Brokerages’ Profits Drop 8% as Commission Fees Shrink, Rules Tighten

Chinese securities firms saw net profits fall by more than 8% last year as commission fees declined and supervision over investment banking tightened, though returns from investments soared with the stock market’s bull run.

The total revenues of the 131 Chinese brokerages included in the industry report slid by 5.1% to 311.3 billion yuan ($49.67 billion) in 2017 compared with the year before, while net profits decreased by 8.5% to 113 billion yuan, industrial self-regulatory body the Securities Association of China (SAC) said in a statement dated Monday (link in Chinese).

Brokerages saw their profits shrink as they made less from commission fees as fewer individual investors traded in the stock market, and saw their investment banking businesses suffer due to stricter regulatory oversight on public listings, mergers and acquisitions, and bond issuance.

The firms’ collective income from commission fees dipped by 22% to 82.1 billion yuan in 2017, while income generated by their securities underwriting businesses declined by 26.1% to 38.4 billion yuan by the end of December.

Despite a pledge from the chief of the securities watchdog to speed up initial public offering (IPO) approvals, market participants faced an increasingly strict IPO review process.

However, profits generated from securities investments surged by 51.5% to 86.1 billion yuan, mainly thanks to the brokerage’s massive purchases of blue chip stocks, which outperformed smaller caps through the year on the A-share market.

The Shanghai Composite Index, the country’s benchmark gauge, began 2017 with a 6.6% gain through the end of December, and later extended the bull run in January with a 25-month high. The CSI 300 index, a gauge that tracks 300 heavily weighed stocks in Shanghai and Shenzhen, surged 217.8% last year.

Divided by asset base, big brokerages outperformed smaller ones through the year. The overall revenues of Citic Securities Co., Guotai Junan Securities Co., Haitong Securities Co. and GF Securities Co. swelled to 116.8 billion yuan in 2017, accounting for 40% of the industry total that year.

Several major Chinese securities brokerages, such as Citic and Haitong, regained a top rating in the regulator’s latest annual sector review in August after the market turmoil of the summer of 2015, as the China Securities Regulatory Commission (CSRC) urged leading companies to learn from their mistakes and return to being a pillar of support for China’s capital market.

As of December, the total assets of the 131 brokerages were 6.14 trillion yuan, while securities under their management stood at 40.3 trillion yuan, according to the statement.

Contact reporter Leng Cheng (chengleng@caixin.com)