheshang guodu, western guorong, and guoxin wanhe have successively launched their own merger and acquisition plans. however, the previous mergers and acquisitions were concentrated on medium-sized securities companies. the launch of the guojun haitong merger plan is the first merger and acquisition case of a leading institution in this cycle.

citic said that the acquisition of guotai junan and haitong securities responded to the country's macro direction of building a first-class investment bank and promoting high-quality development of the industry. it is expected to significantly change the industry's competitive landscape in the long run and open up space for subsequent mergers and acquisitions and restructuring in the securities industry.

huachuang also pointed out that it was difficult to promote the merger of leading securities companies in the past. one of the reasons was that there was no precedent for the merger of leading listed securities companies. business risks, employee levels and small and medium shareholders were difficult to control. if the merger goes smoothly, the imagination space for the merger of leading high-quality securities companies such as cicc and galaxy, jiantou and citic is expected to be further opened.