Two core subsidiaries of Zheshang Securities, Zheshang Asset Management and Zheshang Futures, have recently received fines from regulatory authorities.
2022 is the first year of the official implementation of the new asset management rules. The two regulatory documents, which were officially issued at the end of the year and the beginning of the year, not only listed the key methods of illegal operations of asset management companies one by one, but also directly pointed out that Zheshang Futures "raided" the scrapping of 7 computers before the inspection team moved in.
According to the data, the asset management plan managed by Zheshang Asset Management involves 4 pending lawsuits with larger amounts, and the revenue growth of Zheshang Securities is more dependent on its futures business.
In addition, since 2021, a number of securities companies have been subject to regulatory penalties for the internal control of asset management business, and it is imperative to strengthen the internal control management of securities companies' asset management business.
Asset management subsidiaries subject to regulatory penalties The pending litigation involves an amount of about 2 billion yuan
Recently, Zheshang Securities issued an announcement saying that its asset management subsidiary has been subject to regulatory penalties. The regulatory authorities pointed out that there were problems in five major aspects, such as "valuation technology" and "investor appropriateness management system", and ordered them to rectify, and suspended the filing of the company's private asset management products for 6 months.
Figure 1: Zhejiang Asset Management was subject to regulatory penalties
While implementing the penalty for Zhejiang Commercial Asset Management, the Zhejiang Securities Regulatory Bureau took regulatory measures against 9 relevant personnel, including Chen Guohui and Sheng Jianlong.
Figure 2: Regulatory decision on penalties imposed on responsible personnel of asset management subsidiaries
In this regard, although Zheshang Securities said in the announcement, "the relevant products have been rectified and cleaned up after the self-inspection and rectification of Zhejiang Commercial Asset Management in the early stage." The suspension of the filing of private asset management products has a minimal impact on the consolidated revenue and profit of Zheshang Securities and will not affect the normal business activities of Zheshang Securities. ”
However, as of the end of the first half of 2021, the asset management plan managed by Zheshang Asset Management also involved 4 pending lawsuits and arbitrations, all of which were the parties to the lawsuit, involving a total amount of about 2 billion yuan, and if the funds involved in the litigation were not recovered in full and as scheduled, the company may suffer greater losses.
Figure 3: Major litigation and arbitration matters involving Zheshang Securities as of the first half of 2021
In addition, since 2021, the asset management subsidiaries or asset management businesses of many securities companies such as CITIC Securities, Changjiang Securities, and Shenwan Hongyuan have been subject to regulatory penalties.
Figure 4: The asset management business of many securities companies has been subject to regulatory penalties since 2021
Judging from the information disclosed by the regulator, there are some common problems in the asset management business of securities companies, such as improper use of valuation methods, weak links in compliance and risk control. 2022 is the first year of the implementation of the new asset management regulations, and it is also urgent to strengthen internal control in view of some risk points in the asset management business of securities companies.
Futures subsidiaries subject to regulatory penalties The company relies on futures businesses with lower gross margins
Not only the asset management subsidiaries, but also the futures subsidiaries of Zheshang Securities have also been subject to regulatory penalties.
In November 2021, the Guangdong Securities Regulatory Bureau specifically pointed out that "the Guangzhou Sales Department of Zheshang Futures scrapped 7 computers after receiving the "Notice of On-site Inspection" and before the inspection team entered the market". In addition, the regulator also pointed out that the sales department "provided counter system permissions can not query all customer information."
Figure 5: Zheshang Futures receive regulatory penalties
The futures business of Zheshang Securities is mainly carried out through Zheshang Futures, a wholly-owned subsidiary. From 2018 to 2020, benefiting from the rapid development of the futures business, the revenue growth of Zheshang Securities is more significant, but due to the low gross profit margin of the futures business, the company's overall net profit margin attributable to the mother has shown a downward trend in recent years.
During the reporting period, the compound annual growth rate of the total revenue of Zheshang Securities in three years was close to 70%, while the compound annual growth rate of revenue generated by the company's futures business during the period was 102.26%. The proportion of revenue generated by the futures business to the company's total revenue continues to rise, and by 2020, more than half of the revenue will come from this business with lower gross margins. In three years, the company's overall attributable net profit margin fell from 19.95% to 15.3%.
Figure 6: Total revenue, futures business revenue and profitability of Zheshang Securities from 2018 to 2020
In the first half of 2021, Zhejiang Futures, a wholly-owned subsidiary of the Company, generated revenue and net profit of 4.416 billion yuan and 102 million yuan respectively, an increase of 96.74% and 186.77% year-on-year, respectively, and the performance increased significantly.
Figure 7: Transaction amount and market share of Zhejiang futures business from 2018 to 2021H1
From 2018 to the first half of 2021, the transaction amount of Zhejiang futures business and its market share showed an overall growth trend. In the first half of 2021, the average commission rate of the business was 0.032 ‰, a decrease of 0.005 thousand points from the same period of the previous year, and the decline in the commission rate was in line with the overall industry trend, and the profitability of the business in the future may be further under pressure.
In December 2021, Zheshang Securities announced that Zheshang Futures intends to introduce investors through a public listing on the Zhejiang Industrial Exchange to carry out mixed reform and capital increase. After the completion of this mixed reform, the company is still the controlling shareholder of Zheshang Futures. If the capital increase goes smoothly, the business of Zheshang Futures may be further expanded.
In the first half of the year, the application for the issuance of convertible bonds was accepted
As of the end of the first half of 2021, the net capital of Zheshang Securities was 20.896 billion yuan, an increase of 2.581 billion yuan over the end of last year. During the period, the company issued 264 million shares in a non-public manner, raising a net amount of 2.801 billion yuan, and the net capital scale was expanded.
Figure 8: Net capital of Zheshang Securities from 2018 to 2021H1
At the end of the reporting period, the four major risk control indicators of Zheshang Securities increased compared with the end of the previous year, and they were far higher than the early warning lines set by the CSRC. After the completion of this equity financing, in October 2021, the company again proposed to issue convertible bonds, and at the end of that year, the CSRC accepted the company's application for the issuance of convertible bonds.
In March 2019, Zheshang Securities publicly issued convertible bonds of 3.5 billion yuan, which was redeemed and delisted in August 2020. Less than three years after the last issuance of convertible bonds, the company once again proposed a plan to issue convertible bonds, which is expected to issue a total amount of no more than 7 billion yuan, mainly to invest in trading business and capital intermediary business.
As of the end of the first half of 2021, the net capital scale of Zheshang Securities is in the middle of the current 41 listed securities companies. For capital-intensive companies such as brokers, the amount of capital largely determines the competitiveness of the company. Since 2019, the company has repeatedly raised funds through convertible bonds, fixed increases, etc., to support its business development and risk control capabilities.
Figure 9: Listed securities companies have raised funds through equity financing and convertible bonds since 2021
Since 2021, a number of listed securities companies have supplemented their capital through financing. As of January 13, 2022, a total of 8 listed securities companies have completed fundraising through fixed increase and allotment of shares, with a total fundraising amount of about 48 billion yuan. In addition, four listed securities companies proposed a pre-allotment plan, the total scale of proposed fundraising does not exceed 66.8 billion yuan, three listed securities companies proposed a fixed increase plan, the total scale of proposed fundraising does not exceed 24.5 billion yuan, and two listed securities companies proposed a convertible bond plan, and the total scale of proposed fundraising does not exceed 14.8 billion yuan.
This article originated from Bread Finance