Guotai Junan’s Stock-Market Rescue Investments Still Losing Money

(Beijing) — Guotai Junan Securities, one of China’s top securities brokerages, is still suffering losses on equity investments that a government fund made with the firm’s money to try to stem a stock market rout in 2015.

From July to September 2015, the state-owned company transferred 17 billion yuan ($2.47 billion) to a special account operated by the China Securities Finance Corp. Ltd. (CSF), which is owned by the country’s securities market regulators. The funds were used to buy shares to support the stock market and restore the confidence of investors shellshocked by a 40% slump in the benchmark Shanghai Composite Index over a two-month period in the summer of 2015.

At the end of last year, the fair value of the investments was 15.96 billion yuan, 1.3% lower than the 16.17 billion yuan at the end of 2015, according to Guotai Junan’s annual earnings report released on Monday. Nevertheless, that’s still better than the performance of the Shanghai Composite, which fell 12.3% last year.

The state-owned brokerage, whose biggest shareholder is the Shanghai State-Owned Assets Supervision and Administration Commission, was one of 50 securities companies that contributed a total of about 220 billion yuan to the CSF fund, according to data compiled from public statements released by securities companies.

Guotai Junan said that the firms shared the investment risks and returns based on the proportion of their investment, adding that it was “unclear how the CSF operates the special account, and when the investment will be returned.”

The brokerage’s net profit fell by 37.3% to 9.8 billion yuan last year, while revenue fell by 31.5% to 25.8 billion yuan, according to the earnings report. The decline was attributed to volatility in the securities market, which resulted in declining revenue from its brokerage and margin-trading divisions.

Guotai Junan isn’t the only domestic securities firm to see its earnings drop. Preliminary earnings announcements show that Citic Securities, the country’s biggest brokerage, had a 47.6% slump in its 2016 net profit to 10.4 billion yuan, while Haitong Securities said its net profit shrank by 49% to 8 billion yuan.

The poor earnings performances in 2016 show that the securities industry continued to suffer from the fallout of the sudden collapse in the stock market in the summer of 2015 after a months-long bull run.

Total trading volume on China’s A-share markets in Shanghai and Shenzhen sank by 50% to 126 trillion yuan in 2016, according to data compiled by Wind, a financial information provider.

The revenue structure of Guotai Junan’s major business divisions saw a significant change as a result. Commission fees earned by the company’s brokerage services plunged by 60% to 7 billion yuan in 2016, accounting for 27.4% of total income, down from a share of 46.9% in 2015.

In contrast, revenue from investment banking services rose by 14.3% to 3.5 billion yuan, accounting for 13.6% of total income, up from 8.1% in 2015, according to the company’s earnings statement.

In an effort to boost profits, Guotai Junan said it plans to expand innovative businesses such as mobile financial services, and make a bigger push into cross-border investment services as more domestic enterprises engage in mergers and acquisitions overseas, especially through the government’s “One Belt, One Road” strategy.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)