During my university years, I had the fortune of encountering an exceptionally skilled probability teacher in my major field. A remark he shared with us in his spare time has remained etched in my memory to this day: "Many people believe that monopolies and oligarchic capital giants typically emerge during periods of economic prosperity and upward trends. However, that is not the case. In fact, based on the experiences and case studies from capitalist countries, it is during times of economic contraction, or even depression and downturns, that true capital giants are born."

At the time, being young, I heard his words but did not fully comprehend them. It was only with the passage of time, the accumulation of experience, and my observations of the world that I began to grasp their meaning as I reached middle age.

Upon delving into history, one can discern a particular phenomenon:

Many great companies were born during economic crises, such as:

Procter & Gamble and General Electric were founded during the Panic of 1873.

General Motors was born during the economic depression of 1907.

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IBM was established on the eve of World War I in 1911.

FedEx was founded during the oil crisis of 1973.

Additionally, numerous enterprises are adept at positioning themselves against the tide:

(The original text ends here, and the translation is incomplete.)In 1994, Mexico faced an economic crisis, during which almost all companies were reducing their investments in Mexico. However, Coca-Cola took the opportunity to increase its investment in Mexico, resulting in unprecedented growth in performance.

In 1998, during the Asian financial crisis, many companies were cutting back on expenses in Asia, but Samsung seized the opportunity to increase its investment in China, ultimately becoming the industry leader.

Taking the 2008 global financial crisis as an example, many large companies faced great difficulties. The three major giants of the American automotive industry—General Motors, Ford, and Chrysler—all experienced significant declines in sales. There were also numerous bankruptcies, the most famous being the 100-year-old Wall Street financial behemoth, Lehman Brothers.

However, at the same time, L'Oréal of France saw a 5.3% increase in sales in the first half of 2008, defying the market trend.

Shiseido of Japan also saw a positive performance against the trend.

"Uniqlo" also exploded onto the scene in this year, giving rise to a new Japanese billionaire—Tadashi Yanai.

In 2009, during the global financial crisis, China was also affected. However, KFC was optimistic about the Chinese market and took the opportunity to increase its investment in China, thereby consolidating its position as the leader in the fast-food industry.

This demonstrates that danger and opportunity always coexist. Every upheaval will see some fall and others rise; this is an iron law of history.

During the prosperous and upward phase, many people are willing to leverage and take on debt risks to compete with large-scale capital. Therefore, in this phase, although the market appears lively, many businesses are not profitable. In such an environment, the focus is not on development and profit but on survival and the survival of the fittest.

Large-scale capital truly makes money, and industry giants truly establish themselves, during the economic downturns. This is because, at this stage, it is an environment of "big fish eating small fish" through mergers and acquisitions. As a result, many monopolistic and oligopolistic giant enterprises are formed.In the era of the Chinese Internet, Didi, Meituan, and Taobao... are actually paradigms and real-life cases of this pattern.

Now, this economic law and reality are also being played out in the financial sector of the current Chinese economic environment:

At the beginning of September 2024, the Chinese capital market and the securities industry welcomed a significant event of symbolic significance.

On September 5th, Guotai Junan and Haitong Securities both issued suspension announcements, planning a major asset restructuring, and the stocks were suspended from trading starting September 6th.

The merger of Guotai Junan and Haitong Securities is the first merger and reorganization of top securities firms since the implementation of the new "Nine National Policies," and it is also the largest A+H dual-market absorption merger and the largest integration case of listed securities firms in the history of China's capital market.

Both Guotai Junan and Haitong Securities are securities firms with a market value of hundreds of billions, ranking in the top ten of the industry. The merger of these two giants means the emergence of another behemoth securities firm.

The combination of "Guotai Junan + Haitong Securities" is the first restructuring case of top securities firms since the implementation of the new "Nine National Policies." After the merger, the new company will become the largest domestic securities firm in terms of asset size, surpassing CITIC Securities.

Based on the data from 2023, the total assets of the two parties after the merger will reach 1.68 trillion yuan, and the net assets will reach 330 billion yuan, both surpassing CITIC Securities and leading the industry.

Looking at the A-share data, on September 5th, Guotai Junan's market value was 130.885 billion yuan, and Haitong Securities' market value was 114.573 billion yuan.

In terms of market value, the combined calculation of the two is second only to the "big brother" of securities firms, CITIC Securities, with 283.221 billion yuan, significantly exceeding CITIC Construction Investment and China International Capital Corporation.Look, everyone, considering the current domestic financial market has lost the battle to defend the 2800-point mark, is it the case that securities firms have emerged as the kings of scale?

The logic and reasons behind the upcoming birth of a top-tier securities firm with a staggering 1.68 trillion "aircraft carrier" level of scale are far from as simple as they appear on the surface. It is well worth taking the time to discuss and analyze this in a special review with everyone.

This article will meticulously comb through the latest merger trends of Guotai Junan and Haitong Securities, taking into account several current realities of Haitong Securities. Starting from a perspective of respecting common sense and the laws, it will delve into the causal logic and key essences behind this epic-level securities merger trend. It will also conduct an in-depth, opinionated, and well-founded discussion and analysis of several possible directions and changes in China's domestic financial industry and market.

Pay attention to the trends, grasp the essence, see the main line, judge the trend, and guide actions.

This article has been reviewed for compliance multiple times, does not cross any red lines, uses language that is moderate and fair, and does not carry any value orientation.

The content is well-founded and the analysis is rational and objective.

This is hardcore content, once missed, it won't come again.

See the bigger picture in the details, perceive the opportunities ahead, grasp the trends, and guide decision-making.

PS:

The article is somewhat lengthy, and reading it requires a certain amount of time and patience, as well as contemplation.The content does not aim to please all readers; the process of writing and sharing is also a mutual selection process between reading and writing communities. Everyone has different levels of cognition, and there is no need to force it. The content of this article is not a common commodity, nor is it a piece that can bring light-hearted satisfaction after reading. Please view it rationally according to your own needs and cognitive demands.

1

"Guotai Junan + Haitong Securities" two giants merge, what exactly is it about?

In September 2024, China's securities industry welcomed a historic moment as Guotai Junan and Haitong Securities, two leading securities firms, officially announced their intention to plan a merger.

On the evening of September 5th, Guotai Junan and Haitong Securities simultaneously issued a suspension announcement regarding the planning of a major asset restructuring, stating that due to the planning of a significant asset restructuring, their stocks would be suspended from trading starting from the opening of the market on September 6th.

Specifically, Guotai Junan and Haitong Securities are planning a stock swap absorption merger of Haitong Securities through the issuance of A-shares to all A-share shareholders of Haitong Securities and the issuance of H-shares to all H-share shareholders of Haitong Securities, and the issuance of A-shares to raise supporting funds.

The announcement pointed out that this restructuring involves A-shares and H-shares, with many involved matters and a complex process. At the same time, this restructuring is beneficial for creating a first-class investment bank and promoting high-quality development of the industry. According to the relevant regulations of the Shanghai Stock Exchange, it is expected that the suspension period will not exceed 25 trading days.

Under policy guidance, the pace of integration among small and medium-sized securities firms has significantly accelerated since 2024, but the merger of leading securities firms was previously only at the "rumor" stage.

The merger of Guotai Junan Securities and Haitong Securities is the first case of a leading securities firm merger and reorganization since the implementation of the new "Nine Articles," and it is also the largest A+H dual-market absorption merger and the largest A+H integration case of listed securities firms in the history of China's capital market. It involves multiple business licenses and several domestic and foreign listed subsidiaries, and is a significant innovative matter without precedent.Unlike previous mergers and reorganizations of other securities firms, this time Guotai Junan's absorption and merger of Haitong Securities through the issuance of A+H shares is also a first in the history of China's securities industry. This not only helps to save Guotai Junan's capital but also quickly achieves the goal of acquisition and merger.

As the first major securities firm merger case after the new "nine rules," the reorganization of Guotai Junan and Haitong Securities is truly "what everyone has been waiting for."

It is worth mentioning that the significant dynamics in the securities industry have also driven the sector to surge. As of the morning closing on September 6, the securities sector led the gains, with Guohai Securities hitting the daily limit, Jinlong Shares, Tianfeng Securities, and China Galaxy rising by more than 5%. Except for the two stocks mentioned above being suspended, only Guoxin Securities and Orient Securities fell slightly by 0.81% and 0.93%, respectively.

Data shows that Guotai Junan Securities was established in August 1999 through the new establishment and capital increase of Guotai Securities and Junan Securities, both founded in 1992, with its headquarters in Shanghai. The actual controller is currently Shanghai International Group Co., Ltd. However, Guotai Junan did not go public on the A-share market until June 2015.

Haitong Securities, established in 1988 and initiated by the Bank of Communications, has its headquarters in Shanghai, with the current largest shareholder being Shanghai Guosheng Group. Haitong Securities went public on the A-share market in February 1994 and is the only large securities firm among the earliest established domestic securities companies that has not been renamed or merged.

According to statistics, in the first half of this year, out of the 50 A-share listed securities firms, 40 saw a decline in revenue, 37 experienced a drop in net profits, and two incurred losses.

Looking at the entire industry, according to incomplete statistics, there are more than 140 securities companies, with only one having a total asset scale exceeding one trillion, less than 30 securities companies with a scale above one hundred billion, and the remaining 80% are small and medium-sized securities companies.

This merger is a significant breakthrough for the leading securities firms.

The last securities firm merger that attracted significant attention occurred in January 2015, with the reorganization of Shenwan and Hongyuan, and Shenwan Hongyuan Group Co., Ltd. was listed on the Shenzhen Stock Exchange.

That's the situation, with evidence and clear at a glance.Looking at the recent developments at Haitong Securities, how should we view the logic and causality of this round of mergers?

Contrary to the mainstream hype that paints a rosy picture, the act of merging, especially for companies, and particularly for listed companies, is not necessarily a good sign when viewed from the perspective of business logic and human nature.

If a business can make money on its own and consistently achieve profitability, what is the need for a merger?

Therefore, the act of merging, to put it bluntly, is actually a signal of corporate deleveraging and significant operational risks, especially during a downturn. Such mergers are by no means a case of strong companies joining forces; rather, they are more about banding together for survival.

This logic applies to the securities industry as well.

This point may be seen through some key insights from recent developments at Haitong Securities:

In July-August 2024, there have been rumors and whispers that Haitong Securities, which is "to be merged," is facing a challenging period.

Among the companies that went public in 2024, six were sponsored by Haitong Securities, and currently, four of their stocks are trading below their issue price. In the first half of this year, the company sponsored a total of 60 companies, with 27 having voluntarily withdrawn their applications, and one termination, resulting in a withdrawal and rejection rate of 45%.

Under the trend of strict regulation, Haitong Securities has become a frequent subject of official notices. Since 2024, the company and its related personnel have collectively received 19 penalty notices, and 20 sponsor representatives have been classified as Category C in the disciplinary action list by the China Securities Association, with more than half joining this year.Certainly, what has raised the most concern about the internal management of Haitong Securities is still the sensational executive fugitive incident that has shaken the nation.

Just nine days before the announcement of this merger, the former deputy general manager, Jiang Chengjun, had his photo posted on the website of the Central Commission for Discipline Inspection and the National Supervision Commission. He was handcuffed, wearing a pink polo shirt, and expressionlessly being escorted down the airplane stairs by two public security officers.

Jiang Chengjun, 56 years old, was still the person in charge of the sponsorship business, signing off on a project on July 25th, and gave a speech on clean industry practices at an internal event on July 18th.

Subsequently, he fled to Laos in July and was repatriated in August.

According to the information, Jiang Chengjun, who has been with Haitong Securities for over 20 years, has held multiple positions such as deputy general manager of the investment banking department, deputy general manager of the investment banking department (in charge of work), general manager of the investment banking department, and general manager of the investment banking headquarters. He was promoted to deputy general manager of Haitong Securities in June last year, with a total compensation of 28.55 million yuan in the past seven years.

During his time at Haitong Securities, Jiang Chengjun sponsored a total of 13 projects. A securities firm insider commented, "He dared to take on sponsorship businesses and companies that CITIC Securities and CITIC Construction Investment dared not to."

On July 5th, the China Securities Regulatory Commission issued an "Administrative Penalty and Market Entry Prohibition Prior Notice" to ST Yisite, determining that the latter had inflated its revenue by more than 4 billion yuan in its annual reports from 2017 to 2021.

This case was handled by Jiang Chengjun, and it is very likely the last straw that broke the camel's back.

However, as a veteran who has been in charge of Haitong Securities' investment banking business for many years, it is impossible that he committed only one incident. As the investigation deepens, people will gradually understand how many people Jiang Chengjun will implicate. It is rumored that Haitong Securities has suspended the resignation approval of the investment banking department and requires all sponsoring representatives to hand over their passports for centralized custody.

In any case, Jiang Chengjun's flight is sufficient to illustrate how serious the internal control issues at Haitong Securities are.All is like a dream, a bubble, a flash of lightning, and a dewdrop.

Now, this Buddhist verse can be applied to Haitong Securities.

As a veteran top-tier securities firm in Shanghai, Haitong Securities has a history of 36 years, almost the same age as China's securities market. Even though it has successfully weathered several cycles and witnessed the market's golden era, it is now on the verge of coming to an abrupt halt.

Therefore, from a realistic perspective, this time Haitong Securities is "being merged," it is clearly a regulatory action at the national level to resolve risks and restructure debts for a problematic securities firm.

The world is so magical: it's hard to know how some media and so-called analytical viewpoints can ignore such risk signals and, with their eyes wide open, claim that the merger of top-tier securities firms is a significant positive signal for the market?

Trend analysis:

The birth of a "carrier" level top-tier securities firm with 1.68 trillion can bring what imagination to the domestic financial industry and market?

Looking back at the two major bull markets in 2007 and 2015, they were both initiated by securities stocks first, which is why securities stocks are hailed as the standard-bearers of the bull market, the trumpeters of the bull market.

The most attractive aspect of the securities merger is that everyone is guessing whether the market will give birth to a big bull stock like the "China South Rail and China North Rail" reorganization: China Railway Rolling Stock Corporation?Veteran stock market investors should recall the classic scene during the great bull market of 2014-2015, when China South Rail and China North Rail merged and restructured into China Railway Rolling Stock Corporation (CRRC).

The "Divine Vehicle of China" soared directly to the skies, with its stock price skyrocketing from a low of 2.57 yuan in early June 2014 to 37.98 yuan in mid-April 2015. In just over a year, the stock price surged more than 12 times, with an increase of 1203%, while the overall market increase was only 108% during the same period.

Let's take a look at the historical records of mergers and acquisitions in the securities industry to find some clues.

In 1995, Shekou Securities and Shenyin Securities were restructured into Shenyin Shekou;

In early 1999, Guotai Securities merged with Jun'an Securities to form Guotai Jun'an Securities.

In 2006, after Huatai Securities acquired 70% of the equity of United Securities, it was renamed Huatai United Securities. The latter was placed into all investment banking businesses, becoming a professional investment banking subsidiary.

In 2008, the "Securities Company Supervision and Management Regulations" was introduced, and the securities industry officially entered the "one participation and one control" era, with "division" and "partnering up" happening simultaneously. In the same year, Huatai Securities acquired United Securities;

In 2013, Founder Securities acquired Minzu Securities, in 2014, Shenyin Shekou merged with Hongyuan Securities, Guotai Jun'an acquired Shanghai Securities, and after Guotai Jun'an acquired 51% of the equity of Shanghai Securities, it became the controlling shareholder of Shanghai Securities.

In 2016, CICC acquired China Investment Securities.

At the end of December 2020, the China Securities Regulatory Commission (CSRC) announced the approval of Bailian Group becoming the controlling shareholder of Shanghai Securities, with the stake of Guotai Jun'an being reduced.In 2022, the controlling shareholder of Founder Securities became Ping An Insurance of China.

Let's take the bull market of 2015, which is the closest to everyone, as an example for analysis:

This was also a liquidity operation during an economic downturn.

In the first half of 2015, the Shanghai Composite Index rose from 3,200 points to a 7-year high of 5,178 points, which was also the largest bull market driven by capital leverage in the history of A-shares.

Under the huge leverage, the A-share turnover in 2015 broke through 1.5 trillion yuan, reaching a peak of more than 2.2 trillion yuan. The turnover record set a new high in human history, surpassing the largest daily turnover in the U.S. market, indicating that the market had reached an extremely frenzied state.

How did this bull market end? Under such circumstances, the decision-makers stepped in again.

On the one hand, the resumption of IPOs, with the listing of large stocks such as Guotai Junan and China National Nuclear Power Corporation, brought about liquidity tension.

For example, on June 15th, 25 new stocks were issued in a concentrated manner that week, including the largest IPO in the past five years, Guotai Junan Securities, which froze funds of 670 billion yuan, creating a strong blood-sucking effect on the stock market.

Therefore, the emergence of large-scale securities firms with obvious scale effects may not have much good imagination for the stock market effect.

However, from the national perspective, the significance of securities mergers is different.Firstly, the current overall quality of finance is large but not strong.

In fact, the financial asset volume at the national level has already been quite substantial, especially in recent years with the accumulation of leverage, the proportion of financial assets in our country's balance sheet has become quite significant.

However, despite its size, there is not a single one that is truly competitive.

There are more than 50 listed securities firms on the A-share market, yet the homogenization of their business is very severe, lacking differentiation, and the head effect is not prominent enough.

The Henan rural bank incident also fully demonstrated that a multitude of small financial institutions can only bring more derivative risks; only capable financial giants can play a significant role in future financial reforms.

This applies to banks, and it is the same for the securities industry, which bridges finance and the real economy.

Secondly, the concept of a financial powerhouse has been elevated to a strategic level.

At the high-level meeting at the end of October 2023, the idea of building a "financial powerhouse" was proposed for the first time, which signifies that finance has been elevated to a new height as a national strategic choice.

The value added of our country's financial industry as a percentage of GDP has been growing year by year, reaching about 8% today, a figure that is basically on par with countries like the United States where the financial industry is more developed. However, there is still a gap.

In 2022, JPMorgan Chase in the United States had a revenue scale of 851.8 billion yuan, with a return on equity (ROE) of 12.85%, while the largest domestic securities firm, CITIC Securities, had a business income of only 65.1 billion yuan in 2022, with an ROE of 8.42%, which is a significant gap compared to major foreign investment banks.Looking at the global landscape, there is a significant disparity in revenue scale between domestic leading securities firms and international investment banking giants, making the pursuit of financial strength imperative.

Being numerous but not refined, large but not powerful, with only an outward appearance, they can only lie in the comfort of their domestic nests, feasting on the dividends of regulations and markets. That's not all, to add insult to injury, many securities firms are keen on various financial tactics and tricks, colluding with listed companies and those seeking IPOs to engage in capital harvesting and arbitrage, continuously planting bombs for the nation, regulators, and the market.

Therefore, an increasing number of securities firms are moving towards mergers, eliminating the chaff and retaining the essence, and continuously reshuffling, which will become an inevitable trend.

From a market perspective, looking back at the two major bull markets in 2007 and 2015, they were both initiated by securities stocks, which is why they are hailed as the standard-bearers of bull markets, the trumpeters of the bull market.

However, times have changed, and the merger of top securities firms, combined with experience and the current reality of the domestic financial market, without the support of liquidity and market performance logic, is unlikely to bring much imagination.

Who can't see through the intention and logic of two securities firms merging into one, trying to attract funds through the rise in financial market stock prices to fill the holes of their debts and risks before the merger?

In the economic era, debt will never disappear on its own; it will only keep shifting in the market, eventually finding someone to take the fall. Isn't that the logic?

With such essence and logic, what imagination can there be?

In conclusion:

By combing through and analyzing the latest trends in securities firm mergers, what insights and conclusions can be drawn?In reality, considering the current state of the domestic financial market, even if numerous media outlets, self-media, and securities firms are vigorously promoting and celebrating this merger trend, it doesn't hold much significance.

Both Guotai Junan and Haitong are large domestic securities firms, which is somewhat different from past mergers and acquisitions among securities companies. Previous mergers involved large firms absorbing smaller ones, whereas this time it's a merger between two major firms. Some have already stated that the combined market value will surpass CITIC and form China's Goldman Sachs.

To be blunt, this is a classic case of failing to see the situation and essence clearly.

China's Goldman Sachs? Try going overseas and sparring with Goldman Sachs in the financial market for a couple of rounds?

Is it akin to the self-deception of the Chinese national football team's claim that "Brazil has never defeated the Chinese men's football team on Chinese soil"?

Twenty-five years after Guotai Junan's reorganization, it once again "devours" Haitong Securities. History repeats itself, and in terms of total assets, it will create another "largest securities company."

However, key historical events often have omens.

The storm at Haitong Securities had already begun, with Jiang Chengjun's dramatic escape and repatriation, which could be seen as the starting gun.

Looking at past mergers of securities firms, the market would speculate at the beginning, but afterward, there would be little expectation. The original intention of the merger is to value the core assets of one party, as this can bring benefits to the merging party and thus enhance the overall valuation. This is where the significance lies. Currently, in the case of Guotai Junan's merger with Haitong Securities, no such highlights have been identified. Therefore, from a speculative standpoint, one should have expectations but not get too carried away.

After all, the pitfalls and risks associated with Haitong are also worth being vigilant about.In fact, using the merger of securities firms to herald a bull market can only deceive those with a superficial understanding. Considering the nature of China's financial market and the country itself, what is truly worth looking forward to should be the merger of real enterprises, as well as the consolidation of state-owned and central enterprises, which makes sense.

The merger of securities firms, to put it bluntly, is merely a change in name, and the purpose is also to digest risks and hide debts.

Some things should be left unsaid, and when combined with the economic law shared at the beginning of the article, many things are indeed worth carefully experiencing and contemplating.

The above is a special collation and analysis of the largest securities firm merger trend that has ever occurred in China in September 2024, and a discussion and sharing with readers of the headline news.

(According to the latest regulations of relevant national departments, the content and opinions in this article are for reference only and do not constitute any explicit advice on real estate, investment, or other actions. The risks of entering the market shall be borne by oneself.)