Profit fears prick party mood at China's brokerages

Shenwan Hongyuan HK

07/03/2016 23:00

* Lunar New Year parties scaled back at some brokerages 
    * Some staff benefits cut, bonuses delayed - staffers 
    * Brokerages building up capital to pad for a tough year 
    * M&A splurge is a bright spot for those brokers involved 
 
    By Engen Tham 
    SHANGHAI, March 8 (Reuters) - To celebrate China's Lunar New 
Year last year, one department at Haitong Securities, a leading 
brokerage, held a lunch for staff and handed out online shopping 
coupons. This year, there were fewer coupons and a "tea and talk 
meeting" instead of lunch. 
    "Only they didn't have any tea, just water," said an 
employee at the firm. 
    Last year's first-half stock market boom was followed by a 
crash that triggered an industry-wide investigation into insider 
trading and other illegal practices. Brokers had hoped 2016 
would mark a return to strong gains. 
    But the reality of continued weakness on the Shanghai and 
Shenzhen markets, among the world's biggest, has prompted 
brokerages to slash commissions and scale back staff benefits to 
keep costs in check, employees at several brokerages said. 
    Brokerages, also squeezed by measures to curb margin 
financing, don't want to be seen celebrating while they are in 
the spotlight over possible misdemeanours. 
    China's biggest brokerage CITIC Securities  600030.SS  
 6030.HK  also cancelled its New Year staff party, one employee 
said, noting also that two of the firm's executives had not yet 
returned to work after being involved in investigations by 
Chinese authorities.  urn:newsml:reuters.com:*:nL3N15J4AY 
    "Of course this is going to affect our business, how can it 
not?" the person said. 
    Those ongoing anti-graft probes are also blamed for delaying 
bonus payments at China Galaxy Securities  6881.HK , an employee 
said. "A lot of work here has stopped. The investigators are 
checking accounts. If they haven't cleared the accounting, how 
can we issue bonuses?" the person said, adding Galaxy also cut a 
traditional 5,000-10,000 yuan New Year bonus to all staff. 
    Galaxy, CITIC and Haitong declined to comment.  
     
    PARTY POOPER 
    Profits at China's 125 securities firms soared 150 percent 
last year to 2.4 trillion yuan ($366.4 billion), according to 
Securities Association of China data - despite a 44 percent drop 
in the CSI300 index of China's blue-chip stocks  .CSI300  
between June and August. 
    Brokers and analysts say firms are now bolstering their 
capital, rather than giving staff handouts, so they can make it 
through what looks like a tough year ahead. 
    "You need to base decisions on profits and capital costs. 
You can't give money away because (profits) suddenly grew in two 
or three quarters," said Xingyu Chen, analyst at Phillip 
Securities (Hong Kong) Ltd. 
    Profits at the country's two dozen listed stockbrokers, 
including CITIC, Guotai Junan Securities  601211.SS  and Guosen 
Securities  002736.SZ  are expected to rise by just 25 percent 
this year and could be flat next year, according to StarMine 
Professional estimates. CITIC and Shanxi Securities  002500.SZ  
lost money in January.  urn:newsml:reuters.com:*:nL3N15J3SG  urn:newsml:reuters.com:*:nL3N15J49E 
    Shares in listed securities firms are generally trading at 
around half their early-June levels. 
    Fifth-ranked Shenwan Hongyuan Securities  0218.HK  has been 
paring back staff benefits since August, when it reduced the 
commission made by some traders to just 25 yuan for every 1 
million yuan traded, from 125 yuan previously, said an 
individual with direct knowledge of the cut. 
    At the end of last year, Shenwan Hongyuan cut other staff 
benefits including the annual holiday and payouts for family 
members. Last month, it didn't award a bonus, the person added. 
    "I used to get 30,000-40,000 yuan a month ($4,586-$6,114), 
now it's half that," the person said about his salary. 
    Shenwan Hongyuan did not respond to requests for comment. 
    Unlike U.S. and British brokerages, many of China's top 
securities firms are government owned, and prefer to cut costs 
by scaling back on benefits rather than by shedding jobs. 
    Entry-level employees start at an annual salary of 
3,000-8,000 yuan, with sales managers earning 20,000-40,000 yuan 
and senior levels 30,000-50,000 yuan, said Zhao Bi, a financial 
services headhunter at Risfond Executive Search. He said he also 
noted welfare benefits had been cut across the industry. 
    Brokers in China are not alone in feeling the pinch. The 
average Wall Street bonus fell 9 percent last year as volatile 
markets dented profits at broker dealer firms, according to a 
report by a top New York state financial watchdog.  urn:newsml:reuters.com:*:nL2N16C24J 
     
    SILVER LINING 
    One bright spot for brokerages is a flurry of overseas 
acquisitions by Chinese companies looking to sidestep slowing 
domestic growth.  urn:newsml:reuters.com:*:nL3N1452YH 
    China's outbound M&A last year helped drive Asia-Pacific's 
annual deal value above $1 trillion for the first time, and 
hopes are high that 2016 will top even that. 
    Bankers at Guotai Junan, China International Capital Corp 
and Orient Securities said they have not seen their benefits 
cut, and hope for bonus payments in May. 
    ($1 = 6.5499 Chinese yuan renminbi) 
 
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Margin calls a fresh threat for China's battered stock markets   
  urn:newsml:reuters.com:*:nL3N15C2AJ 
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 (Reporting by Engen Tham in Shanghai, with additional reporting 
by Elzio Bareto in Hong Kong and Shanghai newsroom; Editing by 
Ian Geoghegan) 
 ((engen.tham@thomsonreuters.com;)(+86-21-6104-1769;)(Reuters 
Messaging: engen.tham.thomsonreuters.com@reuters.net)) 
 
Keywords: CHINA BROKERS/